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MHR Fund Management

MHR Fund Management takes its name from the initials of its founder and manager Mark H. Rachesky. Rachesky hasn’t topped the fund manager salary lists in recent memory, but these takes it takes a billion dollars to do so. MHR is located in New York and advises hedge funds that are focused on primarily on distressed mid-cap stocks. It relies mostly on fundamental analysis and also invests in distressed private equity. The firm was founded all the way back in 1996 and so it has seen and survived a number of market cycles.

Mark Rachesky’s Background
Rachesky is an exceptionally talented and credentialed individual. He holds a B.S. from the University of Pennsylvannia, a M.D. from the Stanford University of Medicine and a M.B.A from Stanford Graduate School of Business. So he has both advanced medical and science training and a very deep business background and contacts from one of the best business schools in the nation.

Rachesky is chairman of Leap Wireless and Loral Space and a director of Emisphere Technologies and Lionsgate Entertainment. All of this in addition to running his own hedge fund.

Back in the 1990’s Rachesky worked for Carl Icahn, who is one of the shrewdest investors around. So he definitely has a lot of experience in activist investing as well.

Going Activist
Rachesky is not afraid of a good fight. In March 2011, MHR went activist on Seahawk Drilling. The debt holders of Seahawk apparently fast tracked a sale of the firm’s assets to Hercules Offshore, but 9.8% equity holder Rachesky was having none of that. He felt that equity holders, including himself, were not given enough time to review the deal which sold virtually all of the firm’s assets and directed nearly of the proceeds to debt holders instead of equity holders.

The Student Faces the Master
In July 2010, Rachesky and MHR Fund Management found itself on the opposite side of the table from his former boss and mentor Carl Icahn over Lions Gate. Icahn launched a new takeover at $6.5 per share which was $0.50 less than his previous offer of $7 per share. Rachesky had previously bought convertible debt of Lions Gate and it was converted at $6.20 to common stock. This action diluted Icahn’s stake in the company and may perhaps have angered his former boss.

Soros Fund Management Careers

Soros Fund Management Careers have just become much harder to obtain. So unless you really have what it takes, you might want to try other funds like: Two Sigma, D.E. Shaw or Citadel. George Soros has closed the Quantum Fund to outside investors and is going to run it purely as a family office. Furthermore, recent market volatility has prompted Soros to build up a 75% cash position in his hedge fund portfolio. This means he has much less need for portfolio managers, traders, analysts and front, mid and back office staff. So if you want to land a job at Soros Fund Management, you’ll have to be that much more exceptional than the already highly exception people that it already has.

The Exceptional Talent At Soros Fund Management
Some extremely remarkable people have passed through the doors of Soros Fund Management. Names like Jim Rogers, Stanley Druckenmiller and Victor Niederhoffer all come to mind. Jim Rogers made a killing back in the 1980s and retired at a very young age after doing quite well at Soros’ Quantum Fund. Druckenmiller left to start his own firm after working with Soros to put on Quantum’s massive wager against the British Pound that gave Soros the title of the man who broke the Bank of England. Finally, Niederhoffer, traded for Soros for a while but eventually quit while he was ahead. Soros says that Niederhoffer was the only fund manager that ever voluntarily left his firm while in the black.

Thus Soros Fund Management Jobs aren’t easy to come by because that is the bar that you are being judged by. Are you a better analyst than Rogers? Are you a better empiricist and trader than Niederhoffer? Are you a better all around portfolio manager than Druckenmiller, (a man who some feel has the analytical capabilities of Rogers, the killer instinct of Soros, the trading abilities of Niederhoffer and the gut instincts of a riverboat gambler all rolled into one well oiled trading cyborg)?

Incredible Talent Won’t Be Ignored
So if you want to work at the firm of the greatest traders of all time you will have to become so exceptional that you can’t be ignored. To do this, the 10,000 hour rule to become an expert is probably just the start. But if you manage to surmount this obstacle, this high standard, you will be able to land a position at Soros Fund Management, assuming that they are still hiring. But even if they aren’t, if you are able to reach this rarefied plateau, you will be able to succeed at any investment management firm or even start and run your own financial firm successfully.

So what are you waiting for? Are you up for the challenge or will you shy away from it?

Hedge Fund Salary

How big is a hedge fund salary? In can be astronomical, some of the top hedge fund managers have been known to pull down several billion dollars in a good year. Hedge fund salaries are based on a number of factors, but the most important are performance and size of assets under management.

In most cases, hedge fund managers are primarily compensated by a performance fee. Usually this performance fee is a set percentage of the total profits generated by the fund. Most of the time, the performance fee is set to 20% of the fund’s profits. So to get a high salary a fund manager has to generate a lot of profits. Higher profits result in higher pay.

The Two Levers

The size of the profits depends on two factors the percentage return on the fund’s assets and the size of the funds assets. A fund manager can generate large absolute profits in by pulling two levers.

The first lever is to generate a high percentage return. If they have $100M in assets and they generate a 100% return, they will generate $100M in profits and they will get to keep 20% of the profits or $20M.

The second lever is to have a high level of assets under management. If the manager has $1B in assets, but only generates a 10% return, they still make $100M in profits and will get to keep 20% of their winnings or $20M. So their salary is the same, but the route they traveled to obtain it differed.

So what is the secret to a billion dollar hedge fund salary?

Well there are two secrets. First, have the highest possible assets under management. Bridgewater is one of the biggest hedge fund and it is approaching $100B under management. Second generate the highest possible percentage returns. In the midst of the subprime bubble Ladhe Capital generated percentage returns approaching 700% annualized.

I know that this is a bit hyperbolic, but put the two factors together $100B in AUM and 700% returns and you get a huge profit of $700B, take 20% of that and you end up with an enormous (and purely unrealistic) payday of $140B.

Is this possible? Probably not, because as the size of assets under management grows it becomes harder and harder to generate high returns. But it is still fun to image that you could be the person to do this.

Paulson Hedge Fund

The best known Paulson Hedge Fund is the Advantage Plus. It is primarily focused on risk arbitrage and investing in other corporate events like bankruptcies. But John Paulson is a hedge fund manager who has shown a propensity to also focus on long/short investing and taking macro bets as well, like his foray into shorting subprime credit default swaps and betting big on gold.

This hedge fund has done really well over the past few years, especially in the wake of the subprime collapse and the subsequent rebound in financials. Paulson displayed excellent timing in the subprime collapse, when he shorted credit default swaps. And he displayed even more remarkable timing when catching the rebound off the lows.

But right now his fund is off 20% from its recent high water mark after the recent declines in financials and the debacle with Sino Forrest.

Is this a temporary decline or the start of something more serious?

It’s hard to say, but the man who was instrumental in Paulson’s wager against subprime, Paolo Pellegrini, left the firm a while back to start his own fund. So Paulson may have lost one of his firm’s key players.

Pellegrini’s hedge fund, interestingly, returned all outside investor money in 2010. He said that the environment was becoming a lot more difficult and decided to focus on managing his own money for a while. Could this difficult investing environment be part of the reason for Paulson’s current draw down?

To Big To Succeed?

One factor that is unfavorable to Paulson’s Hedge Fund is the size of assets under management. It is not the biggest fund in the world but it is still very massive. It has around $37B under management and this makes it a lot less nimble than many of its smaller competitors. This makes it harder for Paulson to get into and out of positions at favorable prices, so this makes it harder and harder for him to outperform.

But, Paulson is a very smart investor, so I wouldn’t count him out just yet. He graduated first in his class from NYU; then he got an MBA from HBS. He made his first few million dollars in merger arbitrage and then he was sharp enough to predict and bet against the subprime bubble. He has made a lot of wise moves in the past, so there is a good chance that he will keep making them in the future.

But only time will tell if he can continue to keep making enough great trades to keep moving the needle upward, as his AUM grows it becomes harder and harder to outperform.

Berkowitz to Einhorn: Re St. Joe

“If we were able, we would buy the whole company,” Berkowitz told Reuters. Einhorn “has put a big spotlight on this company. My advice is everyone should enjoy it and take advantage of it.”

Berkowitz said: “If David wants to create an asset at a cheaper price for me to buy, thank you.”

In response to Einhorn’s lengthy presentation, Berkowitz had this to say: “he [Einhorn] came out with a large presentation which pretty much said, “St. Joe is swampland.” He’s been saying that for a couple of years now, hasn’t he? There’s nothing new in that.”

According to TheStreet.com, Berkowitz has a standstill agreement with St. Joe’s management that prevents him from buying more stock, but he would like to open discussions with management and other parties regarding a buy-out.

Einhorn Shorts St. Joe

Einhorn thinks St. Joe should be shorted because its book value overstates the true value of its assets. He claims that at best the shares, which currently trade for $22, are worth $10 in his VIC presentation.

This is just the latest salvo in an ongoing battle between Einhorn and others like Berkowitz and Whitman who are long the stock.

Broyhill has presented a detailed report defending the bullish thesis.

Riversource Mutual Funds

The Riversource Mutual Funds no longer exist, at least in name. They have been renamed Columbia funds in 2010. So technically the name is gone but the funds still exist. The old Riversource funds encompassed a wide range of strategies, including absolute return, balanced, munis, money markets, global equity, large cap value and small cap value. So RiverSource really covers many of the same strategies of the top hedge fund managers.

The company behind the mutual funds, RiverSource still exists and it has a very long and interesting history. It was started all the way back in 1894. Back then it was called Investor’s Syndicate and it was located in Minnesota, which is where RiverSource is still located today. John Tappan started the company and its initial offering was essentially a savings certificate that allowed small investors to save their money for retirement.

Investor’s Syndicate continued to grow throughout the early 20th century and survived a large number of recessions, panics and even the Great Depression. In 1940 it launched Investor’s Mutual Fund which was one of the first mutual funds ever created. Back then, mutual funds were a very novel concept and an exceptionally great idea. It allowed people to pool their savings so that they could buy stakes in many different companies rather than just a handful of companies. This allowed the average investor to diversify his investments for the first time and this also gave him access to professional fund management for the first time, too.

In 1957, they formed Investors Syndicate Life Insurance and Annuity Company. This division sold life insurance policies and annuities to protect people in the event of premature deaths and to ensure that they would have income in their later years.

In 1984, the company is bought by American Express. Later, it is spun off from American Express into its Ameriprise division in 2005. At this point it is renamed RiverSource. In 2008, RiverSource acquires J. & W. Seligman which is an investment manager that runs a number of mutual funds. Then in 2010, Ameriprise acquires another asset manager called Columbia Management. RiverSource is then folded into the Columbia Management brand. The RiverSource Mutual Funds are renamed, while the insurance and annuity division continues to be called RiverSource.

So after a long history that spans a hundred fifteen years and twenty recessions a small company started by a young man with a big vision has become part of one of the largest and most trusted financial firms in the world.

Li Lu: Virtual Orphan to Investing Prodigy

Li Lu is considered by many to be one of Warren Buffet’s top picks to be his successor at Berkshire Hathaway. After generating compound annual returns in excess of 36% from the fourth quarter of 2004 to 2009 and 29% from 1998 to 2009 it is not hard to see why people think this and why Charlie Munger and many other high profile people have given Li Lu their money to manage.

Li Lu’s Life Story

Not only has Li Lu generated impressive returns, but his life reads like a Horatio Algers story. He was born in 1966 in Tangshan, China. When he was a year old, he was separated from his parents and went through six adoptive families before he was ten. His mother and his father were condemned by Mao’s government and sent to labor camps. She was allowed to keep only one child, so she kept Li’s older brother. After surviving the 1976 Tangshan earthquake, which killed the adoptive parents that he had grown to love, he went on to become one of the student leaders of the Tiananmen Square protests. As Chinese government started cracking down on the protesters, he managed a well-timed escaped from China and ended up studying at Columbia University, where he became on of the first students to receive three degrees simultaneously.

In 1997, he started Himalaya Capital, where he managed a hedge fund and a venture capital fund at the same time. In 2004, after meeting Charlie Munger and being inspired by Munger’s ideas he transformed Himalaya into a long only investment vehicle modeled on Warren Buffet’s early investment partnership.

Meeting Charlie Munger

Seven years after meeting Charlie Munger at a mutual friend’s house, Li Lu had a extended heartfelt talk with Munger in 2003. They talked about Li’s past and current investments and the day-to-day problems Li faced when running his funds. Munger mentioned that the problems Li faced were endemic to Wall Street and the only solution was to forge a different path. Munger encouraged Li to diverge from Wall Street and offered to invest if he would have the courage to do this.

With assistance from Munger, Li embarked on a radical transformation of his fund to resemble the incredibly successful early investment partnerships of Buffet and Munger. These partnerships managed to eliminate the myriad of principal agent problems endemic to hedge funds and encouraged partners to commit for the long haul, allowing Li to invest for the long term, without worry of redemptions.

Li says that Munger is the most unique person that he has ever met. Munger approaches every problem by inverting. Instead of looking at the successes, he starts by looking at the failures and strives to avoid doing what the failures do. For example, when investing, Munger looks at all the ways that investors fail, like: overtrading, excessive diversification, buying momentum rather than value, and so on. And then he strives to do the opposite.

Further reading:

Li Lu’s Investing Process
How Li Lu makes up to 36% annually…

Li Lu’s Outrageous Life Story
Separated from his birth parents one year after being born and six sets of adoptive parents before the age of 10…

The Charlie Munger Effect
Li Lu tells us how Munger transformed his investment philosophy…

Li Lu: The Next Warren Buffett

Li Lu might just be the next Warren Buffett. In the past few years he has posted some astonishing returns and Charlie Munger has given him a substantial portion of his personal fortune to manage. Here is a translation of his foreword to the Chinese translation of Poor Charlie’s Almanack.

Graham’s Simple Screens

The Graham Investor posted an interesting interview with Benjamin Graham where Graham describes three simple methods that beat the market.

  1. Earnings yield is twice the Moody’s AAA corporate bond rate and at least 10%
  2. Price is less than 50% of the 2 year high
  3. Price is less than two-thirds of book value
http://www.grahaminvestor.com/2010/01/03/grahams-50-year-study-foolproof/

$6000 Gold?

Zerohedge posted a Sprott Asset Management commentary on why we can expect the price of gold to continue rising.

  1. Gold has served as a good store of value in the past
  2. Fiat currencies would not have gained widespread acceptance without the backing of gold, but this backing has surreptitiously been stripped away
  3. The supply of fiat currency is ultimately infinite because world governments have no other option but to inflate their insurmountable debt burdens away

How to Setup a WordPress Website

  1. Give WordPress its own directory, while leaving your blog in the root directory.
  2. Use permalinks to make your pages more accessible to other websites and search engines.
  3. You can add additional directories to your website for static non-wordpress content (like images), but you must make sure that they do not clash with WordPress’ urls or they will take precedence.
  4. Understand the difference between pages and posts.
  5. Learn about categories and tags.

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