THE DAILYALTS PLAYBOOK

May 5, 2020

DailyAlts Playbook: Hedge Fund Returns, Elliott’s Litigation Finance, Uncle Carl, and Virtual Dinner with Hillary Clinton

PRIME OVERVIEW

Researchers from New York University and Epsilon Asset Management have bad news for the hedge fund industry.

Its new study finds “no systematic outperformance of these best ideas versus other portfolio positions held by hedge fund managers, across all size funds, and overall time periods.”

The report argues that the emphasis on hedge fund stock picks at conferences and events is “misguided and possibly counterproductive.”

Is this the point where I’m supposed to question what I’m doing with my life? The report states that conferences and events are mainly an opportunity for managers to talk about their positions and goose positions.

Wait… I know that already.

Okay, back to our regularly scheduled program.

MORNING MOMENTUM

BORROW: The U.S. Treasury Department isn’t concerned about the Federal debt. Reports indicate that Steven Mnuchin and friends are looking to borrow a staggering $3 trillion during the second quarter. The government’s debt currently sits at $25 trillion with it on pace to run a deficit of $744 billion before factoring in the cost of COVID-19 on the U.S. economy. The U.S. borrowed $477 billion during Q1 and will also borrow another $677 billion during Q3, according to Treasury Department estimates. Just a reminder, gold is trading at $1,704 per ounce, while Bitcoin hovered around $8,900 on Tuesday morning.

CASES: Global coronavirus cases topped 3.5 million on Tuesday morning, according to Johns Hopkins University. Roughly 1.18 million of those cases have occurred in the United States, with the death toll around the world topping 251,000. Russia has announced more than 10,000 cases over the last 24 hours, while Spain reported another 185 deaths. The latter figure is seen as a positive development, as it is the third consecutive day that officials reported a figure under 200. Finally, Germany has reported that its reproduction rate for COVID has declined to 0.71, a figure that suggests a decline in new infections over time. The figure indicates that 100 people would infect an average of 71 others, igniting hopes that the virus could eventually burn out between Germany’s borders.

CRUDE: Meanwhile, oil prices are picking up as traders speculate on an uptick in demand as the lockdowns start to ease across the country and America approaches the “driving season.” WTI crude futures jumped 10.2% this morning to hit $22.50 per barrel. Brent crude jumped nearly 8% to tick above $29.35 per barrel. Around the world, oil demand fell by about 30% in April. But the prospect of people returning to work and life in Europe and India has speculation driving prices higher in premarket hours.

ACCRUED INTEREST

LITIGATION FINANCE: It’s fast becoming a mainstream alternative investment strategy. And Elliott Management is in the game. The activist hedge fund is backing tech firm Eko in its lawsuit against streaming service Quibi, which was founded by entertainment icon Jeffrey Katzenberg. Elliott will receive a stake in the company once the case has been resolved. Reports indicate that the stake is quite large. The Wall Street Journal calls the case “a collision course” between Hollywood and Wall Street.

UNCLE CARL: Things have gone from bad to worse for Hertz Global (NYSE: HTZ). Carl Icahn – who owns about 39% of the rental car company – and other Hertz shareholders watched the stock plunge another 20% after the firm reportedly hired new advisors to explore bankruptcy. Last week, the company announced it would likely miss a debt payment of roughly $500 million, unless it received a waiver from its creditors. The New York Post graphics department got to work quickly to illustrate just how underwater shareholders are with this company. The company faces about a $1 billion to $1.5 billion shortfall in the months ahead.

GOLD: Speaking of Elliott Management, the hedge fund joins a cast of other alternative investment funds that are betting big on gold prices in the future. Gold is up about 12% so far this year, but Elliott, Caxton Associates, and Asia Capital anticipate that it will go up a lot more because of “unfettered fiat currency printing,” to quote Danny Yong.

QUOTES OF THE DAY

“Now, the one thing that the pandemic has taught us is that I was right.”

That’s President Trump. Yep. That’s the one thing.

“I suspect we will begin to see central banks begin to doubt each other’s creditworthiness and demand gold as payment instead of dollars or yen or euro or any other paper currency.”

That’s Jerry Haworth, CEO of 36 South Capital Advisors, who recently referred to gold as the “credit default swap” of central banking.

CARRIED INTEREST

These are the other headlines gaining our attention today:

Song of the Day: Pale Blue Eyes – The Velvet Underground

WHY: Well, why not. Politico reports that Hillary Clinton will attend a “virtual dinner” for the Biden Victory Fund on Zoom. If you want to attend, you’ll need to pay $50,000, $41,100, $15,600, $5,600, or less for a “limited” number for $2,800. Hosts have to pay $100,000. This is a real thing.

STIMULATE: Muni-bond holders, this one’s for you. Speaker Nancy Pelosi held a private call with Congressional members yesterday to discuss a $1 trillion package to deliver stimulus to state and local governments. The goal is to address service cuts and safety-net programs

FUNDS IN FOCUS

Mayinar Capital Advisers has started trading with more than $1 billion under management. The fund, which spun out of Tudor Investment Corporation, launched Friday. It has already become a shining gem in a sea of coal for the industry. HFR reported recently that global AUM for hedge funds slumped under $3 trillion for the first time since 2016.

Let’s round up the other fund launches and closes that kicked off Monday.

Venture capital firm Verock announced it has launched a new fund around healthcare. The new $447 million fund already has a robust list of investments. They include Biolux, Corvidia, Cyteir Therapeutics, Federation Bio, Element Biosciences, Encoded Therapeutics, Impopharma, Adavium Medical, Intarcia Therapeutics, and Aveo Pharma. Here’s more on the fund.

Arctos Sports Partners announced it will launch a new sports-focused PE fund. The firm plans to raise between $1.25 billion and $1.75 billion and invest in major U.S. leagues. Backers of the fund include Goldman Sachs. Its leaders include former Madison Square Garden CEO Doc O’Connor and PE leader Ian Charles. Here’s more.

Finally, Apollo Global Management plans to make a big splash in the distressed debt markets. The firm is planning to raise $20 billion in the next year with a focus on ways to take advantage of dislocations in the credit markets due to COVID-19. The firm announced its plans Friday, according to the Wall Street Journal.

SOCIAL RESPONSIBILITY AND THE DAILYALTS PLAYBOOK

SEND US A NOTE ON TWITTER.

DailyAlts Playbook: @DailyAlts

For tips and suggestions, please contact: Info@DailyAlts.com

ABOUT THE DAILYALTS PLAYBOOK

Garrett Baldwin is the author of the DailyAlts Playbook.

An economist and author based in Naples, Florida, Garrett has an extended history of financial analysis, business journalism, public relations and consulting experience in hedge funds, private equity, alternative investments, housing policy, commodities, and public equity coverage. He holds degrees from Northwestern University, Johns Hopkins University, Purdue University, and Indiana’s Kelley School of Business. He also has a Certificate in Global Business from Harvard Business School.

An avid Baltimore Orioles and Buffalo Bills fan, he would prefer to discuss other sports, please.