Alternative Assets Update

There have been a lot of great articles on hedge funds, private equity and commodities recently that I haven't had time to write complete blog posts on. So, if you have a few minutes come take a look. The picture to the right is John Arnold, he is happy because he was on the other side of the Amaranth natural gas bet . . . oh yeah, and he made nearly $2 billion in 2006. He'll probably tell you that running a hedge fund beats working at Enron!

Hedge Funds

1. "Behind the Hedge" is a great New York Magazine article on Hedge Funds, including bios on the "top dogs", "brainiacs", "bad boys", "single hitters", "home run hitters", and "whippersnappers" in the industry.
2. "Top Ten" What did the top hedge fund managers make this year? Let me give you a quick breakdown: Jim Simons and John Arnold edged out the competition by making somewhere between $1.5-2 billion in 2006. Coming in 3-5 were the other biggest names in the industry: Eddie Lampert, T. Boone Pickens and Steve Cohen. All managed to make over $1 billion. Not a bad payday if you ask me.
   
3. In this Bloomberg Article we learn that at the G-7 conference the leaders are calling in hedge fund managers to discuss "risks associated with their growing role in financial markets."
   
4. In this CNN Money Article "Bernanke: Hedge Fund Oversight Working" our Fed Chairman speaks about hedge funds and the positive effects they have on the economy. His comments were well timed before the G-7 conference meets in Canada to discuss hedge funds.
5. "Hedge Funds Still in Regulator's Sites": Perhaps a new administration in the US could encourage tighter regulation of hedge funds.
   

Private Equity Good News

1. From the WSJ article "Big Deals, Yes They're Possible Without Buyout Clubs" we learn that LBO activity is on track to do close to $2 billion of deals this year and is making up nearly 30% of all merger activity. Not too shabby.
2. PE shops raised $44 billion during Q12007. With this much liquidity I expect the buyout binge to continue for some time.
   
3. More good news: Much was made of the fact that Congress was contemplating taxing "carried interest" at income tax rates (35%) rather than capital gains rates (15%). In "The Tax Threat to Private Equity? " we learn that for various reasons this change is unlikely to occur. I can almost hear the collective sigh of the big players in the industry.
   

Private Equity Bad News

1. Bad News for the entire market: "Private Equity Breaks Records, IMF Gets Nervous" - While the level of activity has been high, the systemic risks are not going away. Many are saying that just like Sam Zell selling EOP high, the fact that Blackstone and others are looking to IPO may signal a peak in the PE Market.
   
2. The PE deals are getting more expensive. Or so says Taneesha Kulshrestha in "Downside of PE." The multiples firms are willing to pay for earnings have increased, this could be another sign of a market top.
   
3. The other major threat to PE is how the public perceives it. In "Hedge Funds lack buyout firm skills". The article first rips on hedge funds masquerading as PE shops, but goes on to say that miscommunicating their intent with the public, the employees and the media could lead to a significant backlash.
4. Perhaps Private Equity needs an image makeover. Or so argues Andrew Sorkin in "How to Show that You're No Gordon Gekko."

Commodities

1. "Crude Contract falls 4%" on unwinding of the "Iranian Risk Premium." It just makes you wonder if the Iranian government is placing bets on oil futures before it goes out and captures British soldiers. If I were a dictator in the Middle East looking to make a quick buck, it would seem a sensible strategy to me.
   
2. Jim Rogers foresees the comming commodity boom. He is a little wacky but I think having commodity exposure in your portfolio these days is a must, even if used just as an inflation hedge.
3. Prices at the pump have risen 2-3% since I last blogged about gas prices on March 26th. But, they appear to have leveled off for the time being. I will continue to track this as we approach the summer driving season. Check out the graph below courtesy of SanDiegoGasPrices.com (click to enlarge):