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Hedge Fund Private Investigators

institutionalinvestor.com

153 pointschampagnepapi29 comments

Sounds like a good idea.

I wonder how well a fund would work if you started with a broad index and deleted the companies with scumbag executives.

I ran "downside.com" during the first dot-com boom, picking losers based on cash flow. Picking winners is hard, but picking losers is not so hard. A broad fund minus likely losers might outperform the market.

This is a thing

https://en.wikipedia.org/wiki/130%E2%80%9330_fund

Or often called the 1X0/X0 fund, meaning, using leverage you are long 1X0% of your holdings(typically in a board index) and short X0% of your holdings (typically in only specific shorts you pick, this is your alpha).

The money you get for your short sale helps pay for the 1X0 leverage.

You are really betting on your short positions to drive your alpha in this case, Jim Chanos is the one who made this structure famous.

This is basically how I invest. I pretty much pick companies at random and then spend my time investigating the management and kicking out the companies run by scumbags and crooks. Once you have more than 20 companies you basically have a mini-index minus the obvious losers.

Hmm. I wish I had seen your site. I do recall "fuckedcompany.com" a crowd-sourced chronicle of dotcom excess and failures.

The same guy who started that site wrote a great book that documents many of the "losers" with detailed, and hilarious "case-studies." Highly recommended!

IIRC it is called F'ed Companies

Indeed. And its author is a regular if somewhat infrequent HN poster under the username “pud”, as one would expect.

> "on its website, DDC says it once found that “the president of a large U.S. asset manager was arrested twice for major art theft”"

> "Another case involved a Bear Stearns executive whose murder conviction had previously gone undetected because, Barakett suspects, a casual background check either did not look at records in every state he had lived in or checked the wrong name or date of birth"

Its sobering to see the type of criminality that that they are uncovering at the top level of established financial services companies. You do wonder if people genuinely didn't know, or if their crimes were simply ignored.

More likely anyone official who found out was added to the bribes lists - actual bribes, political contributions, etc.

>That the field is awash in unscrupulous characters who stretch the outer bounds of legality and morality, individuals willing to secretly record targets, pay off sources, hack, and steal, all covered by what one due diligence researcher calls an attitude of “don’t ask, don’t tell.”

Outer bounds? Is there a single place where those aren't crimes? Where do they find these people?

Secretly recording people is legal in many states and from public property in most. Paying off sources is usually legal. “Hacking” is too broadly defined, some of it is legal in some situations, most isn’t. Stealing by definition isn’t legal.

> Where do they find these people?

The article explained that...former police, prosecutors, and spies. Usually retired gov trained lackeys with questionable morals, high fees, and plenty of useful connections with some utility to the private world.

That video of the guy pretending to be a reporter... hilarious and sad. My gut tells me that should be illegal in some way, I don't know how or why, but it is wrong.

Makes sense, I watch Billions.

Had the same thought exactly!

Elliott fund has influenced several tech companies, e.g CEO/board changes and M&A. Samsung were not fans.

My last company was outright owned by EMF, a brutal reorganization and gutting of company culture followed quickly.

isn't this how Spitzer's enemies took him down?

https://en.wikipedia.org/wiki/Client_9:_The_Rise_and_Fall_of...

Yet another reason to invest in Index Funds.

If they actually do this:

"Nussbaum says Blue Heron employees will not misrepresent themselves or lie for a client. “And we will not knowingly violate any rules, regulations, or laws. We will keep our client's confidence very strictly. We will never disclose the name of our client or provide any identifying information that would allow somebody else to identify our clients. We will not say we are working for X if we're working for Y. We would just decline to answer a question or say we're not at liberty to say,” he explains."

Then I think it's actually a noble profession.

'Truth Hackers'.

There's a big podcast on FT about these guys - they are the one's the dig out all of the corrupt dictators illegal holdings around the world (i.e. Argentina wants to default on it's loans, when a ton of money was stolen by politicos and hidden in offshore accounts, so the hedge fund managers holding the bonds want to 'find the money') and arguably that's a 'social good'.

But do they stick to that moral impetus ? That's the question ...

History says they will not, but life is the journey not the destination so it’s good while it lasts.

Link to the podcast?

It's in iTunes, sorry no link.

Search FT Alphachat podcast. It's recent about 'the most complicated debt restructuring ever'. About a month old. They talk about PE companies who buy up distressed debt and then go after it aggressively.

Only activists would probably go to the trouble of hiring these kinds of people. Don’t make the mistake of thinking that Billions is in anyway representive of the industry.

From personal experience, hedge funds are a lot more boring and a lot less cloak-and-dagger than the general public thinks.

I don't know about that. I've seen first hand, through close acquaintances, where some hedge funds will expend enormous amounts of financial and human capital resources when it comes to legal fights. Especially when it involves current and former employees of said funds that get sideways with founders and partners.

These guys running a lot of these funds didn't get to where they are without really throwing some sharp elbows at times. With the amount of money at stake, and the sheer megalomaniacal attitudes in play between parties, you can bet the drive to get ahead in any dispute will be especially acute.

I mean certainly it happens but the vast vast majority of hedge funds just deal in the trading of vanilla equities, options, bonds, and futures. And there’s less/not much to sue about for those kind of things.

There are some who deal in bespoke debt, swaps, CDS, etc, where there are often things to sue about. But it’s a less popular space compared to the former.

That all may be so, but in my experience these firms are also populated by a lot of "Hedge Fund Analysts," which is usually a temp gig for unemployed people who went to expensive schools.

I spent my past life at a fund of funds and partially agree.

In general though, hedge funds are more likely to be up to some strange or "non-traditional" activities.

At times, our notes about fund manager visits and due diligence read more like the investment version of National Enquirer. Private investigators. Massive power struggles. Odd characters.

And only partially tongue-in-cheek, there's always https://village-us.albourne.com/village/home who organized the infamous Hedge Stock: https://www.nytimes.com/2006/06/09/business/09hedge.html

It's probably the same as with tech companies where only a very small percentage does cutting edge work.

The vast majority of them are losers, it is true. Providing dubious value to their investors and taking huge slices for themselves through greedy and lazy compensation schemes.

Most don't make good decisions and aren't staffed by particularly smart people either.

The top 1-5% on the other hand, those guys are absolute killers. A lot like tech companies, I suppose.

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