Hedge Fund Made a Killing Betting Against Lina Khan | Hacker News Reader

Hedge Fund Made a Killing Betting Against Lina Khan

wsj.com

42 pointslxm40 comments

Hedge fund ad built on top of anti-FTC / Lina Khan prejudice clickbait.

FTC routinely scrutinizes large mergers and people bet on the outcomes of that uncertainty. Trying to wrap it in allusions to “sticking it to Lina Khan” is silly.

It's the WSJ. I'm old enough to remember when they shifted from being the stewards of the economy into a mouthpiece for the Bush side of the Republican party. Any opportunity to dunk on the Democrats will not be missed.

Murdoch's WSJ is Fox News for the tophat/monocle class.

This seems kind of like an ad for the hedge fund? There's not really any news here, it's like publishing a headline like "Area Man's Stock Portfolio Did Well This Year".

I've seen pieces like this in the FT too. I think it's one of those things that is interesting to the people in the industry but irrelevant to everyone else. We know a thing or two about that here!

It's not even interesting for people in the industry, but it garners clicks so even reputable publications produce this drivel.

The number of "Random Goober XYZ made 200% this year" articles that turn up on Bloomberg is quite high. By and large it turns out that they had one really good year in a sea of mediocrity, or the P&L is an accounting trick (hello Universa and the disingenuous numbers that got pushed around them).

In a sufficiently large collection of clueless people, there'll always be a small number whose bets happened to be very good in a particular year and the media likes to run with it.

Going to financial publications and "talking your book" is a common thing for hedge funds to do. Keep in mind they can also influence the market like this, and generate inflows to their fund. Generally financial publications allow this barefaced aggrandisement because everyone knows the bias, and just like you learned in high school history class, biased accounts are just as useful sources of information.

It's hard to tell whether these are "lottery winner sells strategy to pick lottery numbers" kind of nonsense

Not even lottery winners, they say they make 11% returns on average. That is index fund territory.

Though he’d spent tens of thousands of hours watching his old customers hope for the break that might alter their fortunes, he knew better than to believe the lottery was ruled by chance. “People have been conditioned to think it is luck,” he would later reflect. “They don’t look at the structure of games.”

https://highline.huffingtonpost.com/articles/en/lotto-winner...

Now a direct-to-streaming motion picture: https://en.wikipedia.org/wiki/Jerry_%26_Marge_Go_Large

is this one of those "random" systems that's actually just a complicated pattern?

It's wild how common those are. It's probably best to assume "random" based contests are actually just complex deterministic sequences and getting random right is the exception and not the rule.

It should have been clear enough from reading the abstract of Khan's law review note https://www.yalelawjournal.org/pdf/e.710.Khan.805_zuvfyyeh.p.... Quote: "This Note argues that the current framework in antitrust policy--specifically pegging competition to “consumer welfare,” defined as short-term price effects—-is unequipped to capture the architecture of market power in the modern economy." In other words, the current law is wrong, and it should be this other way instead.

Courts, especially U.S. District Courts, apply the law as it is, not the law as the FTC chair wishes it to be. If I was a hedge fund manager with a law degree, I would draw the same conclusion, and make similar bets.

The current law is more general; it’s the current policy’s consumer price heuristic that has become a bad approximation to the law. I like “The Economists’ Hour” on the topic.

My understanding is it's the precedent from the past 50 years, rather than the law, that emphasizes "consumer welfare".

Source: Matt Stoller's book "Goliath".

Precedents are the law (if the decision is considered "precedential").

However, precedents can also be changed by the court system. So using the FTC as a lever to change precedent is in fact potential route to change the law. It may even be the only option with congress's dysfunction.

> the only option with congress's dysfunction.

wrong. Executive action "because Congress doesn't work" is the path to dictatorship.

You're right that courts can overrule precedent, but they're generally quite reluctant to do that.

This isn't the FTC denying these arbitrarily though so isn't just "executive action", this is using the enforcement making power that congress duly granted to agency to bring law suits. If the courts agreed that precedent needs to change that's checks and balances working.

> the enforcement making power that congress duly granted to agency to bring law suits.

wrong again. See the "major questions" decisions from SCOTUS. Congress didn't grant them to power to do whatever they feel like.

Please tell me what major question this is violating? Anti-trust law is explicitly given in its ability to bring suit to these companies. The consumer harm standard isn't even a part of the law arguably the consumer harm standard should be overturned by the major questions doctrine since the court wrote the rule into the law wholesale without congresses directive decades after the law was written.

Isn't the DOJ the usual agency for antitrust complaints like this?

Incidentally, since you're regressing on the "consumer harm isn't even part of the law" thing, which you've already lost -- we're done here.

Both are, the FTC was created with shared jurisdiction on matters of anti-trust. However, the supreme court recently limited that to injunctive powers https://en.wikipedia.org/wiki/AMG_Capital_Management,_LLC_v.... relief would be through a DOJ suit or via state AGs

The last two decades of anti-trust regulation failure can essentially be chalked up to a divide by zero bug.

"But we offer our product for free to consumers, so we can't be a monopoly" was used as a get-out-of-jail-free card, coupled with legislator and regulator ignorance on who the consumer was.

Hopefully, we'll look back at 2005-2025 as a silly period where government forgot its place in the market.

As I said elsewhere, betting on whether mergers will go through has a long, long history.

Ivan Boesky sought his edge with insider information, which of course is illegal. If Lina Khan gives you a legal edge by making spurious objections, the smart trader takes it.

Eventually everyone figures out that an FTC objection doesn't mean much, and the edge goes away.

> In other words, the current law is wrong, and it should be this other way instead.

The "current framework in antitrust policy" was not legal at all. It was a set of interpretations and standards agreed upon by judges and enforcement agencies.

In particular, the "consumer welfare standard" appears _nowhere_ in our current law. It is a framework that is used as a fig leaf to allow agencies to refuse to enforce the law as written.

She's referring to case law. The WSJ and the US Chamber of Commerce have been gunning for Lina Khan for a while now but I wouldn't bet against her. Even when losing, she's expanding how antitrust should be enforced, eg in the FTC v Meta case, the court seemed to accept [1] the FTC's argument about "actual potential competition", setting a precedent that the FTC will likely use in future cases.

1. https://www.wlf.org/2023/02/24/publishing/actual-potential-c...

https://archive.li/lY56r

WSJ is very invested in seeing Lina Khan fail, because pro-consumer policy is bad for monopoly is bad for shareholders of said monopoly.

So anything will be spun as a negative against Khan

The article is a little too breathless in its amazement at the performance of the hedge fund - if mentions in passing that the annualized return rate is something like 11% which means, despite all these “massive wins” demonstrating “amazing predictive prowess” or whatever, there were (admittedly fewer) hedges that didn’t work out so well for them, too. It’s just business.

You don't understand how the HF industry works. If his benchmark (HFRI Event Driven) returned 4.47% annualized from 2007 to 2023 and he averaged 11.1% then it is literally anywhere from an "amazing" to an "extremely exceptional" hedge fund.

Put it another way: Over the last 16 years, you have more than twice the money if you were with him all the way as opposed to with the "average" event driven fund(represented by the index).

There are some particularities due to how HF indexes work(you submit performance voluntarily etc) but these numbers are literally exceptional.

I fully understand that. But the numbers they are mentioning (excluding the flops) would give you insane performance numbers.

My point was that given how hard this guy destroyed his benchmark over the last 16 years it is completely appropriate to be "amazed" at his performance, he is literally like top 1-0.5% in his field.

Why would you use that benchmark? If you invested in an S&P 500 index fund you'd have about the same amount of money, without paying his (probably very large) fees.

I mean it's a pretty simple explanation: Because his strategy does not have a high beta(it isn't taking on SP500-like risk).

SP500 may go down and a merger still goes through, or SP500 goes up and a merger falls through. Sure, general stock market conditions can influence merger completions(for example Musk wanted to pull out of Twitter buyout partially because he realized he overpaid) but in general mergers are not super correlated with SP500 performance. So it doesn't really make sense to compare the 2.

LTCM performed a similar "arbitrage" with no edge. It's risky, and professionals underestimate the loss from a deal failing (these bets require a lot of capital) and often don't have serious models to explain why the delta between the market and acquisition price is too large. It's possible to understand a powerful individual and an institution well enough to bet for or against them with an edge, but easy to be influenced by a subjective narrative about them without realizing it. All that said, when someone has a good streak going, it's sour grapes to complain it's only luck. :)

I saw this. Betting on whether a merger will go through has a very long history.

https://en.wikipedia.org/wiki/Ivan_Boesky

They sure did make some money though "killing" would be an exaggeration given what they had to put up in capital. It also could've gone the other way too; hence aptly called 'betting'.

One would assume they had appropriate hedging strategy in place, but given how hedge funds perform poorly in aggregate, I'm inclined to say these funds just had a little bit of luck on their side.

I can’t seem to find the article (I think it was in the Financial Times) but it talked a bit about how there is an entire sub-section of the finance industry that evaluates the likelihood of mergers and acquisitions going through. One interesting point being that often deals have so much momentum behind them that the actual economics of the business become secondary to finishing what the acquirer started.

All the best political analysts work for hedge funds

Capital hill bloggers are too emotional and ideological to be good analysts

In other news, A turkey did really well till a day before thanksgiving.

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