We are often asked what role social networking plays in the lives of Affluent Americans—are they on Facebook? Twitter? If so, how much time do Affluents spend on these sites? Generally speaking, those who ask are skeptical—surely the Affluent, they figure, are too busy or too old-school to spend much time with online social networks. Our data suggest that Affluents have been socially networking with gusto for several years, and that this is one of many areas where popular notions of Affluent lives are shaped by stereotypes and misconceptions.
Our 2011 survey reveals that fully 60% of Affluents report having visited Facebook in the past 30 days, spending an average of 4.9 hours a week on the site.Our September 2011 Affluent Barometer further reveals that 60% of Affluent Facebook users report visiting the site about once per day or more.
Twitter reaches many fewer Affluents—about 10% in a given month—but for longer periods of time, with the average Twitter users spending over 6 hours a week on the site.
Among younger Affluents, the enthusiasm for online social networking is even more pronounced. Among Affluent Millennials (those aged 18-29), 84% used Facebook in the past 30 days, averaging 7.5 hours per week. One-in-four Affluent Millennials use Twitter, for an average of more than 8 hours per week.
Among adults aged 18+ living in households with at least $100,000 in annual household income.
Of course, Facebook and Twitter aren’t the only names in the social networking world. More than half of Affluents visit YouTube each month. Fourteen percent visit LinkedIn. And there are significant segments of Affluents using photo-sharing sites, dating sites, class reunion sites, and so on.
It is hard to overstate how fully social media becomes intertwined into the lives of some of its users. Among Affluents, 32% agree “I usually check e-mail or Facebook within 30 minutes of waking up in the morning”—a figure that rises to 50% among Affluent Millennials. And in an era where anyone can create and disseminate content, the lines continue to blur between social and traditional media for the Affluent. Many Facebook users have told us it is increasingly becoming a source for information and links to stories from mainstream media. And on Twitter, only about 5% tweet in a given week (15% among Affluent Millennials), with the rest being consumers of content, rather than producers.
Of course, it is important to put online social networking in context with offline social networking. Nearly two-thirds of Affluents do some online social networking in a given week using traditional social media websites (Facebook, Myspace, LinkedIn and Twitter), but 92% also do “offline” social networking by telephone, and 86% also do so with actual in-person, face-to-face conversations.
A similar story about the prevalence of offline social networking also emerges across generations. Affluent Seniors—the 5.2 million Affluents 65 or older—may lag in their Facebook usage, but they are far more likely to engage in a variety of “offline” social, political, civic and non-profit activities. Affluent Seniors are, for example, more likely to vote, belong to a golf or country club, and serve on a charitable board of directors. And while seniors may lag in their number of LinkedIn contacts, they are more likely to have a variety of business relationships, such as a relationship with a financial advisor.
When we’re asked if the Affluent are “into” social networking, our answer is a clear “yes.” The desire to “socially network” is not as young as Mark Zuckerberg—it is in fact as old as humanity itself. So it should come as no surprise that new ways of connecting appeal to a population that is almost-universally online (our survey finds that 98% of Affluents are online). But those in advertising and media must realize that the dynamics of social networking are deceptively complex, including a mix of online and offline activities that differ substantially across generational and other segments.
COMMENTARY: Very interesting statistics regarding social networking among affluents making $100,000+ per year. Once you hit 65 years of age, the sight and fingers go. No more time to social network online.
Courtesy of an article dated November 16, 2011 appearing in MediaPost Publications Engage:Affluent
Billionaire investor Warren Buffett plowed $10.7 billion into the shares of International Business Machines Corp., making a massive bet on a technology services company after years of eschewing technology stocks.
Mr. Buffett on Monday said his Berkshire Hathaway Inc. has taken a 5.4% stake in IBM. The holding is valued at $12 billion at current prices, already reflecting a 12% gain from what Berkshire paid. The acquisition made the Omaha, Neb., conglomerate IBM's second-biggest shareholder at Sept. 30, after investment firm State Street Global Advisors.
How did Warren Buffett keep his $10.7 billion investment in IBM from the public? WSJ's Shira Ovide stops by Mean Street to explain. Photo: Stephanie Sinclair/ VII for The Wall Street Journal
Berkshire secretly had been accumulating the shares since March, twice receiving confidential treatment from the Securities and Exchange Commission, which otherwise mandates that big investors disclose their holdings quarterly. Berkshire made its purchases during a period when shares of the information-technology services provider hit new highs while the broader stock market convulsed.
IBM shares have surged 28% this year, outdoing a flat showing in the Standard & Poor's 500 broad-market index and making the company the fourth-biggest U.S. firm by market capitalization, after Exxon Mobil Corp., Apple Inc. and Microsoft Corp. IBM's shares closed Monday at $187.35, down three cents, on the New York Stock Exchange. Berkshire closed 1.3% lower at $113,921 a Class A share.
The investment represents the most Berkshire has ever paid for a minority stake in a publicly traded company. Berkshire has an ever-growing cash hoard that Mr. Buffett must deploy in stocks and businesses in order to meet his goal of increasing the value of his company faster than the S&P 500 index. The IBM investment, along with a purchase in the third quarter of shares in Intell Corp. by Berkshire investment manager Todd Combs, gives the conglomerate holdings in 11 of the 30 companies that make up the Dow Jones Industrial Average.
By investing in IBM, the 81-year-old chairman and chief executive of Berkshire appears to be departing from a long-held aversion to technology stocks. He previously professed to not understand technology companies even though his close friend and Berkshire board member Bill Gates is chairman of Microsoft. Mr. Buffett's investment track record has been built on investments in insurers, financial companies and industrial businesses, including household names like Coca-Cola Co. and American Express Co.
Mr. Buffett said he invested in IBM after reading its most recent annual report and was struck by IBM's entrenched position providing technology services to businesses. That is a characteristic he has long sought in investments, which he calls a "moat" against competition.
In an interview with The Wall Street Journal on Monday, Mr. Buffett said,
"IBM fits all my principles…it's something we expect to own indefinitely."
He said he has completed his purchases of IBM. The SEC issues about 60 confidentiality waivers per quarter to investors, allowing them to accumulate shares without disclosures that could drive up stock prices.
Mr. Buffett said the fact that IBM stock has been trading close to its all-time high didn't matter to him. He said.
"What matters is what the company does in the future."
Berkshire's investment in IBM was earlier reported by CNBC.
IBM declined to comment on Berkshire's holding.
IBM, founded a century ago, has evolved from what was largely a maker of personal computers into a global provider of software and technology services for big companies and governments. By 2015, IBM aims to double its per-share earnings from 2010, receive 30% of its total revenue from emerging markets and spend $20 billion on acquisitions.
Shares of the Armonk, N.Y., company have ridden this year's tech wave, which has pushed up stocks of many tech and Internet companies and sparked fears among some market watchers of another tech bubble.
IBM shares are trading at nearly 15 times IBM's 2010 earnings and 12.7 times its projected 2012 earnings, based on analysts' forecasts. That valuation is similar to Oracle Corp. but higher than Microsoft's forward price-to-earnings multiple of 8.5 times.
Mr. Buffett said the idea of purchasing shares in Microsoft is "off limits" to him because of his friendship with Mr. Gates.
Bill Gates and Warren Buffet on board Berkshire Hathaway's corporate jet
Even though Berkshire bought IBM shares during a period in which they often traded near their record high, Mr. Buffett has maintained he tries not to overpay for investments. Last Friday, in a meeting with about 200 business students from colleges around the country, he said that when he buys stocks, he looks for enduring competitive strengths "and something not too expensive."
Not everyone is as bullish on IBM shares as Mr. Buffett. ISI Group analyst Brian Marshall, who has a "neutral" rating on the stock, said shares are "priced for perfection" and likely won't see a significant boost until IBM starts growing revenue more quickly.
Mr. Buffett has long been familiar with IBM, having discussed the company's business with Mr. Gates in the early days of their friendship. Jeff Matthews, a private investor in Berkshire who has written a book about Mr. Buffett, said the billionaire's early view of tech stocks was shaped some 50 years ago when many technology firms were "untested or highly volatile companies that generally flamed out."
Mr. Matthews said.
"Mr. Buffett probably sees IBM as a company that is as hard to displace from the corporate world as Coke would be to displace from the consumer world."
On the change in how he viewed investing in IBM, Mr. Buffett said: "Sometimes business facts change and it's your job to attempt to understand them."
One change Mr. Buffett will have to keep a close eye on is IBM's management. In October, IBM announced that Virginia M. Rometty will succeed Sam Palmisano as chief executive on Jan. 1 after a nearly 10-year run at Big Blue.
Mr. Buffett said the management change didn't surprise him, as IBM has "retired people fairly young."
Mr. Palmisano has won credit for wrenching decisions, like dumping IBM's PC business in the middle of the last decade, and for using a string of acquisitions to boost the company's exposure to more profitable services and software businesses.
COMMENTARY: I normally would not have picked up on this story, because I have eschewed IBM or "Big Blue" for what seems forever. As you know, IBM was perceived as the evil "Big Brother" by Steve Jobs in his infamous Super Bowl commercial for the MacIntosh. To me, IBM has represented Big Corporations and dark forces of the Illuminati, CIA and NSA.
For me the future is mobile: smartphones that will become smarter (Apple's iPhone 4S with SIRI voice commands is a move in that direction), tablets (iPad versus Kindle Fire and B&N Nook Tablet), music players (iPods), mobile apps and the Cloud. I have found IBM boring, mysterious, and just plain, not very exciting. The only exception was Watson their talking super-computer which took on two human contestants on the TV game show Jeopardy. I covered Watson in a blog post dated
Since June 2010, Bill Gates, Warren Buffet and wife Melinda, have been talking with some of the world's biggest billionaires to raise $600 billion for charity. Some of the billionaires they have spoken with include Larry Ellison (Oracle), Lord Sainsbury (U.K. supermarket chain) and Christopher Cooper-Hohn (U.K. hedge funds) and others. The goal is to have these billionaires give away most of their wealth to help solve some of the world's biggest problems like disease, hunger and poverty. Bill Gates has also invested in green technology and even nuclear reactors. Here's a copy of their "billionaire recruitment" letter sent to David Rockefeller:
Bill Gates and Warren Buffet have been long-time friends, a unique relationship because of generational differences, but they are both smart, made smart investments and the two are worth a combined $100 billion. That buys a lot of philanthropy. However, I didn't know just how chubby these two were until I did a search for pictures of the two of them together. These two are almost inseparable.
So why exactly is Warren Buffet so interested in IBM, and investing in the technology industry, something he has never done before? There are very few technology companies that have cast a worldwide shadow like IBM. IBM employs more than 425,000 employees (sometimes referred to as "IBMers") in over 200 countries, with occupations including scientists, engineers, consultants, and sales professionals. Here are a few more reasons:
IBM was ranked the 18th largest firm in the U.S., as well as the 7th most profitable by Fortune for 2011.
IBM was ranked the 31st largest firm by Forbes for 2011.
IBM was ranked the #1 company for leaders (Fortune) for 2011.
IBM was ranked the #2 best global brand (Interbrand).
IBM was ranked the #12 most admired company (Fortune).
IBM was ranked the #18 most innovative company (Fast Company).
INTELLECTUAL PROPERTY
IBM holds more patents than any other U.S.-based technology company and has nine research laboratories worldwide. Its employees have garnered five Nobel Prizes, four Turing Awards, nine National Medals of Technology, and five National Medals of Science. Famous inventions by IBM include the automated teller machine (ATM), the flopy disk, the hard disk drive, the magnetic stripe card, the relational database management system (RDBMS), the Universal Product Code (UPC), the financial swap, SABRE airline reservation system, DRAM, and Watson artificial intelligence.
CONSOLE GAMING SYSTEMS
Virtually all console gaming systems of the latest generation use microprocessors developed by IBM. The Microsoft Xbox 360 contains a PowerPC tri-core processor, which was designed and produced by IBM in less than 24 months. Sony's PlayStaton 3 features the Cell BE microprocessor designed jointly by IBM, Toshiba and Sony. IBM will provide the microprocessors that serve as the heart of Nintendo's new Wii U system, which will debut in 2012.The new Power Architecture-based microprocessor includes IBM's latest technology in an energy-saving silicon package. Nintendo's seventh generation console, Wii, features an IBM chip codenamed Broadway. The older Nintendo GameCube utilizes the Gekko processor, also designed by IBM.
MISSION CRITICAL SYSTEMS
IBM has a worldwide reputation for transforming industries and its advanced mission critical systems for the following industries:
Automating Rail Systems - Nearly all major U.S. railroads now used IBM technology to automate scheduling and accounting operations. In 2010, helped Russian Railways move 1.3 billion passengers and freight more efficiently.
Government Systems Infrastructure - IBM brings efficiency and modernization to the systems infrastructure for national and municipal governments to help them integrate real-time information and processes across many departments.
Automating Aviation Industry Operations - Created the SABRE airline reservation system-- a precursor of everything from the ATM to e-commerce.
Raising Healthcare Standards - Hospitals throughout the world now monitor temperature, blood and heart beat information using IBM health monitoring systems.
Smarter Energy and Water Systems - IBM helps governments and utilities analyze ways to increase power output of hydroelectric dams. In 2009, helped implement the world’s first nationwide smart grid for Malta’s energy and water systems
Reinventing Transportation - Many of the world's traffic signaling systems were developed by IBM. Helped speed development of GM’s Chevrolet Volt electric vehicle with sophisticated design and simulation software.
Upgrading The Retail Experience - IBM invented the UPC barcode system used by supermarkets and retailers everywhere throughout the world.
Developing Banking Infrastructure - IBM created the first global settlement system for currency exchange, averaging $4 trillion a day, with the CLS Group, an industry consortium. In 2008, introduced world’s first real-time securities settlement system for Mexico.
OPEN CLIENT OFFERING
In February 2007, IBM announced it launched its new software, called "Open Client Offering" which runs on Linux, Microsoft Windows and Apple's Mac OS X. This product allows businesses to offer employees a choice of using the same software on Windows and its alternatives. This means that "Open Client Offering" is to cut costs of managing whether to use Linux or Apple relative to Windows. There will be no necessity for companies to pay Microsoft for its licenses for operating systems since the operating systems will no longer rely on software which is Windows-based. One alternative to Microsoft's office document formats is the Open Document Format software, whose development IBM supports. It is going to be used for several tasks like: word processing, presentations, along with collaboration with Lotus Notes, instant messaging and blog tools as well as an Internet Explorer competitor – the Mozilla Firefox web browser. IBM plans to install Open Client on 5% of its desktop PCs. The Linux offering has been made available as the IBM Client for Smart Work product on the Ubuntu and Red Hat Enterprise Linux platforms.
GROWTH INITIATIVES
IBM has established long-term Road Map growth initiatives that they hope will result in incremental revenue growth of $20 billion by 2015. These long-term growth initiatives include:
Emerging Growth Markets - IBM's 2015 Road Map Objective includes a historic economic expansion in the fast growing emerging markets of the world, such as China, India, Russia and Brazil and the company is laying the foundation for a strong foothold in the continent of Africa. The emerging market GDP growth rate—expected to be 5 percent through 2015—is more than double that of major markets. Emerging growth markets revenue approaches 30 percent of IBM’s geographic revenue by 2015.
Cloud Computing - IBM has helped thousands of clients in areas as diverse as banking, healthcare and government build their own clouds or securely tap into IBM cloud-based business and infrastructure services. IBM manages millions of cloudbased transactions every day and provides cloud analytics services to its worldwide clients. Cloud computing is a new, highly efficient model for consuming and delivering on demand IT-based services. Cloud revenue is expected to be $7 billion by 2015, of which $3 billion is incremental.
Business Analytics - IBM helops enterprises manage and mine terabytes of potentially valuable data, and the key is advanced data analytics. IBM spotted this emerging need early, building the world’s leading analytics organization—with 7,800 expert consultants, the world’s premier nonacademic mathematics function and invested $14 billion to acquire 25 companies, broaden their capabilities. To date, IBM scientists have received more than 500 analytics patents. Global data volumes are predicted to increase by 29 times over the next 10 years to 35 zettabytes.* (A zettabyte is a 1 followed by 21 zeros.). Business analytics revenue is expected to be $16 billion by 2015.
Smarter Planet - In 2008 and 2009, IBM implemented a bold initiative to make the world smarter, and in 2010, it deployed significant resources to capture the opportunity in key, high-growth industries where they maintain competitive advantage. IBM also expanded its Smarter Cities initiative, targeting city infrastructure projects to integrate real-time information and processes across many city departments. Major city infrastructure projects are now underway in Rio de Janeiro, Ho Chi Minh City, Shanghai, Seoul, Sydney, Helsinki, Amsterdam, Rotterdam, San Francisco and Washington, D.C. Smarter Planet revenue is expected to be $10 billion by 2015.
ACQUISITIONS
CEO Samuel Palmisano is determined to make IBM a dominant player in business software services. IBM made almost 50 software acquisitions since 2006 in areas including data analysis, e-commerce, supply chain management and computer security, said Mills. More than half of those have been in business-data analysis, where IBM says it has spent $14 billion. The company expects such business analytics products to yield $16 billion in sales by 2015. IBM had $99.9 billion in sales 2010. Software, which had gross margins of 86.9 percent in 2010, is key to IBM’s growth plans. Here's a quick summary of their major acquisitions and prices paid between 2008 and 2011:
Year 2011 - Completed 5 acquisitions to date, including Algorithmics Inc (risk management software) for $387 million, Platform Computing (clusters, grids and cloud management software).
Year 2010 - Completed 17 acquisitions totalling $6.5 billion, including Netezza (data warehousing and analytics software) for $1.7 billion, Clarity Systems (financial governance software) for $350 million, Unica Corporation (marketing planning software) for $480 million and Sterling Commerce (business software integration) for $1.4 million.
Year 2009 - Completed six acquisitions totalling $1.5 billion, including SPSS (predictive analytics software) for $1.2 billion.
Year 2008 - Completed 15 acquisitions totalling $6.8 billion, including Cognos, Inc. (business intelligence software) for $5 billion and Telelogic AB (Product and project management and UML modeling software) for $885 million.
REVENUES BY SEGMENT
IBM segments revenues into five divisions:
Global Technology Services - Provides outsourced IT infrastructure services and business process services, delivering business value through the company’s global scale, standardization and automation.
Global Business Services - Provides professional services and application management services, delivering business value and innovation to clients through solutions which leverage industry and business-process expertise while integrating the industry-leading portfolio of IBM and strategic partners, to define the upper end of client-valued services.
Software - Consists primarily of middleware and operating systems software. Middleware software enables clients to integrate systems, processes and applications across a standard software platform. IBM middleware is designed on open standards, making it easier to integrate disparate business applications, developed by different methods and implemented at different times. Operating systems are the software engines that run computers. Software capabilities includes: WebSphere software, information management software, Tivoli software, Lotus software, Rational software, business analytics (Cognos business intelligence software and SSPS predictive analytics software) software.
Systems and Technology (Hardware) - Provides clients with business solutions requiring advanced computing power and storage capabilities. Approximately half of Systems and Technology’s server and storage sales transactions are through the company’s business partners; with the balance direct to end-user clients. In addition, Systems and Technology provides leading semiconductor technology, products and packaging solutions to clients and for IBM’s own advanced technology needs.
Global Financing - Provides worldwide clients with financing to facilitate acquisition of IBM systems, software and services. Global Financing invests in financing assets, leverages with debt and manages the associated risks with the objective of generating consistently strong returns on equity.
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FINANCIALS YEARS ENDING DECEMBER 31, 2008, 2009 AND 2010
I am not very impressed with IBM's financial's. Here's why:
Current Ratio - IBM's current ratio (current assets to current liabilities) for the year ending December 31, 2011 is not impressive (about 1:1). Bankers normally would like to see a 1.5 to 2.00 current ratio.
Financing Contracts - IBM is generating phenomenal returns from its Financing segment, but short-term financing and long-term financing contracts now constitute $26.8 billion combined or 23.6% of total assets. IBM's financing contracts are net of reserves for bad debts. It's reserves for bad debts are very low, but is risky given the state of the world economies. Should IBM be in the banking business?
Borowed Debt - Short-term ($6.8 bil) and long-term debt ($21.8 bil) combined represent $28.6 billion or 31.7% of total liabilities, which is quite high. If you take out deferred income (long-term support contracts) of $11.5 billion, then the ratio baloons to 36.4%.
Debt-to-Equity - IBM's debt-to-equity ratio is 2.8. This drops to 2.44% if you take out deferred income. Most bankers would agree that 1.50 to 2.00 is an acceptable debt-to-equity ratio.
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QUARTERLY EARNINGS - Q3 2010 THROUGH Q3 2011
IBM has surpassed analysts earnings forecasts throughout most of 2011, and the market has rewarded the company by increasing the price of its stock by 28.61% since the beginning of the year.
STOCK PRICE
IBM has surpassed Hewlett-Packard is now the third most valuable technology company behind only #1 Apple Inc. ($361.4 billion) and #2 Microsoft ($224.9 billion) with a market capitalization of $222.46 billion as November 15, 2011. The the year-to-date ending November 15, 2011, IBM's stock price has increased by 28.61% since the start of the year. This exceeds the DJIA (+4.48%), NASDAQ (+1.26%) and the S&P (+0.01%). IBM (NYSE:IBM) stock ended at 188.75 (up +1.40 or 0.75%) for the end of day's trading.
Most stock analysts are not bullish on IBM stock, and many of them believe Mr. Buffet is acquiring IBM stock near its peak price, but Warren Buffet is not concerned with the stock price as he is future earnings potential. IBM's growth strategy includes increasing its share of software business services through acquisitions (see above) Software has much higher profit margins than hardware. IBM is also expanding its presence into fast growing emerging markets (China, Brazil, Russia, India and African continent) by capitalizing on its strengths in energy and power grid management solutions, government systems infrastructure, smarter energy and water systems, automated rail systems, traffic signaling systems, retail, ecommerce and banking software and hardware.
Warren evidently believes there is still room for IBM to grow revenues and earnings, and this will boost IBM's revenues, earnings and stock price even more. Warren Buffet has overlooked IBM's relatively weak balance sheet, but it makes you wonder if there is something he knows that the general investing public does not. Insider information, perhaps? Warren Buffet has a track record of investing in solid companies (see above), then he holds the stock for the long-term, and he believes IBM has a great upside for 3 to 5 years down the line.
All those questions are the focus of a fascinating study from Deloitte Center for Financial Services on the state of millionaires, and how things will change over the next decade.
If you're a banker looking for wealthy clients, it's a must read.
The total wealth of world millionaires will go from $92 trillion to $202 trillion in 10 years.
U.S. millionaires will be the wealthiest by 2020.
The U.S. will still have the most millionaires by 2020.
Among super-millionaires, China is already #2.
Switzerland and Singapore will have the highest number of millionaires.
And Swiss millionaires are the richest in the world.
Here's how millionaires invest.
U.S. millionaires are back to pre-crisis levels.
There are 496,000 U.S. households with over $30 million.
New Jersey is the most millionaire dense state in the U.S.
But what do millionaires buy? Click HERE to find out.
COMMENTARY: I am flabbergasted at the obscene amount of wealth concentrated in such few individuals and families. With the amount of wealth that they have, these millionaires are able to effect political influence to benefit their financial interests. And, if I may say so, they have done a great job. Just look athe Bush tax cuts. Extended by Obama in 2011, but there is now pressure to reverse them.
Look, I am not against wealth, just extreme wealth, sitting in some bank account, in some country to avoid taxes, or invested in expensive cars, houses, superyachts, land and precious metals. These do very little to create jobs. The 496,000 U.S. millionaires worth $30 million or more, are worth a combined $15 trillion. If they just donated 10% of that wealth to charity, provide universal healthcare, improve our educational system, and help the poor, that would total $1.5 trillion.
There are another 2.2 million U.S. households worth between $5 million and $30 million. If we assume they average $10 million, then their total combined net worth is $22 trillion. If they donated 10% of their wealth for needy causes, provide universal healthcare, improve our schools and help the poor, that would total $2.2 trillion.
On a July 20, 2010 blog article, I commented about Forbes List of Billionaires for 2010, and where they live. You might find that blog post very interesting. Forbes also published a list of the Top 10 Richest Billionaires for 2011 (se below).
There are six Facebook billionaires who made the Forbes list, including Zuck, Dustin Moskowitz, Sean Parker (founder of Napster), Peter Thiel (venture capitalist and original angel investor in Facebook), Yuri Milner (venture capitalist and founder of Blue Sky Technologies, a Russian venture capital firm), and Eduardo Savarin (Harvard classmate of Zuck and one of the original founders of Facebook).
Paul Ceglia, who says he invested $1,000 in Facebook, and the terms of that investment agreement entitle him to a 50% ownership interest in Facebook. That could definitely change things. DLA, a high-powered legal firm, is representing Mr. Ceglia, and think he has a valid claim. I can hardly wait for the decision or out-of-court settlement.
I don't want anyone to get the idea that I am against wealthy individuals, or that I am some kind of socialist, but the last time America had so much wealth concentrated in the hands of so few individuals, was during the period that led up to the 1929 stock market crash and Great Depression. Hell, I would like to be wealthy myself, that would solve a lot of financial problems, but my main reason would be to help others. Just remember, when you come into this world you enter with nothing, and when you leave it, you leave everything behind.
Inspired by a French Chateau they saw while on their honeymoon in France 24 years ago, Ziel and Helene Feldman built this roughly 18,500 square foot mansion in Englewood, N.J.
STATS: A home of about 18,500 square feet, with eight bedrooms, nine full baths and two half-baths, asking $15.9 million, or $859.45 a square foot. The house was originally listed for $19.5 million. Property taxes this year are $116,322.
DETAILS: While on their honeymoon in France 24 years ago, the owners of this 22-room home saw a chateau in Fontainebleau and thought, "Someday...." That day came in 1998, when they began work on their own chateau with modern touches including an elevator to all three levels, an indoor pool, a media room with a bar, a gym, a sauna and a hot tub. On the surrounding three acres, there's a two-story, 200-year-old teak house from Java.
Helene Feldman says.
"Our daughter wanted a tree house and instead we bought this real house from Java."
The property also has a basketball court, a tennis court, an outdoor pool and a putting green.
SELLERS: Helene and Ziel Feldman. Mr. Feldman is the founder of HFZ Capital, a real-estate investment company.
THE NEIGHBORHOOD: It's five minutes to the Bergen Performing Arts Center, where you can catch Bruce Hornsby & the Noisemakers on Sept. 30.
WHAT WE PAID: The Feldmans estimate that they have put $13 million into the property.
WHY WE'RE SELLING: With two of their three children at college, the Feldmans have decided to downsize.
WHAT WE'LL MISS: The couple say that they will miss the conservatory, where they like to drink coffee and look out at the view. Ms. Feldman says she'll miss the kitchen.
WHAT WE WON'T: Mrs. Feldman says that she won't miss the long walk to the kitchen every morning for her coffee. The couple has moved to an apartment on Park Avenue where she says that she can practically reach her coffee without getting out of bed.
OTHERS SAY: James Collins, an agent with Coldwell Banker, has shown the house and describes it as having an old-world charm. Still, in this market, he says, it takes time to find a buyer. Mr. Collins laments.
"All prices in this market are negotiable, and they're going to have to wait for the right buyer."
Frances Aaron of Prominent Properties Sotheby's International Realty, who shares the listing with Miriam Finkel, says that considering the location very near New York and details like the antique fireplaces and the seven sets of French doors leading to the terrace, the house is well priced. Ms. Aaron says.
"In a better market it would have gone very, very quickly."
COMMENTARY: I was curious about Ziel Feldman, and this is what the HFZ website says.
"Managing Principal Mr. Feldman began his career as a real estate attorney in 1984 and ascended quickly to the role of partner. Concurrent with his legal work, Mr. Feldman began investing in several multi-family properties located in New York City.
In 1991, Mr. Feldman co-founded Property Markets Group (PMG). Under his leadership, the company has seen dramatic growth to the point where its operations now span seven states and encompass hotel, resort, residential, commercial and golf course community developments. Mr. Feldman has been directly responsible for all of PMG’s more than one hundred fifty real property acquisitions.
Mr. Feldman stepped away from the day to day management of PMG in 2005 to create a new entity, HFZ Capital Group, with a broader mandate to capitalize on development and investment opportunities in the U.S. and around the globe.
In 2007, Mr. Feldman purchased a majority stake in Polar Investments Ltd., a public real estate company traded on the Tel Aviv Stock Exchange (TASE), and assumed the position of Chairman. In this role, he provides the overall strategic guidance for Polar.
With 20 years of experience in real estate investments, management and operations, Mr. Feldman brings a wealth of U.S. and international experience to the company. Mr. Feldman graduated from Queens College with a B.A. in Economics and Accounting, and holds a Law degree from Cardozo Law School."
Mr. Feldman's HFZ Capital investments include a broad range of very impressive and prestigious commercail real estate properties, including luxury apartments and condominiums and residences, in New York, Florida and other parts.
Here's a picture gallery of the Feldman's beautiful French Chateau estate in Englewood, N.J.
Home is a 2009 documentary by Yann Arthus-Bertrand. The film is almost entirely composed of aerial shots of various places on Earth. It shows the diversity of life on Earth and how humanity is threatening the ecological balance of the planet. The movie was released simultaneously on June 5, 2009 in cinemas across the globe, on DVD, Blu-ray, television, and on YouTube, opening in 181 countries. The film was financed by PPR, a French multinational holding company specializing in retail shops and luxury brands, as part of their PR strategy.
OVERVIEW
The documentary chronicles the present day state of the Earth, its climate and how we as the dominant species have long-term repercussions on its future. A theme expressed throughout the documentary is that of linkage—how all organisms and the Earth are linked in a "delicate but crucial" natural balance with each other, and how no organism can be self-sufficient.
The first 15 minutes include footage of the beginning of the natural world, starting with single-celled algae developing at the edges of volcanic springs. By showing algae's essential role in the evolution of photosynthesis, it also explores the innumerable species of plants which all have their origins in this one-celled life form.
In the rest of the first hour of the film, the documentary takes on a more human-oriented focus, showing the agricultural revolution and its impacts, before moving on to talk about the harnessing of oil, leading to fire, industry, cities and inequality gaps like never before. It portrays the current predicament regarding cattle ranches, deforestation, food and water shortages, the use of non-renewable "fossil water", the over-quarrying crisis and the shortage of energy, namely electricity. Cities such as New York city, Las Vegas, Los Angeles, Shenzhen, Mumbai, Tokyo and Dubai are used as examples of the mismanagement and wastage of energy, water and food. The recession of marshlands and glaciers are shown in vast aerial shots of Antarctica, The North Pole and Africa, while mass emigration and refugee counts are shown currently and forecast in the event that these events remains unchanged.
It is at this point that the film begins to focus on global warming and the carbon crisis. Home shows how melting glaciers, rising sea levels and changing weather patterns are ravaging the people who have least to do with climate change, but also how it soon will affect rich populous areas.
Here, about three minutes of film is given to displaying harsh facts in large white text on a black background followed by a video representation of the fact. This is followed by a positive conclusion. The documentary claims to show the "awful truths" regarding our impact on the Earth, but also what we are now doing to combat and reverse it: including renewable energy, the creation of more and more national parks, international co-operation between various nations on environmental issues and the extra education and reform being had across the globe in response to the current problems facing the earth.
PRODUCTION
Home was filmed in various stages due to the expanse of the areas portrayed. Taking over eighteen months to complete, director Yann Arthus-Bertrand and a camera man, a camera engineer and a pilot flew in a small helicopter through various regions in over fifty countries. The filming was done using high-definition "Cineflex" cameras which were suspended from a gyro-stabilized sphere from rails on the base of the helicopter. These cameras, originally manufactured for army firing equipment, reduce vibrations helping to capture smooth images, which appear as if they had been filmed from crane arms or dollies. After almost every flight, recordings were immediately checked to ensure they were usable. After filming was complete, Besson and his crew had over 488 hours of footage to edit.
DISTRIBUTION AND PROMOTION
To promote the documentary online, a YouTube channel known as "HomeProject" was created. Uploaded to this were various short clips of filming which took place in different parts of the world including the Arctic Circle, Africa and the large metropolises featured.
On March 9, 2009, a press-conference was held in Paris, France, where Yann Arthus-Bertrand and various producers talked to the media about the issues raised in the film, as well as confirming that Home would be the first film ever to be simultaneously released in theaters, on television, on DVD and on the Internet in five continents.
On May 5, 2009, a second press-conference was held again in Paris, where the same crew members announced that the film's release date would be June 5, 2009, World Environment Day. Here, they also announced that Home would be 100% free for everyone to view, as "The benefits of this film cannot be counted in dollars, but in audience figures." They also revealed that PPR, was going to sponsor the film in order to facilitate unavoidable costs.
The film, which was available for free release until June 14, has been broadcast in 14 languages.The Blu-ray edition was released by 20th Century Fox and features both the English and French versions. It is expected to sell in excess of 100,000 copies. When production costs are met, all proceeds sale takings will go to the Good Planet Company.
COPYRIGHT AND REDISTRIBUTION
Yann Arthus-Bertrand said in a TED talk that the movie has no copyright: "This film have no copyright. On the fifth of June, the environmental day, everyone can download the movie on Internet. The film is given for free to the distributor for TV and theater to show it the five of June. There is no business on this movie. It is available for schools, cities, NGOs and you." Nevertheless, a copyright notice appears in the final credits.
Several high resolution editions of the movie are available for download, but none have been found marked with any kind of redistribution right such as a Creative Commons license. ClearBits, an online digital media community, provides a torrent of the 93-minute version in high-definition MP4 format, and Archive.org and Vimeo also offer high resolution editions.
PUBLIC RESPONSE
The film received a large response upon release, receiving over 400,000 combined views within the first 24 hours on YouTube.As of April 2010, the French, English, German, Spanish, Russian and Arabic versions on Youtube logged a total of more than 14 million views. It was shown to high ratings on channels around the world including the international network National Geographic. France2 débuted the film to over 8.3 million viewers in France alone. In India, Home was shown exclusively via the STAR World cable network.
CRITICAL REVIEWS
Generally, the movie was praised for its visuals but received criticism regarding the attitude of the narration and the contradiction between its message and the sponsors' legacy.
Jeannette Catsoulis of the New York Times criticizes the film's narration and Glen Close, narrator in the English version, both regarding content and style: "We’ve heard it all before, if not in the schoolmarmish tones of Glenn Close, whose patronizing narration [...] makes the film feel almost as long as the life of its subject." Furthermore, she denounces the film's accusations towards the modern "lifestyle that 'destroys the essential to produce the superfluous' — an accusation that the film’s bankrollers, led by the corporation behind luxury brands like Balenciaga and Gucci, are probably familiar with..."[12]
Jean-Michel Frodon, a French movie critic, expressed the opinion that "‘Home’ had many viewers but didn’t have much echo" because Arthus-Bertrand’s personality, activities and his innovative no-cost concept have captured more attention than the movie itself.[13]
EPITAPH
We are living in exceptional times. Scientists tell us that we have 10 years to change the way we live, avert the depletion of natural resources and the catastrophic evolution of the Earth's climate.
The stakes are high for us and our children. Everyone should take part in the effort, and HOME has been conceived to take a message of mobilization out to every human being.
For this purpose, HOME needs to be free. A patron, the PPR Group, made this possible. EuropaCorp, the distributor, also pledged not to make any profit because Home is a non-profit film.
HOME has been made for you : share it! And act for the planet.
Yann Arthus-Bertrand
COMMENTARY: Today is June 1, 2011, and something real odd is happening, America and the rest of the World is the midst of an environmental nightmare. Here at home we are experienced drought, torrential rains, floods, tornadoes and extreme changes in temperatures that have not been experienced in recent memory.
Here where I live it rained and the temperatures during the day are in the 60's and fall into the 40's at night, and I live in California. It's supposed to be in the 80's to 90's this time of year. This is not supposed to happen. Already over 500 people have been killed by the tornadoes stretching from the southwest to the east coast. Millions of acres have been lost along the banks of the Mississippi River, the result of torrential rains that the areas has not experienced in nearly 100 years.
What is going on? Many noted meteorologists are now saying that the World has reached a critical tipping point, and that we are now entering the beginnings of the new era of Global Warming and potential for a greenhouse effect, where the air will be filled with moist carbon-dioxide laden, cold and warm air, extreme winds and tornadoes, floods, snow storms and drought. Eventually the environment will become like a sauna, temperatures will climb into the 100's of degrees even at night. Plant life will die, and finally manking will ends. This is happening everywhere now, not just in the U.S.
I am posting HOME, because when I first saw the film back in 2009 it truly awakened me to the fact that mankind is the problem, and yet we talk about global warming and the greenhouse effect, but not much is being done about it. Sure, we have cut back on oil consumption, but the price of gasoline, now over $4.00 per gallon in the U.S. is more the cause. We are investing billions in alternative forms of energy: wind, solar, all-electric and hybrid automobiles. But, this only accounts for about 6% of America's energy needs. America nad the world needs to do more.
Watch HOME, and if you are not deeply affected by the message of global warming and the future of Planet Earth, then let us know what you think. Parents, show HOME with your kids. Make it a family event.
Courtesy of PPR presents HOME, a film by Yann Arthus-Bertrand, the Home Project Channel on YouTube, and Wikipedia
The world's biggest hedge-fund firm just got bigger with the launch of one of the largest new funds ever.
Bridgewater Associates is nearly finished launching a $10 billion fund, the latest sign of the hedge-fund industry's rebound from the 2008 financial crisis.
Hedge funds are mopping up billions from big investors with few other places to park their cash in an era of ultralow interest rates and volatile stock-market returns. Industry assets as of March 31 topped the peak of early 2008, showing how wealthy families, college endowments, sovereign-wealth funds and other large investors have regained their appetite for riskier strategies.
Bridgewater Associates, the world's biggest hedge fund, just got bigger with the launch of one of the largest new funds. WSJ's Michael Corkery talks with Kelsey Hubbard about the recovery in the hedge-fund market and what sets Bridgewater apart.
Hedge funds also are benefiting from pension funds' eagerness to use so-called alternative investments to juice returns and fill funding gaps.
Founded 36 years ago by Ray Dalio, a Harvard Business School graduate known for quirky philosophical musings, the Westport, Conn., Bridgewater said its assets now top $100 billion. That is a large sum for a firm that depends on nimble trades across the globe. Bridgewater specializes in macroeconomic investing, using computer-executed trades in dozens of currency, bond and stock markets.
In the following video, Mr. Dalio speaks about Bridgewater's values of truth and openess, corporate culture and level of transparency. Bridgewater's employee/partner's convey similar feelings about Bridgewater's corporate culture, and provide valuable insights into the firm's operating philosophy, decision-making, teamwork and relationships with its clients. These people have a lot of passion for their work, don't let their ego get in their way, and their level honesty and professionalism is right up there.
Bridgewater's allure stems partly from its reputation as a sober, process-driven operation that spared its investors the worst of the 2008 markets meltdown. While many hedge funds are known as gun-slinging shops, Bridgewater's flagship hedge fund, Pure Alpha, posted a positive return in 2008. That year, the average hedge fund lost 19%.
Pure Alpha investors had less to cheer in 2009, when the fund eked out a 2% return, while the stock market rallied. Last year, it posted a 45% return, its best in two decades.
Bridgewater's big size—it has 1,200 employees—is a drawing card to some investors, because the firm can provide resources that many others don't. Bridgewater analysts put out frequent research reports, and its executives make themselves available to share market insights, consultants said.
Said Bob Jacksha, chief investment officer of the New Mexico Educational Retirement Board, which invested in the new Bridgewater fund.
"Their performance has been good, and we are pleased with their customer service."
The new Bridgewater fund, Pure Alpha Major Markets, essentially extends Pure Alpha's macro strategy to large markets, such as bond markets in the United Kingdom and Germany.
The new fund, which is only available to current Bridgewater investors, started trading in November 2010 with $2.4 billion in assets and an additional $7.5 billion committed from investors. About half of the money comes from profits returned to investors from Pure Alpha; the other half is new money from existing clients. Bridgewater has stopped taking new investments for the fund, according to a person familiar with the matter.
Bridgewater has about $67 billion in the two Pure Alpha funds, and the remainder is in a "long"-only fund.
The new fund has returned about 11% so far this year, the same as the older Pure Alpha fund, while the average hedge fund returned 2%, according to Hedge Fund Research Inc.
Since the dark days of the financial crisis, the hedge-fund industry has rebounded, with assets passing $2 trillion for the first time ever, as of March 31, according to HFR. The industry grew by $102 billion in the first quarter, backed by a rise in asset values and $32 billion in new capital, the largest net inflow since the third quarter of 2007, HFR said.
Big managers like Bridgewater have gotten an extra-large helping of the money coming back into the industry, in what consultants say is "a flight to safety" by cautious investors who prefer well-established players. Samuel Hocking, global sales head for French bank BNP Paribas's prime-brokerage unit, said of Bridgewater.
"They are very transparent, and it helps. The more people can feel like they understand what you are doing, where you are going, and what the strategy is overall, the more likely [the hedge-fund firm] will be able to increase capital."
Until Bridgewater's recent launch, industry participants viewed the 2006 launch of $6 billion Convexity Capital Management, by former Harvard University endowment chief Jack Meyer, as the largest. The environment for new funds was better during the boom years of the 2000s, when former Goldman trader Dinakar Singh launched TPG-Axon with $3 billion, and Eric Mindich, another top Goldman trader, launched Eton Park Capital with $3.5 billion.
Said Greg Jensen, who shares chief executive and chief investment officer duties with Mr. Dalio, said Bridgewater, despite its size, can still quickly trade in and out of positions.
"We are the world's largest hedge fund, but we are small players in big markets."
Behind Bridgewater's bets is a bearish view of the world. Mr. Jensen said.
"The private sector isn't strong enough to make up for tightening monetary policy, and the economy is starting to slow."
Bridgewater operates out of two leafy campuses in Westport, a suburb about 50 miles north of New York City. From a trading floor, surrounded by pine trees, Bridgewater places wagers across about 100 different markets.
Mr. Jacksha visited the Bridgewater offices in 2009 and has a copy of Mr. Dalio's "Principles," which dispense advice about investing and life. Those principles include, for instance.
"Never say anything about a person you wouldn't say to him directly. If you do, you are a slimy weasel."
Bridgewater executives have twice come to Albuquerque to speak at the pension fund's annual retreat.
Mr. Jacksha said.
"Every investment manager has his own culture. Some are more unique than others."
COMMENTARY:
COMPANY BACKGROUND
Bridgewater Associates is an American investment company founded by Ray Dalio and is reported to be one of the world's largest hedge funds with $94 billion under management in 2011. The company has 1,100 employees and 270 clients that include pension funds, endowments, foundations, foreign government and central banks.
The company was founded by Ray Dalio in 1975 and began investment operations as a fixed income and currency adviser to institutional clients.The company later moved on to institutional hedging exposures consisting of interest rate, currency and commodity risks.Bridgewater also began selling economic advice to governments and companies such as Nabisco and McDonalds and published a paid subscription research report called the Daily Observations.
In the mid 1980's, Bridgewater changed its business focus from currency and interest rate management to global bonds and currencies for institutional investors."In 1981, Bridgewater Associates moved its offices from New York City to the Schulz Farm estate in Wilton, CT.Bridgewater outgrew the Shultz Farm estate and moved to a larger space in the late 90s. Bridgewater continued to expand and eventually became the sole lessee at its One Glending Place location.
In June 1991, Bridgewater launched its Pure Alpha Strategy and its optimal alpha strategy (optimal active management overlay / hedge fund strategy) and in 1994, began managing inflation-linked bond mandates. In 1995/1996, Bridgewater was invited to the US Treasury task force as an expert on the structure of global inflation-linked bonds and aided in the design of US TIPS.
In 1996, Bridewater's founder Ray Dalio, developed the All Weather strategy global inflation-linked bonds and global fixed income exposures.Later that year, the company began advising the French Tresor on structure and demand for French inflation-linked bond issuance.
CORPORATE CULTURE
In an industry rifled with controversy, unethical practices, insider trading, fraud and greed, one of the most refreshing things I discovered about Bridgewager is its corporate culture which preaches honesty to the nth degree.
Bridgewater's culture encourages employees to do "whatever it takes to make the company great" and utilizes "an extreme meritocracy of ideas" with the goal of eliminating the "hierarchy in the investment decision-making process." The corporate culture features “radical transparency,” a theory of management that requires complete honesty and total accountability.
A 110-page manifesto of company principles, written by its founder, about work, life and the path to greatness, is distributed to all employees.According to a 2011 article in New York Magazine, 30% of all employees quit or are terminated within two years but those that remain receive "generous" compensation and form bonds with fellow employees that are like family. Employees are transported daily in a "fancy" bus from Manhattan to the company's Westport offices. The company has strict security and monitors phone calls, emails and other employee activities. Employees are also required to sign nondisclosure agreements.Instruction in the Transcendental Meditation technique is subsidized for employees and founder Dalio, brings the techniques self-actualization precepts into the company culture.
ACCOMPLISHMENTS AND AWARD
According to research by Financial News, Bridgewater was the fastest growing asset manager between 2000 and 2005.In 2003, Global Investor described Bridgewater as a pioneer and leader currency investment strategies.
In 2011, Institutional Investor magazine ranked Bridgewater number one in its Hedge Fund 100 listing of the world's top 100 hedge funds.In 2009, Barron's Magazine recognized Bridgewater for being amongst the first to identify the sub-prime mortgage crisis and global market crash.Founder, Ray Dalio is credited with coining the term the D-Process for the deleveraging and deflationary process of the sub-prime mortgage crisis in order to describe what was happening globally and distinguish it from a recession.An AR Magazine's survey gave high ratings to Bridgewater.
A 2011 article in New York Magazine described the company as the "largest and weirdest hedge fund" because of its unusual corporate culture.An article in Absolute Return + Alpha magazine characterized the corporate culture as “brutal” and “demoralizing.”
HEDGE FUNDS 101 FOR THE NOVICE
Some of you are probably asking yourself, just what the hell is a hedge fund?
Here's what Wikipedia says about hedge funds,
"A hedge fund is a private investment fund that participates in a range of assets and a variety of investment strategies intended to protect the fund's investors from downturns in the market while maximizing returns on market upswings."
Hedge funds are distinct from mutual funds (401K), individual retirement and investment accounts, and other types of traditional investment portfolios in a number of ways. As a class, hedge funds undertake a wider range of investment and trading activities than traditional long-only investment funds, and invest in a broader range of assets, including equities, bonds and commodities. Most hedge fund investment strategies aim to secure positive return on investment regardless of overall market performance. Hedge fund managers typically invest their own money in the fund they manage, which serves to align their interests with investors in the fund
Hedge funds are where multi-millionaires, billionaires, wealthy families, pension funds, institutional investors, university endowments, foundations and sovereign governments invest their money. They are essentially a private investment "country club" for priveleged, deep pocket and sophisticated investors. Hedge funds are off limits to Main Street investor's.
Investors in hedge funds typically pay a management fee that goes toward the operational costs of the fund, and a performance fee when the fund’s net asse value is higher than that of the previous year. The net asset value of a hedge fund can be billions of dollars, due to investments from large institutional investors including pension funds, university endowments and foundations.
TOP 25 HEDGE FUNDS OF 2011
On May 2011, Institutional Investor released its “Hedge Fund 100″ rankings for 2011, and Bridgewater Associates was the biggest hedge fund in the world with $58.9 billion in hedge fund assets under management. Bridgewater Associates enjoyed a banner year in 2010, as their “Pure Alpha” fund delivered a whopping 44.8% annual return. High returns and increased inflows helped Bridgewater grow their assets by more than $24B in 2010.
Here are the Top 10 hedge funds rankings followed by hedge funds ranked 11 through 25:
J.P. Morgan Asset Management (New York, NY), Jamie Dimon, CEO ** (2011: $54.2 billion, 2010: $45.1 billion, 2010 rank: #1)
Man Investments (London, UK), Peter Clarke, CEO (2011: $40.6 billion, 2010: $21.7 billion, 2010 rank: #8
Paulson & Co. (New York, NY), John Paulson, President (2011: $35.887 billion, 2010: $32.105 billion, 2010 rank: #3
Brevan Howard Asset Management (London, UK), Alan Howard, Managing Director (2011: $32.0 billion, 2010: $27.0 billion, 2010 rank: #4)
Soros Fund Management (New York, NY), George Soros, Founder & Chairman (2011: $27.9 billion, 2010: $27.0 billion, 2010 rank: #4)
Och-Ziff Capital Management Group (New York, NY), Daniel S. Och, CEO (2011: $27.6 billion, 2010: $23.5 billion, 2010 rank: #7)
BlackRock (New York, NY), Larry Fink, CEO (2011: $25.0 billion, 2010: $16.9 billion, 2010 rank: #16)
BlueCrest Capital Management (London, UK), Michael Platt, Co-Founder (2011: $24.5 billion, 2010: $17.0 billion, 2010 rank: #15)
Angelo, Gordon & Co. (New York, NY), John M. Angelo, CEO (2011: $23.6 billion, 2010: $20.8 billion, 2010 rank: #10
Baupost Group ($23.4 billion)
Farallon Capital ($21.5 billion)
King Street Capital (($19.9 billion)
Goldman Sachs Asset Management ($19.8 billion)
Avenue Capital ($18.3 billion)
Winton Capital Management ($17.78 billion)
Renaissance Technologies ($17.0 billion)
Elliott Management ($16.8 billion)
AQR Capital ($16.7 billion)
Landsdowne Partners ($16.146 billion)
DE Shaw ($15.6 billion)
Davidson Kempner Capital ($15.3 billion)
Appaloosa Management ($15.0 billion)
Moore Capital ($15.0 billion)
ESL Investments ($14.0 billion)
INVESTMENT STRATEGIES
Hedge funds employ a wide range of trading strategies. Establishing a formalized system of classification is difficult due to the rapidity with which strategies change and evolve. However, hedge fund strategies are generally said to fall into four main categories:
Global Macroeconomic - Hedge funds utilizing a global macroeconomic investing strategy take sizable positions in share, bond or currency markets in anticipation of global macroeconomic events in order to generate a risk-adjusted return. Global macro fund managers use macroeconomic ("big picture") analysis based on global market events and trends to identify opportunities for investment that would profit from anticipated price movements.
Directional - Directional investment strategies utilize market movements, trends, or inconsistencies when picking stocks across a variety of markets. Computer models can be used, or fund managers will identify and select investments.
Event-Driven - Event-driven strategies concern situations in which the underlying investment opportunity and risk are associated with an event.An event-driven investment strategy finds investment opportunities in corporate transactional events such as consolidations, acquisitions, recapitalizations, bankruptcies, and liquidations.
Relative Value (arbitrage) - Relative value arbitrage strategies take advantage of relative discrepancies in price between securities. The price discrepancy can occur due to mispricing of securities compared to related securities, the underlying security or the market overall.
These four categories are distinguished by investment style and each have their own risk and return characteristics. Managed futures or multi-strategy funds may not fit into these categories, but are nonetheless popular strategies with investors. It is possible for hedge funds to commit to a certain strategy or employ multiple strategies to allow flexibility, for risk management purposes, or to achieve diversified returns. The hedge fund’s prospectus, also known as an offering memorandum, offers potential investors information about key aspects of the fund, including the fund's investment strategy, investment type, and leverage limit.
The elements contributing to a hedge fund strategy include:
Market Approach - There are a variety of hedge fund market approaches to different asset classes, including equity, fixed income, commodity and currency.
Investment Instrument - The type of investment instruments used include:equities, fixed income, futures, optios and swaps.
Market Sector - This the particular industry sector(s) in which the hedge fund invest (e.g. healthcare).
Investment Strategy - Investment strategies can be divided into those in which investments can be selected by managers, known as “discretionary/qualitative”, or those in which investments are selected using a computerized system, known as “systematic/quantitative”.
Degree of Diversification - The degree of diversification within the fund can vary; funds may be multi-strategy, multi-fund, multi-market, multi-manager or a combination.
Sometimes hedge fund strategies are described as absolute return and are classified as either market neutral or directional. Market neutral funds have less correlation to overall market performance by “neutralizing” the effect of market swings, whereas directional funds utilize trends and inconsistencies in the market and have greater exposure to the market's fluctuations.
HEDGE FUND REGULATION
Hedge funds within the U.S. are subject to various regulatory trading reporting and record keeping requirements that also apply to other investors in publicly traded securities. Before the Dodd-Frank Act made registration mandatory for hedge fund advisers with more than US$150 million in assets under management, hedge funds were primarily regulated through their managers or advisers, under the anti-fraud provisions of the Investment Advisors Act of 1940. Hedge funds are privately-owned pools of investment capital with regulatory limits on the number and type of investor that each fund may have. Because of these regulatory restrictions on ownership, hedge funds have been exempt from mandatory registration with the U.S. Securities & Exchange Commission (SEC) under the Investment Company Act of 1940, which is generally intended regulate investment funds sold to retail investors.
HEDGE FUND CONTROVERSIES
Though hedge funds are a lucrative alternative investment option, it has been subject to much debate on account of the risks associated with it. In fact, the numerous hedge fund debates and controversies have questioned the viability and reliability of hedge funds an investment mechanism. Principal hedge fund controversies include:
Transparency - Hedge fund transparency has been the major point of debate and controversy. Usually, hedge funds are not required to disclose their activities and dealings to third parties. In many cases, the investors have direct access to the investment advisor which enables them to get information about risks. The debate is whether hedge funds should or should not maintain transparency. It is said that the hedge funds may decide to disclose some amount of information.
Market Capacity - Hedge fund market capacity is another area that has sparked debates and controversy. This led to many questioning the value proposition of this alternative investment option. Moreover, alphais seen to have become rarer, mainly because volumes traded have reduced the market irregularity that have an impact on the performance of hedge funds and because fund managers are getting increasingly attracted by the remuneration model, which is affecting the talent available in the country.
Systemic Risk - The long-term capital management disaster that took place in 1998 led to a systemic riskwhich has been one of the major issues pertaining to the hedge fund debates and controversies. The huge amount of risk that hedge funds can use to achieve the required return is one of the major causes behind the systemic risk. The crashing of the two Bear streams in June 2007 affected the potential for systemic risk.
Fund Performance - Measuring the performance of hedge funds and adjusting it to the quantum of risk has been a major point in hedge fund debates and controversies. The traditional performance indicators usually follow a systematic return. However, hedge fund returns are not distributed normally and are auto-correlated. Thus, application of these traditional performance indicators cannot be applied to hedge funds reliably and creates a theoretical problem. In order to counter this aspect, several new performance indicators have been introduced, like Omega, Alternative Investments Risk Adjusted Performance, Modified Sharpe ratio and many others. However, no consensus has been reached regarding which is the best performance measure indicator and so the traditional performance indicators are still being used to this day.
Fund Over Diversification - Another issue is the constant diversification of hedge funds. Mark Kritzman has disputed this matter. He calculated the mean-variance optimization on a set of opportunity comprising bond index fund, stock index fund and 10 hypothetical hedge funds. He found that the most efficient portfolio was one which did not provide any allocation to hedge fund. This, therefore, debates the attractiveness of hedge funds.
Unethical Practices and White Collar Crime - Hedge fund managers have been the center of considerable controversy due to their high risk investments, complicated investment deals, unethical investment practices, and ongoing investigations by the Securities & Exchange Commission stemming from their investments in risky securities and betting against the market and insider trading. Here are a few examples:
On June 22, 2011, J.P. Morgan Chase & Co, parent of J.P. Morgan Asset Management, agreed to pay $153.6 million to settle civil charges that it misled investors in a complex $1.1 billion collateralized debt obligation (CDO) portfolio called "Squared" and completed in May 200, then failing to tell them that hedge fund Magnetarhelped craft the deal and stood to profit if it failed.
On Oct. 16, 2009, The Securities and Exchange Commission charged billionaire Raj Rajaratnam and his New York-based hedge fund advisory firm Galleon Management LP with engaging in a massive insider trading scheme that generated more than $25 million in illicit gains. The SEC also charged six others involved in the scheme, including senior executives at major companies IBM, Intel and McKinsey & Company. Mr. Rajaratnam was tried in May 2011 and found guilty on all counts. Mr. Rajaratnam's attorney's filed an appeal. You can read about this complex case in my blog posts dated May 25, 2011, May 23, 2011, May 12, 2011 and November 23, 2009.
On April 16, 2010, hedge fund operator Paulson & Co. became enmeshed in a Securities and Exchange Commission civil lawsuit filed Friday against Goldman Sachs Group Inc. But the hedge-fund giant wasn't charged. The SEC charged Goldman GS -0.31% with securities fraud for making misleading statements and omissions to investors about a collateralized debt obligation, or CDO, known as Abacus 2007-ACI. Paulson helped Goldman structure the deal and then bet against it, making an alledged $3.7 billion in profits when the sub-prime housing market fell in 2007. But Goldman didn't tell investors that the hedge-fund firm was involved in putting the deal together, or that it was betting against the structure.
'A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we're behaving," says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?
No—Mr. Druckenmiller has heard enough of such "clamor and hyperbole." The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.
One of the world's most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government's ability to pay for its future obligations that he's willing to accept a temporary delay in the interest payments he's owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.
"I think technical default would be horrible," he says from the 24th floor of his midtown Manhattan office, "but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.
Widely credited with orchestrating Mr. Soros's successful shorting of the British pound in 1992, Mr. Druckenmiller also built his own fund, Duquesne Capital, into a $12 billion titan. He announced plans last year to close the fund and now reports, "I have no clients." He is still managing his own money, which Forbes magazine recently estimated at $2.5 billion.
Whatever the correct figure is, it would be significantly larger if Mr. Druckenmiller hadn't given away so much of his wealth. The online magazine Slate reported last year that Mr. Druckenmiller and his wife gave away more money in 2009—over $700 million—than anyone else in the country. Over the last two decades, he has been the largest benefactor of the Harlem Children's Zone, a community service organization featured in the movie, "Waiting for 'Superman.'"
Mary Kissel of the editorial board previews congressional action on the debt limit.
It's hard to think of someone with more expertise in the currency and government-debt markets, but Mr. Druckenmiller's view on the debt limit bumps up against virtually the entire Wall Street-Washington financial establishment. A recent note on behalf of giant banks on the Treasury Borrowing Advisory Committee warned of a "severe and long-lasting impact" if the debt limit is not raised immediately. The letter compared the resulting chaos to the failure of Fannie Mae and Freddie Mac and warned of a run on money-market funds. This week more than 60 trade associations, representing virtually all of American big business, forecast "a massive spike in borrowing costs."
On Thursday Federal Reserve Chairman Ben Bernanke raised the specter of a market crisis similar to the one that followed the 2008 bankruptcy of Lehman Brothers. As usual, the most aggressive predictor of doom in the absence of increased government spending has been Treasury Secretary Timothy Geithner. In a May 2 letter to House Speaker John Boehner, Mr. Geithner warned of "a catastrophic economic impact" and said, "Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover."
In a Monday speech at the New York Economic Club, Mr. Boehner fired back, saying that "It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."
So the moment couldn't be better to consult Mr. Druckenmiller, who almost never gives interviews but is willing to speak up now because he thinks that fears about using the debt-limit as a bargaining chip for spending cuts are overblown—and misunderstand the bond market. "The Treasury borrowing committee letter speaks about catastrophic financial crises, comparing it to Fannie and Freddie. That's not what we're talking about here," he says.
He contemplates the possibilities for bond investors if a drawn-out negotiation in Washington creates a short-term problem in servicing the debt but ultimately reduces spending:
"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.
Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."
Mr. Druckenmiller says that markets know the difference between a default in which a country will not repay its debts and a technical default, in which investors may have to wait a short period for a particular interest payment. Under the second scenario, he doubts that investors such as the Chinese government would sell their Treasury debt and take losses on the way out—"because I'll guarantee you people like me will buy it immediately."
Now suppose, Mr. Druckenmiller adds, that he's wrong. If the market implodes on day two of the technical default, Mr. Obama and Congress would be motivated to finally come to agreement. But he doesn't expect such market chaos. "My guess is that the bond market would rally as long as it believed the ultimate outcome was going to be genuine entitlement reform—that we wouldn't even have to find out about a meltdown because it wouldn't happen. And I have some history on my side here."
And the scars to prove it. In 1995, Bill Clinton was threatening to veto budget cuts advanced by the Republican House. In return, congressional leaders threatened not to increase the federal debt ceiling. Back then, before Americans knew what a real government spending crisis was, the debt stood at less than $5 trillion. (It has nearly tripled since then and is poised to race some $10 trillion higher in the next decade.)
Mr. Druckenmiller had already recognized that the government had embarked on a long-term march to financial ruin. So he publicly opposed the hysterical warnings from financial eminences, similar to those we hear today. He recalls that then-Secretary of the Treasury Robert Rubin warned that if the political stand-off forced the government to delay a debt payment, the Treasury bond market would be impaired for 20 years.
"Excuse me? Russia had a real default and two or three years later they had all-time low interest rates," says Mr. Druckenmiller. In the future, he says, "People aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order."
Mr. Druckenmiller notes that from the time he started saying that markets would welcome a technical default in exchange for fundamental reform, in September 1995, "the bond market rallied throughout the period of the so-called train wreck . . . and, by the way, continued to rally. Interest rates went down the whole time, past the government-shutdown deadline, and really interest rates never went back up again until the Republicans caved and . . . supposedly the catastrophic problem was solved."
He adds, "I owned [Treasury] bonds and Rubin accused me and Soros of being short them, and that this was some sort of conspiracy. We made a fortune being long bonds during the whole fight. We were advocating a default and we were long bonds. That's kind of putting your money where your mouth is. By the way, I'm long them today."
Mr. Druckenmiller is puzzled that so many financial commentators see the possible failure to raise the debt ceiling as more serious than the possibility that the government will accumulate too much debt. "I'm just flabbergasted that we're getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we're piling up trillions of dollars of debt."
He's particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn't be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.
One reason Mr. Druckenmiller says he spoke up in 1995 was his recognition that the first baby boomers would turn 65 in 2010, so taxpayers would soon have to start supporting a much larger population of retirees. "Well," he says today, "the last time I checked, it's 2011. We don't have another 16 years this time. We're there. I don't know whether the markets give us three years or four years or five years, but we're there. We're not going to be having this conversation in 16 years. We're either going to solve it or we're going to find ourselves being Greece somewhere down the road."
Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."
Warming to the topic, he asks, "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."
And they could get even more reckless. Mr. Druckenmiller acknowledged by 1996 that the Republican budget shutdown strategy had failed, and he agrees today that the worst outcome would be a technical default that still doesn't muster enough pressure to force the Beltway to change its spending habits. This possibility "scares the hell out of me because I don't know whether Obama would cave. I tell you one thing, if [Obama officials] believe what they're saying, they'll cave. If they believe this is Armageddon and this is worse than Lehman and this is the greatest catastrophe ever, they'll cave."
But what if Mr. Obama hangs tough, Republicans cave, and there is no spending reform between now and the 2012 elections? Would Mr. Druckenmiller sell his Treasurys? "Everything else being equal, that would be a big sell factor, not a buy factor. One of the reasons I bought the Treasurys a ways back was I thought [House Budget Chairman Paul] Ryan was serious. I mean I heard some serious things that I hadn't heard in a long time." When President Obama responded to Mr. Ryan with a harsh partisan attack instead of a serious policy proposal, "that made me feel not as good about my Treasurys as the day before. But I'm still long them," he says.
Mr. Druckenmiller says he's "a registered independent" but says he admires New Jersey Gov. Chris Christie for the way he has explained that the state has to reform its benefit plans if it is going to be able to take care of retired government workers. He argues that the same case needs to be made nationally. "We don't have a choice between Paul Ryan's plan and the current plan, because the current plan is a mirage. . . . That money is not going to be there."
Given Mr. Druckenmiller's track record, officials at the Fed and Treasury may not have a choice, either. They may finally have to try to explain why technical default is a crisis, but runaway spending is not.
COMMENTARY: I agree with Mr. Druckenmiller that Washington has to get its house in order, but I just don't like his plan to get things in order--namely massive reductions in entitlement programs, which lay the blame for our economic ills solely on the back of the our senior citizens, who helped build America, and paid into their social security and medicare.
We also need to stop picking on unions, too. Unions is what built the middle class, and is paying most of the taxes in our country. I can see it from Mr. Druckenmiller's position, his stock investments will increase in value, if those companies don't to pay union scale. They make more money, and his stock values goes up, and he can pay more dividends to his rich clients. Oh, Mr. Druckenmiller, I hear your cries of despair.
The problem is Mr. Druckenmiller himself. He is the biggest part of the problem. He amased at $2.5 billion fortune, made his investors even richer, lives happily with his wife Fiona down in the Hamptons in a mansion with neighbors George Soros, John Pauslon, Ricky Sandler, Howard Stern, David Koch, Martha Stewart, some of the richest Americans, many of them gotten even wealthier through loopholes in the U.S. tax code, Bush tax cuts, shrewed investments with hedge funds like Duquesne. I just looked at the companies in his hedge fund portfolio, and every single one of them has imported at least 60% of their jobs overseas.
Washington also needs to drastically change its foreign policy. That's the root cause of a lot of our international problems. We need to stop being the policemen of the world, stop supporting crooked governments, and having wars without financing them. That defense budget is now quickly approaching $900 billion. In another couple of years it will be $1 trillion, and I don't see any end in sight. Mr. Druckenmiller has done pretty well investing, in you guessed it, defense stocks.
Does Mr. Druckenmiller care about the environment. Nope, I don't think so. If you look at Duquesne Capital's portfolio you will find he has invested well over $1 billion in over a dozen oil companies. And we sure know how well big oil has done, don't we? Those punks made $40 billion in profit just in the 1st quarter 2011, and they lobbied Congress to keep paying them entitlements.
Does Mr. Druckenmiller care about the uninsured? Probably not very much. If you look at his portfolio he has invested in dozens of medical and health insurance companies. You see, they make a lot of money, while increasing their premiums year after year, and denying benefits to people like you and me Mr. Druckenmiller, Fiona and the family don't have to worry about medical insurance. Their doctor flies in from Manhattan.
The wealthiest Americans have never had it so good, and pay the lowest taxes in modern times beginning with the Reagan administration tax cuts. Mr. Druckenmiller and his rich friends need to stop his bitching and start paying. Under Clinton, we had a $230 billion federal surplus, there was full employment, nearly 20 million jobs were created here at home, and every industry sector was booming, including the stock market, Mr Druckenmiller. The rich were not complaining then. In fact, America has more billionaires and millionaires than any other country, and the list is increasing every day. There has never been an income inequality between the richest Americans and working stiffs since the Depression. Mr. Druckenmiller has done pretty damn good I would say.
Dear Mr. Druckenmiller, I read your Duquesne Capital Management retirement letter to your investors, and it brought tears to my eyes, to see you go after ten wonderful years of ever increasing profits. I hope you don't mind if I share it with my readers. Have a great retirement, okay?
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