Tuesday, September 24, 2013

Why is Chrysler filing for an IPO?

A strange situation has developed at Chrysler, where the company has reported that it is filing for an IPO, even though its majority owner, Fiat, is in opposition to the filing.

So what's going on?   Back in 2007, the big 3 automakers created something called VEBA -a trust that allowed the firms to transfer their retiree healthcare benefit obligations to the UAW.   All was well, until the financial crisis "carpocalypse" and the UAW had to take shares in GM and Chrysler instead of cash because these automakers were broke.   Now the UAW wants to cash out, but is unhappy with the price being offered by Fiat - hence the IPO (the VEBA arrangement allows the UAW to push for an IPO).   The UAW is hoping that the IPO will result in a higher price than what Fiat is offering.  

Fiat isn't happy because a higher valuation will mean that it has to pay more to buy out Chrysler's share of the VEBA fund.  But, the UAW could lose out though if the valuation comes in lower.

Either way, Fiat and the UAW are playing chicken.  This should be interesting, but there's a good chance this IPO will never happen.

Monday, September 23, 2013

The pros can't pick experts either...

I read the headline that billions of dollars is wasted on investment advice and thought - so what's new?

But then I remembered that the vast majority of those in charge of managing money actually think that they can pick winners.  They can't - and here's yet more evidence...


Here's a link to the research paper.

Friday, September 20, 2013

What is it like being an investment banker?

A great first person account

How to waste $15 million of the state's money.

Apparently the NC pension fund just put about $1 billion into alternatives.   We don't know the fees on these products, but assuming 1.5% (which is roughly what the state pays on similar "investments") the total fees resulting from this move will be about $15 million (and that's just this year).


Monday, September 9, 2013

Hedge Funds lost money on Nokia.

Apparently many hedge funds lost a lot by betting against Nokia.  They weren't counting on MSFT buying the company's handset business.

A few thoughts:  

1.  Even though hedge funds have the word "hedge" in their title, they frequently don't.   It is very common for them to take one way directional bets.   The idea that somehow hedge funds are doing something clever and special is just not true.

2.  If the hedge funds were trying to hedge, the smart move would have been to be long Nokia and short MSFT.   Of course, it's easy to see that after the event -- but that's the point -- predicting the market is a fool's errand.

3.  The one thing that hedge funds are good at is getting paid to make these bets.   The typical fee structure is 2% of assets under management plus 20% of all gains.   A classic heads "I win, tails you loose" fee structure.

Luck in money management

Great piece on the role of luck in money management.  

Bottom line - it is virtually impossible for an individual investor to determine whether an investment manager's performance is due to luck or skill.  Yet investors (small and large) continue to line up to pay handsome fees to managers who, as far as we know, just got lucky.

Friday, September 6, 2013

Another MOOC - this one is on Pension Fund finance

Here's another MOOC, this time on Pension Fund finance.  https://novoed.com/rauh-finance/

Josh Rauh is one of the leading academic researchers in this area.  This course should be required for anyone who has any involvement with Pension Funds.

In which I am on TV talking about the NC Pension Fund

WRAL (our local TV Channel) recently interviewed me for a segment that they did on alternatives in the NC Pension Fund.

The important takeaway is the initial graphic showing the explosion in fees paid by the fund. This is my main concern - as I have said before, fees destroy returns.

Wednesday, September 4, 2013

Asset Pricing MOOC

If you are interested in Asset Pricing (the pricing of financial securities), then you might be interested in a MOOC being taught by John Cochrane of the University of Chicago.  

Cochrane is an expert in asset pricing - he wrote the book, actually, a book called "Asset Pricing", he also blogs as the Grumpy Economist.

This is one of the first high level finance MOOCs that I've seen.   Be warned though -- the content will be pretty mathematical.