This is a good piece, because it tells the reader something about the general thinking of specific sources. Found it quite revealing.
Tepper, Barakett Abandon Stocks as Hedge Funds Shrink Holdings
By Miles Weiss
Nov. 17 (Bloomberg) -- Hedge-fund manager David Tepper entered the third quarter with $3.1 billion of U.S. stocks and exited with $648 million, selling most holdings to reduce risk and raise cash as carnage spread across the financial markets.
``We moved a lot out early because we didn't want to lose money,'' said Tepper, 51, president of Appaloosa Management LP in Chatham, New Jersey. The firm, which switched some money to bonds, has between 30 percent and 40 percent of assets in cash.
The story at Appaloosa, whose returns have dropped more than 20 percent this year, was repeated across the hedge-fund world in the quarter as managers were hit by client withdrawals, tumbling financial markets and tighter credit. Regulatory filings last week by 38 hedge funds with more than $1 billion in assets each show that selling and market declines cut the value of their reported holdings by about 30 percent to $273 billion.
The $1.7 trillion industry, which accounts for about a third of U.S. equity trading, continued to retrench in the past two months, contributing to the 25 percent decline by the Standard & Poor's 500 Index since Sept. 30. At least 75 funds have liquidated or halted redemptions this year. With the Nov. 15 deadline for year-end withdrawal requests now past, fund managers may be forced to unload more stocks to pay off clients.
``Hedge funds generally are the tip of the spear in good times and they are also the canary in the cage in tough times,'' said Andrew Lo, a finance professor at the MIT Sloan School of Management who also helps run a fund for AlphaSimplex Group LLC in Cambridge, Massachusetts. ``They are the first to get hit up with losses and the first to get out.''
Atticus, Tudor
Money managers who oversee more than $100 million of equities more must file, within 45 days of the end of each quarter, a Form 13F with the Securities and Exchange Commission that lists their U.S. exchange-traded stocks, options and convertible bonds. The filings don't show non-U.S. securities or how much cash the firms are sitting on.
Almost all the major hedge funds submit their reports within a few hours of the deadline, which was Nov. 14 for the third quarter. Managers of the private, largely unregulated pools of capital can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested.
Atticus Capital LP, based in New York, disclosed that its holdings declined to $510 million from $8.1 billion. The firm, run by Timothy Barakett, 43, sold out of 39 stocks while adding no new holdings. ConocoPhillips, MasterCard Inc. and Burlington Northern Santa Fe Corp. were the three largest positions he exited, with a combined market value of $2.68 billion as of Sept. 30.
In an Oct. 1 letter to investors, David Slager, 36, who manages the Atticus European Fund, told investors that more than 50 percent of his fund was in cash or U.S. Treasuries after he lost 43.5 percent year-to-date.
`Tipping Point'
At Tudor Investment Corp., the Greenwich, Connecticut, hedge-fund group founded by Paul Tudor Jones, 13F holdings fell to $453 million from $5.7 billion. Jones said markets face more selling from managers.
``Our concern now is less over year-end fund redemptions, as record cash balances have already been raised in anticipation, but with prospective fund closures,'' Jones, 54, said in an Oct. 31 report to his clients. ``This latter event represents a tipping point at which a fund's call on the market for liquidity goes non-linear.''
Moore, Vinik
SAC Capital Advisors LLC of Stamford, Connecticut, said its holdings were $7.7 billion as of Sept. 30, down from $14.4 billion at June 30. Founder Steven Cohen, 52, had about half the firm's assets in cash in mid-October, after his main fund fell 5 percent through September.
Louis Bacon's Moore Capital Management LLC said the value of its 13F securities fell 69 percent to $1.4 billion, while at Jana Partners LLC, a firm overseen by Barry Rosenstein that makes activist investments, they fell to $2.1 billion from $5.9 billion. Both firms are based in New York.
Jeffrey Vinik, who once ran the Fidelity Magellan Fund, disclosed that his Boston-based Vinik Asset Management LP held $1.8 billion at Sept. 30, down from $11.8 billion at June 30.
``Movements in financial markets were so volatile, so unpredictable and so seemingly detached from fundamentals'' that many hedge-fund managers ``didn't feel they had an edge,'' said Doug Peta, an independent market strategist in New York. ``The best thing they could do for their investors was to pull back entirely until markets returned to more of a sense of normalcy.''
Smaller Declines
The largest funds, including those run by David Shaw, Kenneth Griffin and James Simons, reported smaller declines in their holdings. At Griffin's Chicago-based Citadel Investment Group LLC, holdings listed on Citadel LP's 13F fell 11 percent to $50.4 billion. Simons's Renaissance Technologies LLC of East Setauket, New York, reported a 17 percent decline to $37.8 billion. At New York-based D.E. Shaw & Co., the filing showed a 20 percent decrease to $45.4 billion.
Officials at the hedge funds declined to comment on the 13F filings or couldn't immediately be reached.
This year has been the worst on record for hedge funds, with the average partnership losing 15.5 percent through October, according to data compiled by Hedge Fund Research Inc. Huw Van Steenis, a Morgan Stanley analyst in London, told clients last month that client withdrawals and market losses may cut industry assets some 25 percent to $1.3 trillion during the current quarter.
Borrowing Squeezed
Some managers sold stocks to build cash that they can use to meet client withdrawals triggered by subpar returns. Even managers who are outperforming have gotten redemptions because their clients need cash and their other funds are frozen.
Funds have also been forced to pare their holdings as prime-brokerage units of investment banks cut back on lending and raise the price of the loans they are willing to make. And many funds may have sold stocks as the quickest and easiest way to raise cash to pay down loans on bets on other assets that had dropped in value, such as energy futures, said Leon Metzger, a former hedge fund executive.
``If you bought oil at $140, you had some margin calls,'' said Metzger, who now teaches courses on hedge-fund management at several colleges including Yale University. ``What you have to do is sell your liquid securities so you can post more collateral.''
To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net
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