SALT 2012: The Highlights

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14 May, 2012

“SALT is the Superbowl hedge fund conference,” mused one attendee. In four short years, SALT, the brainchild of Anthony Scaramucci, the charismatic founder of SkyBridge Capital, a $6 billion fund of funds, has become the premier hedge fund conference. “He (Scaramucci) gets some top people there,” said another delegate. The event, which takes place every year in Las Vegas’ Bellagio Hotel, does not just attract the highest pedigree of hedge fund managers and investors – politicians including George W Bush, Bill Clinton and Gordon Brown have all spoken there too. The conference is even being exported to Singapore next October. Whether or not Singapore will prove as attractive a destination as Las Vegas is debatable. Several attendees reckoned the Las Vegas act would be a tough one to follow. SALT 2012 was generally well-received by attendees although some complained it was rather impersonal on account of the sheer volume of delegates. The event featured several high profile politicians including Al Gore (“When you hear him speak, you can see why he lost in 2000,” one person joked cruelly), Sarah Palin (“She didn’t say anything stupid”) and Robert Gates (“Outstanding. He should be president” oozed one admirer).  But what were the big issues at SALT 2012?

Europe is screwed

Unsurprisingly Europe featured heavily in discussions. The overwhelming majority of panellists were bearish on Europe. “Europe is a train wreck and will collapse,” said Nouriel Roubini, co-founder and chairman of Roubini Global Economics, a macroeconomic and market strategy research firm. “My biggest worry is going to be next year because there is going to be a perfect storm. There will be restructuring in Portugal while Spain will lose market access, and Greece will have to exit the euro. This could lead to contagion effect for the rest of the world, and potentially lead to a double dip recession in the US,” he added, rather pessimistically. This negative sentiment was also echoed by several heavyweight hedge fund managers. Harbinger Capital’s Philip Falcone warned the audience the ongoing crisis in Europe would have “ripple effects” on the rest of the world, adding China would be particularly hit. Eric Sprott, founder of Canadian multi-strategy fund Sprott Asset Management, also predicted Greece will be unable to pay back its debt and suggested Spain might struggle too thereby posing a serious survivorship challenge for the eurozone.

Washington is hated

“Washington – it’s a piece of shit,” commented T Boone Pickens, the legendary billionaire energy investor and founder of BP Capital, in what possibly got the biggest laugh and cheer of the entire conference. Resentment towards the Obama administration remains high, particularly as debate about the Buffet Rule, which intends to force the 1% to pay a fairer rate of taxes, is reaching fever pitch. Several panellists criticised US tax laws and proposals, alongside government wastage and welfare dependency.  “A lot of hedge fund managers supported Obama in 2008 and he has not reciprocated,” said one delegate. The audience, overwhelming Republican, were enthusiastic about Mitt Romney and many predict a tight election come November. However, there is a risk some managers are pinning too much hope on Romney repealing vast swathes of regulation – this will not happen. While his rhetoric towards financial institutions is friendlier than Obama’s, ditching Dodd Frank and other unpopular regulation is politically impossible.

Macro is meh

Enthusiasm for macro hedge fund strategies was muted. “There is a perception that macro is a great diversifier with little correlation to markets. The disconnect is that it is not performing well and managers have generated mediocre returns for investors,” said Ray Nolte, managing partner and chief investment officer at SkyBridge. Macro attracted almost $28 billion in new capital last year but has generated sluggish returns of just 0.34% year-to-date 2012, according to Hedge Fund Research.   Pierre LaGrange, managing director and chairman of Asia for Man GLG, said his firm was adopting a macro neutral approach, adding macro was not one of Man GLG’s strengths. Whether or not investors vote with their feet at the strategy’s underperformance remains to be seen.

Tough times for small managers

Risk-averse investors appear to be shunning smaller managers despite many of these outfits consistently outperforming their larger counterparts. ““Most of the capital is flowing into managers with more than $5 billion in Assets under Management (AuM). The figures we are seeing display a lack of risk conviction among investors in the current market environment,” said Kenneth Heinz, president of data providers Hedge Fund Research.  “As the industry gets ever more institutional, it is mostly inevitable they will go for larger hedge funds,” agreed Ray Nolte of SkyBridge. Nevertheless, one investor argued that some allocators were open-minded about putting capital into smaller fund managers. Paul Zummo, co-head of J.P Morgan Alternative Asset Management and chief investment officer, said his firm did not have rigid rules pertaining to minimum AuM but added “we focus most of our resources on managers who have assets between $250 million and $750 million. Oftentimes, if we put cash into big hedge funds, it can lead to complexities.” But there are reasons to be optimistic....“We are entering a golden era of hedge funds. The talent level at many of the hedge funds is the best I have ever seen,” said Daniel Stern, chief executive officer at Reservoir Capital Group, a New York-based investment firm. “There is a migrant of talent coming off the street,” he added. Stern highlighted the Volker Rule and Basel III had been instrumental in prop traders and other senior execs spinning out of investment banks. “The best talent is coming to market,” he said hopefully.

Disinterest in regulation

A panel on enforcement and regulation (which unfortunately was off the record and cannot be reported) was telling not just because of its content but due to the lack of attendee interest and attendance. In a conference hall with a capacity of roughly 1,800, very crude estimates would guess just around 5% of seats were occupied. Furthermore, it was not possible to gauge how many of those attendees were vendors. In this regulatory and compliance-driven world, managers cannot afford to not understand these issues. “I am not shocked by the lack of attendance. However, when CEOs and front office employees finally understand the regulations they are up against, they are going to be in for a shock,” rued one expert.   The expert added managers should not underestimate the impact regulation is going to have on their day to day activities. It will be interesting to see whether a similar panel this time next year attracts more people – after all, FATCA, Form PF and mandatory clearing of swaps could potentially all be in place and impacting these managers’ businesses.

The Politicians

Al Gore, former VP, Robert Gates, former defence secretary and Sarah Palin, former governor of Alaska all spoke, with Palin being lumped into the conference graveyard slot.  Several audience members said Gore was somewhat wooden in his delivery while Gates received plaudits for speaking intelligently about international affairs and policy. “I just wanted to see if she would say something stupid,” joked one delegate before watching Palin. He would be sorely disappointed. Palin’s ire was focused on government wastage and excessive regulation – the latter something that resonates with many in the industry. Her main comments were perfectly reasonable – criticising the General Services Administration, a body tasked with cutting government and public sector waste, for holding a taxpayer-funded piss-up in Las Vegas – was hardly going to give her liberal critics ammunition.   Nor was her stance on cutting American debt, currently at unsustainable levels, an absurd proposition. “It was very well prepared and looks like it was carefully managed,” said one audience member on Palin. Another was slightly crueller – “I had a headache already and she (Palin) made it worse.” The conference highlight was easily the sparring match between Karl Rove (former chief of staff to George W Bush) and Robert Gibbs (long-time adviser to Obama and White House press secretary until 2011). “The President stopped a depression,” said Gibbs, although this was countered by Rove – “The President is anti-business.” Gibbs was also put on the cosh for his former boss’s failure to apologise about comments made by Bill Maher, a comedian and Obama supporter, about Romney’s Mormonism.

And finally....Maroon 5

Courtesy of Northern Trust, boy-band Maroon 5 entertained attendees on the Wednesday night finishing the evening off with their latest hit Moves Like Jagger. “I told my daughter that I was seeing Maroon 5 play. She wants their autographs although I am afraid to go home if I don’t manage to get them for her,” said one hedge fund manager. One female delegate “jokingly” complained that her view of Maroon 5 was obscured by a lot of male hedge fund managers.

SALT Singapore will take place at the Marina Bay Sands between October 17 and 19, 2012.

 

Written by Charles Gubert

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