SEC makes temporary short-selling rule permanent

This is very interesting and probably not nearly as powerful as it is meant to be. I feel like the SEC believes that banning 'naked' short selling will somehow stem the magnitude of market sell-offs but that is not necessarily the case. This is a fairly 'feel good' action on their part. There are still many ways to create naked and otherwise short positions through the use of fairly basic equity option strategies. It fascinates me that regulators feel the need to intervene in a place where when inefficiencies exist astute market participants usually correct them fairly effectively.

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SEC makes temporary short-selling rule permanent

The Changing Horizon for Alternative Investments

I've been off-line for the past couple of weeks, attending the 6th Annual Plan Sponsors and Minority Managers Consortium as well as the Toigo Foundation Alumni Investment Management Conference, both here in LA. The events were great and both shared insights on the changing landscape of the investment management industry in general, and some significant changes in the alternatives space specifically. I'm currently compiling my notes and findings and will post a summary when I return back East next week. In preview, topics covered an in depth look at the change and growth in emerging markets and their importance in our local investment programs and objectives. The continuing development and rise of the secondaries market as both a marketplace for LP's looking to reduce exposure to certain segments of their portfolios, like LBO’s, to those looking to gain access to new markets at discounted rates, like distressed bank asset portfolios. There was also a great discussion on the changing use of fund of funds and advisors as this alternative investment space continues to become more complex and offer more investment options. While some have sought to increasingly look to fund of fund and consultants for direction and advice, others are growing their internal desks and looking for direct investments and placement of capital. All this is very interesting and will likely fuel further debate and interest in the alternative space going forward. That will be all for now. I’m going to miss the sun. I’ve heard it’s been quite hazy in the north east of late. And not just in terms of market direction. . .

Secondaries Second Coming - Secondary Market for Private Equity Shows Life

The long existing, lately developing private equity secondary market appears to have been experiencing an increase in interest recently. As more players and liquidity come to the market, more deals and LP’s looking to either raise capital or reduce private equity exposure are met with buyers at this would be financial sample sale. Attracted by discounted prices, of late the space has been reminiscent of the closed-end fund market which has traditionally traded at a discount to NAV. The market has now come alive. As financial markets and economies have stabilized in the interim so has the asset class. With the market supporting more active buyers than sellers it appears that an effective valuation bottom has been reached in the space. Perhaps the best 'deals' are likely to have come and gone and sellers are no longer in such dire shape as the ground beneath the overall asset class has firmed. However, similar to the real estate market, there is also another dynamic at play. As those NAV’s plummeted some sellers simply pulled offerings if they weren’t in a situation where they were forced to sell. There are still numerous offerings in the wings. As these sellers return back to the a market with more natural buyers they are likely to see more 'fair' bids, albeit still at discounted levels.

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Real Estate Revisited - Apollo Staffing Up For RE Fund

While this was a standard press release by the Apollo Group, I gleaned a lot of insight from this simple announcement. In some respects smart money will always be smart. ContraCapital was founded on looking at the real estate asset class and deals, and we continue to see opportunities domestically and even more so overseas. The fact that one of the largest and most revered PE funds is gearing up to commit capital to the space should tell us all something. A true ContraCapitalist is always willing to look in places currently out of favor. Even with the retail inventory glut and the second shoe yet to drop on the commercial side, there are depressed and distressed markets that are offering extremely attractive long term value. In addition to that, there are markets overseas growing underneath the radar. Lots or debt and leverage are currently a bane to most funds. However, those with the capital and patient investors should be generously rewarded as markets further settle in the future.

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Fund of Funds Flout Failure

One of the more interesting articles I read recently was an article on the Fund of Fund investment strategy defying the collective consensus of its impending doom. No surprise to a 'ContraCapitalist' (sorry for the plug), but what's really behind this phenomenon. Part of this predicted demise was due to the success of the multi-strategy funds and the incorrect conclusion that these investments were fungible. Turns out these investments are quite different in their risk and return profiles. While there is that issue of the double layer of fees for fund of funds, in times like these it seems that investors are more willing to leave the investing to the professionals and pay up. An investment in a muti-strat fund is still an investment in one fund. A fund that you've agreed to let the manager embrace 'style drift' mind you. There is an inherent increased risk associated with these funds. These days capital preservation seems to trump capital creation and an investment in a fund that is well diversified across a spectrum of investments will undoubtedly have less risk than a singly invested position. I think modern portfolio theory still holds up these day, albeit less steadily.

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