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jerryking : holding_periods   6

Passive investing is storing up trouble
August 2, 2018 | Financial Times | by Megan Greene.

I was recently informed by the owner of an artificial intelligence fund that markets do not listen to economists any more. .....A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals. But just because some markets do not pay attention to economists, it does not mean economists should not pay attention to these markets........AI quant funds are not waiting on tenterhooks for analysis of every non-farm payrolls report, Fed press conference, Donald Trump tweet, or earnings report. Instead, they look for trading strategies that are succeeding and adopt those strategies until a better one comes along, regardless of the underlying fundamentals. But what happens when the strategy suddenly becomes to sell everything? Will the computers find the buyers they need?.......ETFs, often set up to mimic an index, have to buy more of equities rising in price, sending those stock prices even higher. ETFs similarly ignore fundamentals.....This creates a piling-on effect as funds buy more of these increasingly expensive stocks and less of the cheaper ones in their indices...Risks of a bubble arise when there is no regard for underlying fundamentals or price. It is reasonable to assume a sustained market correction would lead to stocks that were disproportionately bought because of ETFs and index funds being disproportionately sold.

But again, in a crisis will the ETF managers find liquid markets? ....Passive investors and quant funds could also threaten the economy by making markets vastly more complex, noisy and opaque. They send mixed signals to active investors about what the fair value of a stock is. That could cause a significant misallocation of capital.

The danger is exacerbated by the speed at which trading is now done. The average holding period for a security on the New York Stock Exchange has fallen from two months in 2008 to just under 20 seconds today.......Systemic failures, misallocation of capital and dried up liquidity could cause a bear market, dragging on growth when the economic backdrop is already lacklustre......So even though passive investors ignore economists, economists should pay attention to risks posed by the shift in market structure they represent....This is not to say that index funds, ETFs and AI quant funds are necessarily bad. But the real test will come when there is a sudden crisis followed by a sustained bear market.
active_investing  artificial_intelligence  bear_markets  economists  ETFs  holding_periods  index_funds  investing  liquidity  misallocations  NYSE  passive_investing  piling_on  risks  systemic_failures  rules-based  bubbles  quantitative  market_fundamentals  crisis  dark_side  pay_attention 
august 2018 by jerryking
An unusual family approach to investing
May 30, 2018 | FT | John Gapper.

JAB’s acquisition of Pret A Manger resembles private equity but with a long-term twist.

Warren Buffett’s definition of Berkshire Hathaway’s ideal investment holding period as forever. ....Luxembourg-based JAB, owned by four heirs to a German chemical fortune, takes a family approach to investing. It is unusual in that this holding company seeks to retain its portfolio companies for at least a decade. These include Panera Bread, Krispy Kreme and Keurig Green Mountain coffee, which it merged with Dr Pepper Snapple in an $18.7bn deal in January 2018. This week JAB acquired the UK sandwich chain Pret A Manger for £1.5bn, continuing its buying spree of cafés and coffee, mounting a challenge to public companies such as Nestlé.

**These companies are acquired not to be traded but to be invested in and expanded.**

JAB is an innovative combination of ownership and investment in a world that needs challengers to stock market ownership and private equity. It is family controlled, but run by veteran professional executives. When it invests in companies such as Pret A Manger, it deploys not only the Reimann family’s wealth but that of other entrepreneurs and family investors.......Some of the equity for its recent deals, including Panera and Dr Pepper, came from funds raised by Byron Trott, the former Goldman Sachs investment banker best known for being trusted by the banker-averse Mr Buffett. Mr Trott’s BDT banking boutique specialises in advising founders and heirs to corporate fortunes, including the Waltons of Walmart, and the Mars and Pritzker families.

This is investment, but not as most of us know it. By definition, the world’s companies are mostly controlled by founders and their families — only a minority become big enough to be floated on stock markets and need to disclose much of their workings to outsiders. Family fortunes also tend to remain as private as possible: there is little incentive to advertise how much wealth one has inherited......As [families'] fortunes grow in size and sophistication, more of the cash is invested in other companies rather than in shares and bonds. That is where JAB and Mr Trott come in.

Entrepreneurs and their families tend to be fascinated by their own enterprises and bored by managing their wealth. But they want to preserve it, and they often like the idea of investing it in companies similar to their own — industrial and consumer groups that need more capital to expand. It is not only more interesting but a form of self-affirmation for the successful....Being acquired by JAB is appealing. The group turns up, says it will not take part in an auction but offers a good price (it bought Pret for more than its former owner Bridgepoint could get by floating it). It often keeps the existing executives, telling them they have to plough their own money into the company, and invests in long-term growth provided the business is efficiently run.

This is more congenial than heading a public company and contending with a huge variety of shareholders, including short-term and activist investors. It is also less risky than being bought by 3G Capital, the cost-cutting private equity group with which Mr Buffett teamed up to acquire Kraft Heinz. While 3G is expert at eliminating expenses it is less so at encouraging growth.
coffee  dynasties  high_net_worth  holding_periods  investing  investors  JAB  long-term  Nestlé  Pritzker  private_equity  privately_held_companies  Unilever  unusual  Warren_Buffett  family  cafés  Pret_A_Manger  3G_Capital  discretion  entrepreneur  boring  family_business  heirs 
may 2018 by jerryking
Hedge-Fund Managers Playing Larger Role in Art Market -
Kelly Crow,
Sara Germano and
David Benoit
Jan. 23, 2014

Hedge-fund managers, who play a vital but disruptive role in the broader financial markets, are increasingly throwing their weight around the art market: They are paying record sums to drive up values for their favorite artists, dumping artists who don't pay off and offsetting their heavy wagers on untested contemporary art by buying the reliable antiquity or two. Aggressive, efficient and armed with up-to-the-minute market intelligence supplied by well-paid art advisers, these collectors are shaking up the way business gets done in the genteel art world.....Today, are applying their day-job tactics to their art shopping, dealers say.

Corporate raiders a generation ago typically held their art purchases for at least a decade. Today, the average holding period for contemporary art is two years, according to a former Sotheby's specialist. That is enough time to reap a tidy profit on a rising-star artist but hardly enough for art history to rule on the artist's lasting merits.
art  artists  collectors  Wall_Street  hedge_funds  contemporary_art  moguls  Sotheby's  investors  dealerships  Citadel  Ken_Griffin  volatility  Christie's  market_intelligence  herd_behaviour  aggressive  art_advisory  real-time  holding_periods  art_market 
january 2014 by jerryking
Key differences between hedge funds and private equity
Mar/Apr 2006 | The Secured Lender Vo|. 62, Iss. 2; pg‘ 26. 3 pgs| by Mark K Thomas. Peter J. Young.

The last few years have brought an explosion in the number and size of hedge funds. Additionally, recent deals by private equity funds are much larger than in the past and include taking publicly traded companies private. Although these funds do not represent long-term threats to each other, secured lenders must recognize that private equity and hedge funds have markedly different characteristics. goals and behaviors. Major differences between the two types of funds include: 1. time to hold. 2‘ liquidity and leverage, 3. strategic direction, 4. due diligence methodology. 5. risk tolerance, 6. mark to market, 7. desired return on investments. 8. control, 9. assessment of EBITDA, leverage, liquidity and other standard financial metrics. 10. industry focus, and 11. management fees. Knowing the major differences between the types of funds will enable a secured lender to anticipate behavior in transactions
involving both types of funds.
private_equity  hedge_funds  venture_capital  holding_periods  liquidity  leverage  due_diligence  risk-tolerance 
september 2012 by jerryking
Pictet Partner Reflects on His Career and Asian Growth -
JUNE 8, 2010 | WSJ | by DUNCAN MAVIN. WSJ: What has surprised
you most about Asia's private-banking industry?

Mr. Pictet: I am impressed by the tremendous ability of Asian
high-net-worth individuals to create wealth through their business
networks. They didn't just survive the last few financial market crises
relatively unscathed, but also demonstrated their remarkable capability
to replenish their liquidity in a very short time frame.

WSJ: What's the difference between high-net-worth investors and the rest
of us?

Mr. Pictet: Generally, if you are talking to high-net-worth clients
familiar with financial markets on a world-wide basis, they tend to
target a return on investment with a shorter time horizon. They
personally get involved in decision-making rather than giving a mandate
to professional managers, and assume a somewhat higher risk profile with
frequent use of leveraging.
private_banking  high_net_worth  Asians  leverage  personal_involvement  risk-taking  ROI  time_horizons  holding_periods 
june 2010 by jerryking

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