Kicking Hedge Funders When They're Down

Ouch! The Hedgies of Greenwich and elsewhere on the Fairfield County Gold Coast must be wincing. BloombergBusinessweek delivered a swift kick to their tender areas, complete with a cover illustration you've surely heard about.

OK, the average hedge fund underperforms the market. Does referring to "average hedge fund"make any more sense than talking about the "average teenager?"

Anyhow, performance isn't everything, as Josh Brown points out in his rebuttal to Sheelah Kolharkar's Businessweek story. Some high-net-worth investors crave status symbols more than alpha.

The BloombergBusinessweek story is timely because hedge funds are gaining the ability to advertise directly to the public. Theoretically, that public is limited to millionaires. (Hedge funds generally aren't supposed to deal with lesser mortals.) Still, over-aggressive marketing could move hedge funds into the financial mainstream at the cost of their "luxury" cachet.

Suppose Money magazine starts featuring "This Month's Five Hottest Hedge Funds." Might wealthy investors decide they'd rather have a Rolex?

James Gandolfini's will

"Tax disaster" says New York Daily News.

"Questionable planning, terrible reporting" responds estate planning attorney Jay Brinker.

I have additional details, but they are behind the Tax Analysts paywall.  Look for a discussion of the Gandolfini will in the next issue of Merrill Anderson's Investment and Trust Newsletter.

I'll give you our punchline now. We wouldn't be posting or writing about Mr. Gandolfini's estate plans if only he'd used a living trust—a point made also by Attorney Brinker.

Astonishing News!

From the WSJ:

Corporate Insiders Shift From 'Buy' to 'Sell' as Bankruptcy Nears

$50,000 Financial Plans

How much is a financial/estate plan from a broker worth? Depends on who you ask.

Millionaires Aren’t What They Used To Be

Reporting on the latest Spectrem survey of millionaires, The Guardian places people with $1 million among the "super-rich." The Telegraph describes them as "mega rich."

Are Americans with investable assets of $1 million really extremely rich? Or, as noted here recently, are they actually too poor to afford a comfortable retirement?

Most truly rich people will tell you that $1 million is small change. To most other people, especially those wrestling with high credit-card balances and student loans, $1 million still sounds like a vast fortune.

For sure, $1 million isn't what it used to be.

To live like a millionaire lived in 1987, you today need $2 million.

To live like a  millionaire lived in 1976, you need $4 million.

To live like the millionaire of 1959, you need $8 million.

To  live like the millionaire of 1945, you need $13 million.

And to live like the millionaire of 1935, you need $17 million.

Ring Them Bells!

Independence Day, wrote John Adams, should be celebrated with "pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations….."

This Chase nest egg ad, from exactly half a century ago, chose to feature bells.

Independence Day

Update: From the Paul Mellon collection at the Yale Center for British Art, an early depiction of New York liberated from King George.

The Most Expensive Home In Hedge Fund Country

This Greenwich mansion is the most expensive home for sale in the United States, according to Ocean Home. Asking price: $190 million.

The realtor describes the 50-acre estate as incomparable in Greenwich, where hedge funders go when they become billionaires.

Enjoyed by the noted Lauder Greenway family from their purchase of it in 1904….. This incomparable estate, 40 feet above mean high water, owns two islands and altogether they have a total of almost a mile of shorefront, amazing views, extraordinary walled gardens, unbelievable privacy, a 75 foot pool with a spa, a beach, a grass tennis court, a superb greenhouse, a stone carriage house and a cottage….

Asking $190 million isn't the same as getting it, these days. Before the real estate crash, even the Greenwich sky wasn't the limit. Nina Munk evokes the era in this 2006 essay for Vanity Fair.

Now even one of the Greenwich hedge fund greats, Steven A. Cohen, is besieged by the SEC.

The Image Is Becoming the Message

From this NY Times column:

“This is a watershed time where we are moving away from photography as a way of recording and storing a past moment,” said Robin Kelsey, a professor of photography at Harvard, and we are “turning photography into a communication medium.”

Texting is down (Yeah!) and image "messaging" is up. Successful marketing may depend not only on what you say but on what you show.

Social Security and gay married couples

The excess "marriage penalty taxes" and possible benefit reductions that JLM refers to below will take years to accrue. On the other hand, skyrocketing Social Security payouts go into effect immediately, per this item from Financial Planning:

http://www.financial-planning.com/news/how-gay-marriage-ruling-gave-benefits-to-a-client-2685621-1.html

The Almost Liberated Woman, Cont'd.

Following up on a recent post, here are two ads that illustrate the changes wrought in the 1960s.

From 1963, a Chase nest egg ad features a well-dressed woman watering her plants. (Shouldn't she have had staff for that?)

Half a decade later, in 1968, Peck and Peck shows us a woman more interested in growth stocks than growing plants. (Welcome to the Go-Go Years!)

Are Apples Collectible?

Christie's thinks so. First Bytes, an online auction, features this Apple-1 from 1976, the first product of the Apple Computer Company.

Also up for bid, and considerably cooler, this 20th anniversary Macintosh from 1997. Features include leather wrist-rests and a Bose sound system with external subwoofer.

The online auction ends July 9.

Taxing Same-Sex Marriage

Uncle Sam is expected to profit from the spread of same-sex marriage. (Divorce is another matter.) Upper-income couples could see their federal income tax bill grow thousands of dollars bigger.

One possible result: increased demand for tax-sensitive investment guidance.

Did You Save Your Confederate Money?

At the NY Times store, this $500 Confederate bond goes for $340. Not face value, but still . . . .

The Rocky Road to Manderley

Someday the effort to stage an American production of the European musical Rebecca – frustrated by a scam we mentioned here – will inspire a hit Broadway farce. Meanwhile, read David Kamp's entertaining synopsis, The Road to Manderley.

Where else will you find a real-life story in which at least three key characters, plus a considerable amount of money, turn out to be imaginary?

There’ll Always Be A Tax Haven

Even today, the sun seldom sets on the fragments of the British Empire. See this Telegraph slide show.

The fragments aren't as insignificant as their size suggests. Many have become thriving financial centers, including . . .

Anguilla: a population of fewer than 16,000 and a reputation as a tax haven.

Bermuda: a popular haven for corporations, especially reinsurance companies.

British Virgin Islands: the corporate tax rate is a less than punitive 0%.

Cayman Islands: probably the first locale people think of when they hear “tax haven.”

Gibraltar: where The Girl With the Dragon Tattoo stashed her millions.

Turks and Caicos: about 30% of GDP comes from “financial services.”

Until we get a world government (let's not hurry) tax havens will continue to lure business and spice up the practice of wealth management. Unfortunately, personal visits are seldom necessary.

Turks & Caicos beach

Related Posts:
The Girl With the Family Office
Shelters for Hedgies

Nicely done

Video by Loring Ward.

I never posted a video before.  If this doesn't work, here's the You Tube link:

http://www.youtube.com/watch?v=x0_0BVyjJY8

The point is the importance of professional advice.

1968: The Almost Liberated Woman

Bet the imaginary heiress in this 1968 Chemical Bank ad could have spiced up the plot of Mad Men. Her $300,000 was equivalent to a couple of million today.

Women were getting more attention in financial advertising in the 'Sixties, though they weren't quite liberated. (Yale College admitted its first women students, rightly described as superwomen, in 1969.) In Chemical's view, men were unlikely to spring for more than a custody account. Women would need an investment manager. You can see the contrast in the two ads shown here.

The Power of Graphics

When marketing financial products and services, often we're called upon to present facts and figures. Facts are facts and figures don't lie. But facts cam be slanted and figures – well, the message may depend on how you look at the figures, how you depict them.

Here's a remarkable example from today's papers. The WSJ shows T-bond yields taking a shocking leap as Global Tumult Grips Markets.

The NY Times takes the long view of bond yields and delivers a different message. Perhaps it's just the End of an Era.

Whether it's time to panic or to sit back and accept the inevitable is a question beyond the province of this blog. Personally, ten-year bond yields of little more than 2 percent don't sound like the end of the world.

Tax Reform? You Should Live So Long

Let's get income tax reform done in 2013, urges the Billings Gazette. This former Congressman believes tax reform can happen. Most taxpayers, not to mention most voters, probably hope he's right.

Before you get your hopes up, read Stan Collender: No Tax Reform Before The End Of This Decade. Collender is an old Washington hand and erstwhile staffer on Congressional tax committees. The last great effort at tax reform took three years to achieve, he points out. And Congress was relatively functional in those days. What's more, the 1986 Tax Reform Act had a dynamic champion in Dan Rostenkowski.

If we can update the corporate tax and classify carried interest as income by the time Obama leaves office, we should count ourselves lucky. 

Perils of Investing in Show Biz

From Vanity Fair:

Justin Bieber Con Artist, Who Wheedled $1 Million Out of California Investor, Faces Sentencing

Related post: Broadway's Biggest Mystery

Millionaires: No Longer Worth Marrying

These days, The New York Times laments, mere millionaires have to keep working; they can't afford to retire. Decades of inflation have reduced $1 million to nonwealth:

In 1953, when “How to Marry a Millionaire” was in movie theaters, $1 million bought the equivalent of $8.7 million today. Now $1 million won’t even buy an average Manhattan apartment….

 Remarkably low bond yields make 2013 an especially tough time to retire with a mere $1 million. Or maybe not. Truth is, retirees usually get the short end of the stick, one way or another.

 In 1980, for instance, Treasury bonds yielded double digits – around 10%. After the high taxes of the era, a retiree netted maybe 6%.  No, strike that. In 1980 a retiree netted less than nothing. That year the inflation rate was 12%.

As The Times suggests, retirees need common stocks in order to achieve positive returns. And they shouldn't let Mr. Market's mood swings scare them. That's easy for wealth managers to say, difficult for ordinary people to do.

Oddly, Mr. Market's mood swings don't scare anybody, even the most timid millionaires, when for no good reason he sends the Dow up 30%.

The Case For Trust Fund Babies

“The sooner my kids get experience dealing with the pluses and minuses of having a lot of money, the better.”

– Larry Ellison

“High Income” vs. “Wealth”

High-income folks aren't necessarily High Net Worth – a distinction worth preserving, but probably a lost cause. Credit James Taranto with giving it the old college try:

The relationship between annual income and wealth is analogous to that between caloric intake and body weight: The former obviously contributes to the latter, but they are not the same thing. 

To characterize somebody with a high annual income as wealthy is like assuming anybody who gorges himself at a meal must be fat. Wealthy people can have a low annual income, too. Think of dissolute trust-funders squandering their inheritance--in our analogy, the equivalent of obese starvation dieters.

 Actually, the trust-funders' low income occurs only after they've shrunk from wealthy to affluent. Nevertheless, Taranto makes worthwhile points about how the burden of the federal income tax is analyzed. The flip side of the mortgage-interest deduction, for instance, is higher tax on renters and taxpayers who own their homes outright.

Can Insider Trading Be Curbed?

The New Yorker's James Surowiecki looks at the boom in insider trading, fueled by fierce competition among thousands of hedge funds. Roughly 8,000 hedge funds exist. Eight thousand! On average they underperform the market.

Surowiecki suggests the value of insider information would decline if companies announced every material happening as soon as it happens. Would companies agree to make that information available to competitors? In any case, faster disclosure might not help.

Some companies, Surowiecki notes, no longer even report quarterly earnings. Considering the Wall Street farce that beating quarterly estimates had become, that seems like a plus.

Remember?

Acme CyberGlobal today reported first quarter earnings of $2.15 a share, exceeding analyst estimates of $2.14 per share. This marks the nineteenth consecutive quarter in which Acme's earnings have exceeded estimates by exactly one cent. 

Hedgers caught trading on insider information receive tough sentences these days. As legal threats to notable hedge funds have mounted, nervous investors may head for the exits. Even Steven Cohen's SAC Capital Advisers, Bloomberg reports, could be reduced to a multi-billion-dollar family office.

Woody Allen's "Madoff" Movie

Woody Allen's first creative response to Bernie Madoff's massive fraud was a New Yorker humor piece. Two Madoff victims, Woody imagined, are reincarnated as vicious, vengeful lobsters.

Now he's made a movie, Blue Jasmine. Alec Baldwin plays the Madoff-like figure. Cate Blanchett plays his wife. The film depicts her plight after her husband is imprisoned and stripped of his fortune.

Huguette Clark: "Due Influence"?

Hospital Caring for an Heiress Pressed Her to Give Lavishly

Her face disfigured by cancer, Huguette Clark checked into Beth Israel hospital in 1991. She stayed 20 years.

Huguette had step-siblings from her father's first marriage. Her last will left them nothing, favoring charitable beneficiaries, notably Beth Israel.

The reclusive Huguette seems to have distanced herself from her family, and  she certainly must have become almost family to Beth Israel.

Could this be a case of due influence? Should it be settled by awarding the step-siblings a little and otherwise honoring the last will? What do you think?

The Talk

Nice article in the NYTimes, on what adult children should try to learn about their parents' finances.

Wealth Mismanagement in Texas?

Not long after Invesco announced the sale of Atlantic Trust Wealth Management to CIBC, the head of  Atlantic Trust's Austin, Texas, office was found dead.

Now, The Wall Street Journal reports, "investors have come forward to say they lent him in total millions of dollars, according to people familiar with the matter. At least some of that money appears to have gone missing, the people said."

The Trust Company That Saved Olana

When Don Draper, Roger Sterling and the other Mad Men leafed through the April 27, 1968 issue of The New Yorker, surely they stopped at this lavish two-page spread from Bankers Trust.

The trust company had held Olana, home of famed artist Frederick Church, in an estate long enough for preservationists to save it. The self-congratulatory copy was possibly overdone. Just imagine the news items had the decision gone the other way:

"Only months before preservationists could raise money to save Frederick Church's Persian-styled home on the Hudson, Bankers Trust ordered the contents sold and the mansion razed." Would have been bad PR, to say the least.

Today Olana survives but Bankers Trust does not. After misadventures with derivatives, the trust company was acquired by Deutsche Bank in 1998.

Clouds over Olana, by Frederic Edwin Church, 1872

Wall Street Legend Sues Citigroup

Very old rich people stand a significant chance of being robbed or swindled by younger people. A recent example, as we noted last year, is Wall Street legend William Salomon:

Elder Abuse For The Man Who Once Ran Salomon Brothers?

In January Salomon's secretary, provided by Citigroup and accused of stealing over $l million, was found guilty of bank fraud, wire fraud, money laundering and tax evasion. She is to be sentenced June 5.

The 99-year-old Salomon puts his losses at $3 million. He isn't likely to get his money back from the unfaithful secretary, so he's suing Citigroup. 

Perhaps Sandy Weill should not have been so generous to Salomon. To understand why he was, see The Spectacular Rise And Fall of Salomon Brothers.

The 3% Solution – a Tough Sell

In his weekly Wealth Matters column, Paul Sullivan looks at Evercore Wealth Management. Founded by escapees from US Trust after Bank of America swallowed the nation's oldest trust company, Evercore asks the wealthy to focus on net investment results. That is, net returns after fees, taxes and inflation.

Admirable idea, but a tough sell. Even Sullivan has his doubts:

[W]hat I would have liked to see was a pre-fee return along with the returns before taxes and inflation.

Evercore's web site is cleaner than most. Also worth emulating, their uncluttered, plain-spoken newsletter.

Rich Women of 1968

Another flashback to the Mad Men era. Thanks to the agency that created this Air France ad, we now know the French for, "I want to rent a safe deposit box:"

Je veux louer un coffre-fort.

We've shown you a version of this Chemical ad before, Note the new photo at lower right in the montage. Hope the two guys forced to sit on that low, uncomfortable stone wall weren't her lawyer and her trust officer.

Too Big to Regulate

When you just finished The Big Short by Michael Lewis, this is not the headline you want to see in The New York Times:

Big Banks Get Break in Rules to Limit Risks

Art As (Sometimes Dirty) Money

Andy Warhol, "Dollar Sign"

"It is hard to imagine a business more custom-made for money laundering," That's how the art market is described in this NY Times article. 

Sting operations conducted by law enforcers may be helping to stem the tide. “Around 20 years ago," says Philip Hoffman of the Fine Art Fund, "people used to turn up with cash in suitcases to buy Old Masters and no one really cared.”

Will efforts to crack down on the use of art to move money invisibly, undetected by crime fighters or tax collectors, taint the asset class? Or will UHNW individuals continue to see art as a prestige investment?