Friday, September 27, 2013

“We Do the Insider Trading So You Don't Have To”

That's one suggested slogan  – "more truth than poetry," as my mother used to say – for hedge funds as they begin marketing to the millionaire next door. Others include:

"Trades great, more billing."

"Alpha for the rest of us."

"Hedged today, gone tomorrow."

"Fee all that you can fee."

Warren Buffet has marveled at the willingness of investors to believe that higher fees will produce superior performance. Nevertheless, hedge funds remain the place to put your money when you care enough to pay the very most.

Wednesday, September 25, 2013

Fight Over Photographer Bert Stern's Estate

Best known for his photos of Marilyn Monroe, celebrity photographer Bert Stern died at age 83 last June. In 1997 he made a will benefiting his three children from his first marriage (to the ballerina Allegra Kent) and placing his archive of photographs in a foundation. In 2010 he made a new will, pouring his estate into a living trust. We don't know the beneficiaries of the private trust, but presumably they include the "secret wife" who says she married Stern in 2009. Predictably, his children are questioning the second will.

The dispute caught my eye, taking me back to the days when The Merrill Anderson Company occupied a converted carriage house at 142 East 39th Street and Bert Stern was our next-door neighbor.

One morning as I arrived for work, three tall, thin young women, dressed to the nines, were standing on the sidewalk with a large picnic basket. As I entered 142, a Rolls pulled up to the curb. Bert Stern's models, off to a fashion shoot.

142 and 140 East 39th Street today 
Note that the floors do not line up.We had
lots of stairs.
When Stern left 140 East 39th for presumably more splendid quarters, The Merrill Anderson Company, bursting at the seams, rented the top two floors. Had to break through the building walls for access.

Bill Stafford, our brilliant tax editor, and I took over Bert's top-floor studio. Bill's desk was at one end, mine was at the other, near the fireplace and adjoining kitchen.

Come to think of it, that's about as close as I ever came to the Mad Men lifestyle.

Monday, September 23, 2013

Henrick Stenson: Playing Well is the Best Revenge

Golfer Henrick Stenson won the Tour Championship by three strokes. That achievement also earned him the FedEx Cup points championship. Combined winnings: over $11 million.

Some said Stenson needed the money. Much of his prior winnings had been invested with a former sponsor, Stanford Financial.  (For his massive Ponzi scheme, Sir Allen Stanford is serving a 110-year prison sentence.)

Sunday, September 22, 2013

Clark estate nears resolution

Years ago I was selected to be on a jury, much to my surprise.  On the day of the trial, I showed up right on time, as did the other jurors.  I drove past dozens and dozens of empty parking spaces in the garage, they were reserved for lawyers and court officers who weren't there yet.  That detail reinforced my conviction that the jurors are the least appreciated element of any trial.  Certainly, they get the least compensation for their services.

Anyway, we waiting for more than an hour for the trial to start, in the jury room. We were admonished not to speculate about the case, but of course that rule fell after about 10 minutes. We began comparing notes on the questions we were asked in voir dire, and wondered what it might mean.  Finally, the judge came in.

He told us that only because we had come to the court to do our civic duty, the parties had reached a settlement on the courthouse steps.  Nothing like a rope, or the loss of control, to focus the mind, as they say. The judge thanked us for our service, said our jury obligation was discharged for three years, and said our employers would not be informed that we had the rest of the day free.

Something similar seems to have happened in the jury trial over the last will and testament of Huguette Clark, whose estate ran to $300.  Jury selection was underway when the parties settled.  Reportedly the disinherited relatives will get $34 million after taxes, the nurse has to give back $5 million (but apparently can keep the gifts she received during Clark's life, including a Stradivarius worth $1.2 million).  Clark's California mansion will become a foundation, and presumably it well get some operating funds. Perhaps some of the relatives can get work there.

On the one hand, this seemed like an obvious case of caregivers taking advantage of a frail person for their own benefit. On the other hand, the distant relatives had made no effort to stay in touch with Clark, or to help her in any way.  I need a third hand to come up with an appropriate resolution.

Thursday, September 19, 2013

The Costly Decline of the IRS

Fiscal austerity has proved costly, Businessweek reports:
[B]udget cuts forced the IRS to trim 8,000 full-time workers from its rolls, 5,000 of whom were auditors. Those layoffs amounted to a 14 percent reduction in the agency’s enforcement staff, which caused the money that the IRS collects through audits to fall off by 13 percent.

Wednesday, September 18, 2013

When the Rich Get Poorer, Lawyers Get Richer

When somebody says, "It's not about the money," it usually turns out to be about the money.

Could the reverse also be true?

Ronald Perelman's legal battle with his former in-laws certainly seems to be about the money. Perelman believes his former father-in-law reneged on a promise to leave half the family media business to Perelman's former wife. She died in 2007. Perelman is executor of her will, and the will's main beneficiary is his daughter Samantha.

But so far, the battle has consumed millions. The former in-laws claim Perelman has burned through $20 million in litigation costs. By one estimate, the two sides have together enriched lawyers by $60 million.

The figure should keep on growing as the two sides contend in a New Jersey court this week.

Monday, September 16, 2013

Billionaires Aren’t What They Used to Be

Sixty-one American billionaires failed to make the new Forbes 400 Richest list. To make the cut required at least $1.3 billion.

Youth helped. Twenty members of the 400 are under age 45.

Richest woman: Christy Walton, with $34.5 billion.

Saturday, September 14, 2013

Putting on the Dog, Fifty Autumns Ago

Two more trust-and-investment ads from fifty years ago, showing that dogs can be either Old Money or New Money.

Beagling, a scaled-down alternative to fox hunting, was definitely Old Money. (Your obedient blogger remembers when The Ox Ridge Hunt Club in Darien, Connecticut had a pack of beagles.) You can sample a classic hunt in this video.

"Hound Dog," evoked in this Manufacturers Hanover ad, was surely New Money. Best known from Elvis Presley's 1956 recording, the song is considered a key link in the evolution of Rock from R&B.

One million dollars was real money in 1963. For instance, $1 million could buy 58 brand new Rolls Royces . . .

Rolls Royce: $17,000

. . . or 187 Jaguar XK-Es.

XK-E: $5,325

Monday, September 09, 2013

Can Responsible Investing Go Mainstream?

The Washington Post and The New York Times approached "responsible" investing from opposite directions the other day.

Businesses’ focus on maximizing shareholder value has numerous costs. The Post's Steven Pearlstein sees socially responsible investing as a possible antidote for Wall Street's destructive short-term focus:
[C]orporate time horizons have become shorter and shorter. The average holding periods for corporate stocks, which for decades was six years, is now down to less than six months. The average tenure of a public company chief executive is down to less than four years. And the willingness of executives to sacrifice short-term profits to make long-term investments is rapidly disappearing.
But socially responsible investing can't gain real clout, Pearlstein observes, unless it sheds its liberal-to-the-point-of-naiveté image. Perhaps that's already happening.

In Seeking Investments That Are Profitable and a Little Bit Green, the Times' Paul Sullivan reports that the responsible investing movement is becoming less single-minded, more pragmatic. Today's responsible investor, seeking well-run businesses that focus on the long term, might even buy shares in (avert your eyes, campus activists!) an oil company.

Will the pragmatic approach to socially responsible investing continue to gain traction? Will there continue to be a gender gap, or could more men learn to be thoughtful, long-term investors?

Friday, September 06, 2013

CRUTs, Collectibles and a Punch Bowl

For those with high incomes, Ashlea Ebeling points out in Forbes, the federal tax on long-term capital gain from the sale of collectibles, such as art or antiques, has risen to 31.8 percent. To eliminate tax the collector might use a charitable remainder unitrust. The charitable trust can sell the high-gain assets tax free, the donor may retain a generous lifetime income from the trust, and he or she gets a tax deduction for the estimated value of the trust "remainder."

Federal tax on capital gain from the sale of securities now rises as high as 23.8 percent, so here, too, selling via a CRUT might prove attractive.

One significant difference: When a donor moves publicly-traded shares into a CRUT and sells them tax free, the donor knows approximately how much the shares will fetch. A collector putting a family treasure up for auction ventures into the unknown.

To illustrate, consider this punch bowl. (We came across it while seeking an avatar for the figurative punch bowl that the Federal Reserve is about to take away). The silver bowl is venerable, made in New York around 1700-1710, only a few decades after the British renamed New Amsterdam.
Punch Bowl by Cornelius Kierstede

Descendants of a Boston Tory family put the bowl up for auction in 2010. Sotheby's expected it to sell for $400,000-$800,000. Instead, bidding escalated until only two contenders remained, one bidding by phone, the other an "anonymous bidder" in the auction hall.

Two million. Three million. Four million. Five million!

The anonymous bidder finally won the bowl for $5.9 million. That's by far the highest price paid at auction for a piece of American silver.

Wonder how a donor would feel if he or she realized such a windfall when selling via a tax-sheltered CRUT. Delight that what was expected to be a trust fund of $600,000 or so had ballooned to almost $6 million? Or remorse? "Why on earth did I tie up that much money!"
As to why the punch bowl sold for such an amazing price, that remains something of a mystery. Was it a matter of provenance? You may not know the bowl's Revolutionary-era owner, Joshua Loring, but in your school days you probably read about his pretty young wife. After the Loyalist Lorings fled their suburban home (possibly leaving the punch bowl behind) for the safety of Boston, Elizabeth Loring earned trans-Atlantic celebrity as the mistress of the British general Howe.
Note the sidebar to the Forbes article: Three Donors Tell Why They Set Up CRUTs.

Wednesday, September 04, 2013

The Willing Suspension of Disbelief

In 2003, a research company met with J. Ezra Merkin, a prominent Wall Street financier who had earned a fortune investing his clients’ money with Bernard L Madoff. 
During the meeting, according to a new court filing, Mr. Merkin … warned the unnamed company never to “go long in a big way” with Mr. Madoff. He joked that “Charles Ponzi would lose out because it would be called the ‘Madoff scheme,’ ” according to notes from the meeting.*** 
Some new details came from a phone call Mr. Merkin recorded during the fall of 2005, between himself and Mr. Madoff. After a different Ponzi scheme came to light involving the Bayou Group, a hedge fund firm in Stamford, Conn., Mr. Merkin told Mr. Madoff that this would further stoke suspicions about his business.
“You know, I always tell people, as soon as there is a scam in the hedge fund industry, someone is going to call about Bernie. It’s guaranteed,”••• 

Also included in the trustee’s amended lawsuit is a recounting of a meeting between Mr. Merkin and representatives of Ivy Asset Management, another firm that steered money to Mr. Madoff. At the meeting, Ivy raised questions about the uncanny consistency of Mr. Madoff’s returns.
When Mr. Merkin likened Mr. Madoff to the wizard of Oz, an employee at Ivy said, “Toto is still tugging at the curtain.”
To which Mr. Merkin replied, “The curtain is winning.”
Until Madoff was finally arrested in 2008, Merkin and others kept feeding millions into the massive fraud. Merkin himself claims to have lost $100 million.

Monday, September 02, 2013

Marilyn Monroe: Still Making Millions

Five years ago we noted that Marilyn Monroe's estate would not be able to cash in on the use of her name and image because she died a resident of New York. The choice of domicile apparently was made for estate tax purposes, and last year a Court of Appeals ruled that her estate cannot retroactively switch her domicile to California.

Nevertheless, Marilyn keeps on making money hand over fist. And why not? As it says here: she can't misbehave like Miley Cyrus.