Hedge Fund Strategies in Flux: The 21st Century Revolution of Wall Street

Hedge fund executives were a different breed in the 1980s and 1990s to what they are today.  Back then, hedge fund executives were working within a “culture of tough guy traders.”

Paloma Partners founder Donald Sussman recalls how in 1998, 37-year-old Columbia University computer science professor David Shaw – who had been working at Morgan Stanley with a “new secretive trading group that was using computer modeling” – asked for his opinion  on an  offer he had received from Goldman Sachs.

“Sussman’s career has been built on recognizing and financing hedge-fund talent, but he had never encountered anyone like David Shaw. The cerebral computer scientist would go on to become a pioneer in a revolution in finance that would computerize the industry, turn long-standing practices on their head, and replace a culture of tough-guy traders with brainy eccentrics — not just math and science geeks, but musicians and writers — wearing jeans and T-shirts.”

Shaw – and partner Peter Leventhol – “convinced [Sussman that] they could generate models that would identify portfolios that would be market-neutral and able to outperform others.”  In other words, a large amount of money would be made generating minimal risk.

Sussman recommended Shaw rejecting the Goldman Sachs’ offer and Paloma Partners made a $30 million investment with D.E. Shaw.  Today the company “has grown into an estimated $47 billion firm, earning its investors more than $25 billion — as of the end of 2016, tied for the third biggest haul ever.”

This is more than just a story about a successful company. It has resulted in a “quantitative revolution [which] has become the biggest trend in hedge funds today, capturing some $500 billion of the industry’s more than $3 trillion in assets and dominating the top tier. Seven out of the top ten largest funds are considered ‘quants,’ including D.E. Shaw itself.”

The massive transformation of strategy has resulted in a situation in which it has become “cheaper and easier for all investors to get into the game, leading to an explosion in trading volume.”

And that can be dated back to a preliminary chat Donald Sussman had with David Shaw in 1998.

 

Do We No Longer ‘Love New York’?

The NY Federal Government requested Cuomo’s administration to remove the ‘I Love NY’ road signs which threatened to cost taxpayers a $14 million penalty.  Now that it has been decided the campaign has finally “run its useful course,” a new tourism initiative will replace this one in time for summer.

According to a joint statement put out by Acting Transportation Commissioner Paul Karas and Thruway Authority Director Matthew Driscoll:

“Since the Governor initiated this branding effort, the number of tourists to New York State has increased by 18 percent and the direct economic impact of tourism on the State has skyrocketed by more than 20%.”

In addition, according to NYC & Co Spokesman Chris Heywood there was an increase in arrivals to NYC from the 2016 number of 60.5 million to 61.8 million in 2017.  This increase was put down to being driven “primarily by domestic U.S. tourism” (which could be put down to the I ❤️ NY signs?).

A bit further afield state officials are looking toward North County to get a tourism grant.  $13 million in capital funding has been earmarked by Cuomo to build new lodging properties in northern New York and last year a task force was set up to organize a model for successful lodging development in an effort to bolster tourism.  The money will be targeted specifically to the Thousand Islands and Adirondack regions.

 

Recent Investments

$28m has been invested into data-engineering technology firm Duco by Insight Venture Partners, NEX Opportunities and Eight Roads Ventures.  Cristóbal Conde entrepreneur also contributed to this fund, of which the lifetime entrepreneur said:

“I am delighted to be deepening my relationship with Duco at this important inflection point for the company. Re-conciliation in financial services, and particularly in banks and large asset managers, is an area that requires a shake-up and re-engineering in the coming years. Duco is focused on bringing technological advancements to market in an industry that is ripe for disruption. The company is taking significant market share and will emerge as a household name in the coming years.”

Shares of their New York Mortgage Trust (NASDAQ:NYMT) were just lowered by Zacks Investments Research. The shift was made from a buy rating to a hold rating.  The explanation for the move was given by Zacks as follows:

“New York Mortgage Trust is a real estate investment trust focused on owning and managing a leveraged portfolio of residential mortgage securities and a mortgage origination business. The mortgage portfolio is comprised largely of prime adjustable-rate and hybrid mortgage loans and securities, much of which, over time will be originated by NYMT’s wholly owned mortgage origination business, The New York Mortgage Company, a taxable real estate investment trust subsidiary.”

 

 

Changes in State Income Tax Code

The option of changing the state income tax code to a different system is not totally abhorrent to New York firms. The idea of the code becoming a payroll tax system has indeed, not been completely rejected as this alternative is explored by the state.

The reason for the possible change, is that it could help those New Yorkers who have been negatively impacted by the recent restrictions that have been put on to state tax detections from federal returns (due to the massive US tax code restructure that took place at the end of last year).  So now, Chief Executives who have some of the largest numbers of employees in their companies, are willing to consider this new system.

Other issues up for discussion concern the biotechnology industry. Just last week NYC government asked for proposals on the most effective use of $100 million funding and city lands to put toward the establishment of a life sciences hub in an effort to actually put New York in the playing field with cities like Boston and San Francisco.  This is just part of a larger amount of money – $500 million in resources – New York has attributed to attract biotech investment.

Life and Work in New York

What is it like to really live and work in New York?  For those thinking about the move, is this really doable?  And, if so, is it a real challenge or do the benefits outweigh the difficulties?  Here we take a very brief look at some of the factors to be considered.

First off the infamous WeWork phenomenon – that is not news in an of itself – is reaching a new level.  Instead of simply using the space for work one can also kinda live there now too with the Financial District’s WeLive phenomenon.  Spaces up to four bedrooms large can be rented out for a day or even a year!  For those looking for something smaller that is possible too as studios can also be rented for short- and long-term uses.

The advantage of this is that everything comes included – all the silverware, utensils and anything possible that you would ordinarily need to live.  You can make use of the bar, laundry room and swimming pool as well; it really has become a home away from home and for those traveling for work who need the space this is a great option.  It also works for those considering a more permanent move – of themselves or their entire businesses – to the New York area.  It is kind of like a trial to see how working would be in practice.

Another area we looked into was transportation.  Reports show it’s actually not bad at all.  According to Times contributor Jonathan Mahler, “In New York, movement—anywhere, anytime—is a right.”  Unlike some other large cities, there is just one flat fare when it comes to the city’s public transportation – the Metro.  So you “don’t’ get penalized for not being able to live centrally.”  Which is actually very positive considering how pricey that can be. And that also probably accounts for why NYC has become such a hub of culture.

 

 

Business Success: Taking it to the Next Level

According to Founder and CEO of BlackRock Laurence D. Fink, companies “need to do more than make profits.”  To get the support of BlackRock, they will have to “contribute to society as well.”   He added:  “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

Fink added that governments have to start preparing for the future, with a special emphasis on retirement, infrastructure, automation and worker retraining.

Apparently this works both ways.  In a recent video in Entrepreneur, contributor Greg Rollett argued that: “The entrepreneurs who find massive success are the ones who are part of communities that encourage them, help them and give them an edge.”

When looking at Dime Community Bank, it seems that this advice has already been implemented.  Given that the NY-headquartered-company, has 400+ employees, providing service throughout NYC’s five boroughs, as well as the surrounding metropolitan area in 28 communities and neighborhoods. Dime’s Board of Directors asserted that it seeks to “get the tax savings back into the economy while acting in the best interests of all of Dime’s stakeholders.”  As such, it intends to engage in the following activities to stimulate economic growth.

These include: establishment of jobs, review of corporate policies and practices, paying $1,000 bonus to all non-executive employees, the institution of a Corporate Matching Gift program, continuation of the #dimesgiveback social media campaign.

New York: Investing in Education

In different areas of New York, there have been positive (and some negative) developments vis-à-vis educational growth.  Here we give a brief overview of a few of the recent ones.

Having just raised $2.1 million in new funding, Wonderschool is now in a position to open 150 programs in New York City.  The organization – a network of in-home daycare and preschools -mainly acquired the capital  the following non-profit investment firms: Be Curious Partners, Edelweiss Partners, Learn Capital, Omidyar Network and Rethink Education.  This news is most welcome given the New York City Department of Education’s announcement  that it will close 14 public schools.

When it comes to forward-thinking tech education, Netflix CEO Reed Hastings is all about supplementing elementary and middle school education via student-customized games, lessons and more.  That was back in 2011.  Today, over 2 million kids use the  DreamBox Learning platform which assembles data on students’ performance, tracking how long it takes for them to get the right answer to a question, etc.  thereafter it responds by raising/lowering the difficulty level.  Per hour, over 50,000 data points are assembled for each student.

For Retail Therapy, January in New York Makes the Best (Budgetary) Sense

It seems like January is the time to come to New York.  At least according to British journalist Graham Boynton who writes in The Daily Mail.  Even though one might initially be put off by the weather there at this time of year, actually the skies can be bright blue and one would thus be able to take a beautiful stroll around Central Park.

As for the rest of the time, January really does seem to be the time to travel to New York.  With cheaper flights thanks to companies like Aer Lingus (offering substantial discounts on flights to the US, reducing prices on 3 million seats), and British Airways (£386 return) what better time to use those savings than with New York’s January sales?

The madness of December (Christmas and New Year’s) has abated and the streets and stores are pretty calm.  For retailers this is great as stores are desperately trying to lure customers in rather than sit home by the fireplace.  There are bargains galore in all the traditional haunts like Barneys, Bloomingdales and Madison Avenue.  Even if you don’t want to brave the weather you can enjoy the sales online from the comfort of your (reduce price) hotel room. There are many name brands that will pick up returns the next day if it’s not quite to your liking.

Of course, if you are going to travel to New York for some bargain hunting, be sure to take advantage of Broadway Week (Jan 16- Feb 14) which offers two-for-one ticket deals for many of the major shows.   And restaurants that are usually packed to the brim in December suddenly become very readily available for bookings and possible discounts too.

 

 

Bolstering Small Businesses

Developed by Andrew Cuomo, the Innovation Vouchers Bill seeks to facilitate the struggle small businesses and startups undergo.  In trying to raise the money for their R&D work, they need backing.    At the same time, educational institutions have the resources for the development of these ideas but lack the projects in real life.  This venture from Cuomo puts the two groups together.

In other New York tax-related news, members of the city council showed support for retailers in the region with their approval for an action that would decrease the city’s Commercial Rent Tax. With this reduction, around 2,700 Manhattan SMB owners will benefit.  As well, elected officials seeking to assist independent neighborhood retailers will positively impact quality of life in New York City. Once the neighborhoods become more attractive, there is an increase in property values and tax revenues in the region.