SLIPPING HALO?

Is all well at the Court of King Louis?

Is Hedge-fund King Louis Bacon’s halo beginning to slip?  

In the first half Of 2011, Bacon’s flagship Moore Global Fund was down 5% according to various well-informed. news reports. Back in May it was further reported that Moore Capital had been displaced in the TOP 20 biggest world hedge funds. In the same month American insurance giant A.I.G. filed a law suit against  ICP Asset Management and Moore Capital. According to the New York Times A.I.G. which is now mostly owned by the US taxpayers “suffered losses while insuring mortgage securities created by ICP. The suit says ICP manipulated those securities in a way that benefited itself and Moore Capital.” Although the main thrust of the suit is aimed at ICP it also argues that Moore Capital should repay any gains it made from dealing in the alleged suspect securities.

In March Bacon had been embarrassed when news leaked out that despite his opposition on supposed environmental grounds to a proposed Xcel transmission line over his 171,000 Colorado ranch, his own hedge fund had a near $60m stake in Xcel. Moore Capital owns 2,300,00 shares in the utilities company. Invited by the Denver Post to defend his position, Bacon wrote: “The transmission line is an unnecessary white-elephant project that will generate hundreds of millions in profits for Xcel’s owners while sticking ratepayers for the bill”.

Perhaps more worrying for investors has been the succession of regulatory issues and

concerns that have been highlighted over the last 2 years.

 

• In April 2010 Moore Capital in New York paid $25m to settle charges by the Commodities Futures Trading Commission alleging that a former manager had attempted to manipulate platinum and palladium prices in 2007 and 2008. As part of the settlement Moore Capital had its registration as commodity pool operators and commodity trading advisors restricted for 3 years.

 

• In March 2010 the Financial Services Agency and Serious Crime Agency of the UK raided Moore Capital’s Curzon Street Headquarters and arrested Julian Rifat a trader at the firm on suspicion of  being involved in a widespread insider-dealing ring. The case has not yet come to court.

 

• In September 2008, Steven Harrison a former top Moore Capital trader in London paid a $78,000 fine to the FSA to settle a market abuse investigation.

GREG COFFEY

GREG COFFEY

D.O.B: 20/04/71.

Coffey is one of the highest-paid traders in the world. He surprised the City in

November 2008 by moving to Streaky’s hedgefund operation. For some years previously he had worked for GLG Partners and when he left in April 2008, GLG’s

Share-price declined noticeably. He left to go out on his own so that it was quite a feather in Streaky’s cap to get him on board. He is so important to the Moore Europe operation that he is a director of Moore Europe Capital Management LLP.

In 2009 he bought a 12,000 Scottish Estate at Ardfin-see previous email where Lawrence M Noe is one of the directors of Ardfin Estates. He paid £12m and in 2006

Bought 2 holiday homes in Sydney, Australia. Coffey is an Australian.

Last year we reckoned that he was worth £252m in total, a figure borrowed from an

Australian financial magazine.

This is a good summary:

2008: £ 280m, 292= 274= £ 200m s £ 80m, 67% Greg Coffey Finance Star financial trader Coffey, 38, works 20- hour days, scrutinising the Asian markets in the early hours from home. After that he travels into the office in time for the opening bell in London and works until New York closes in the evening. It is this dedication that has made the Australian one of the highest- paid hedge fund traders in the world. Favouring long hair and sideburns, Coffey wears jeans and leather jackets rather than suits and ties, and is more likely to call a business colleague or client " dude" than " sir". Coffey graduated in actuarial studies from Macquarie University in Sydney. He traded emerging- market equity derivatives in 1994 at Bankers Trust and then at Deutsche Bank. Coffey was made a partner in a George Soros- backed hedge fund and was hired by Bank Austria to oversee global equity proprietary trading. He later joined the GLG hedge fund operation and helped to make it one of the star hedge funds in London. His GLG emerging markets fund, which produced a return of 50% in 2007, was named fund of the year in the 2008 EuroHedge awards. Coffey helped pilot GLG to its successful flotation in New York in 2007, for which his bonus should have been at least £ 12.5m. But in April 2008 he announced that he wanted to leave, forfeiting a £ 160m golden handcuffs clause, and was going to strike out on his own. GLG could not persuade him to stay and its share price fell sharply as a result. In November Coffey stunned the City for a second time by announcing that he was joining Louis Bacon's Moore Capital instead. His salary there has not been disclosed, but at GLG he was earning between £ 50m and £ 75m a year. Coffey should easily be worth £ 200m after tax and spending, as Moore is considered to be a top payer for talent. Clues to his wealth emerged in 2006 when he bought two holiday homes in Sydney for about £ 9m

And another piece from S.Times

Business

Hedge fund star astounds City

1377 words

9 November 2008

The Sunday Times

ST

Business 8

English

(c) 2008 Times Newspapers Limited. All rights reserved

Greg Coffey has decided not to strike out on his own despite having walked out on $250m. Report by Kate Walsh

When Greg Coffey phoned his mother last Sunday to tell her about his new job, it was not the news she was expecting.

"What the hell are you doing?" she said. "I wanted to see your name over the door."

Her reaction was reasonable and was shared by many in the City. In April when the star hedge-fund trader had walked out of his Pounds 150m-a-year job at GLG, one of Britain's biggest hedge funds, it was widely assumed he would set up his own firm.

It was the assumption too of the 12 GLG traders who resigned with Coffey to follow him to pastures new.

Instead, the 37-year-old Australian, who had made billions for GLG trading in emerging markets, was joining one of GLG's rivals, Moore Capital -which has offices in the same building in Curzon Street in London's Mayfair.

Coffey had been bound to silence by a confidentiality agreement with his new employer until last week, when he explained his motives in an exclusive interview with The Sunday Times.

"When I left I had the intention of launching my own fund," he said. "I didn't take this leap just to sit in an office four floors above my former employer. But this is different -Moore is a completely different kettle of fish."

When Coffey stunned the hedge-fund industry by walking out of GLG -and turning his back on $250m (Pounds 160m) in bonuses and share options -it was thought he would create a new firm in his own vision.

Investment banks were looking to fund him in exchange for a stake in his new fund, large investors were lining up to back him, and rival hedge funds were suggesting ways they could work with him.

Everyone wanted a piece of the star trader whose decision to leave GLG had caused its share price to plunge by 15%. Coffey was flattered but his mind was made up: he wanted to strike out on his own.

So his decision to join Moore Capital prompts a question. Is the real reason for his move that he simply couldn't raise the money to go it alone?

Coffey strongly refutes the idea. "When I resigned from GLG I had significant interest from both existing and new clients looking to be seed investors," he said.

However, analysts said that with investor appetite for hedge funds at its lowest ever and the credit markets paralysed, Coffey would not have been able to raise as much as he had planned.

One hedge-fund analyst said: "The market expected him to raise about $5billion but in reality he was probably looking at launching with $2-3billion. Of course, this is a respectable amount but then ego comes into it: what will people say?"

The analyst added that the option of waiting for the market to improve was viable but impractical. "Coffey could not afford to do nothing -out of loyalty to his team. Unlike him, they are not multimillionaires who could take a year out to redecorate their houses."

So how did the surprise move come about?

Shortly after resigning, Coffey bumped into Louis Bacon, founder of Moore Capital, in the underground car park of One Curzon Street. The pair had known each other for years and the exchange was casual.

The 51-year-old American said to Coffey: "Hey, Greg, you resigned. What are you going to do now?" Coffey replied: "I want to do what you do."

More conversations followed, but there was no hard sell -none was needed.

Coffey had admired Bacon since he started working as a trader in 1994. Bacon is known as the King of Macro because of his success in macro trading, which involves making bets on interest rates, currencies and stock indexes.

In many ways, the Australian had modelled himself on Bacon. Both are obsessive traders. Before Bacon travels to any of his residences, here or in America, a photograph is taken of the desk he is working at and everything -from computers to documents -is arranged in exactly the same way at the desk he will be using next.

Coffey's approach is less fastidious, though his homes in London and Australia are wired up for trading and on any trips elsewhere he has screens shipped out before he leaves.

With a job proposal from Bacon on the table, Coffey spoke to his closest confidants, including his wife, Ania, a former financial analyst with Credit Suisse.

Together the couple would have discussed his new pay packet. At GLG he reportedly earned a bonus of $300m last year alone.

Although Coffey cannot disclose details of his new package, Moore is regarded as a very generous employer -it is highly unlikely he took a pay cut.

One industry source said: "Bacon would have said to him I can pay you what you would make at your own hedge fund."

Coffey next consulted his investors. They told him they did not care whether he launched his own fund or joined an existing one -as long as he made the most money for them. However, they did expect his new environment to have the best operational infrastructure -meaning risk management and compliance functions in the industry.

Moore, like GLG, is a large hedge fund with about $20billion of assets under management. Moore's operational platforms are highly regarded but Coffey said the firm's culture was the clincher.

In his view, Moore operates in a way that a hedge fund should be run. As it is not publicly listed, its focus is purely on making money for investors rather than asset-gathering in order to improve returns for shareholders.

Coffey said: "I joined Moore because I could offer existing and new investors the same opportunities as I could on my own, with the added advantage of sitting next to Louis Bacon at Moore, an institution with a 20-year battle-tested risk- management infrastructure."

Another hedge-fund manager said: "At Moore there is a bias to constraining returns both on the up and the down. In a good year he will be up 20% and in a bad year he will be down 2%-3% but performance never falls radically."

Joining such a steady ship also held its appeal in these uncertain times.

Coffey is candid about the state of the market: "The amount of risk capital available will be lower, and the money that is available will avoid strategies requiring leverage funding from prime brokers."

In his new role, Coffey's trading activity will be as frenetic as ever. He works 20-hour days, trading the Asian markets in the early hours from home. After that he travels into the office in time for the opening bell in London and works until New York closes at 10pm.

At Moore he will share an office with Bacon though he will also sit on the trading floor with his team. Initially, he and Bacon will manage funds together but in time Coffey and his team are expected to launch their own fund.

Had Coffey set up his own company, his time would have been consumed with managing the operational side and dealing with investors. At Moore, apart from handling relationships with a number of his long-term investors, he will be cocooned in an environment where his only concern will be trading and his only objective making money for investors.

In that respect the pressure is on. When Coffey left GLG the combined return over five years from the three funds he managed stood at 42%. However, his largest fund, the emerging-markets fund, is down 30% for the year and last weekend the firm limited the amount investors can withdraw because some of the assets are too illiquid to sell.

His was not the only emerging-markets fund that was hammered by stock-market chaos in countries such as Russia, but Coffey knows that he is not in a relative game.

SUNDAY TIMES ONLINE Who's who in the corridors of power?

timesonline.co.uk/movers

(C) Times Newspapers Ltd, 2008

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Moore Capital launches two emerging market funds, headed by Coffey

BY Neil Behrmann

315 words

24 April 2009

Infovest21 News Provider Service

INFNSP

English

© 2009. Infovest21 LLC. All rights reserved.

Moore Capital Management launched two London based emerging market funds on April 1. One of the funds is long/short equity and the other is emerging market credit and currencies. Greg Coffey, who formerly ran emerging market funds at GLG, is managing the funds. Moore Capital confirmed the two funds, but refused to disclose additional details.

The goal is to raise $250 million for each fund. According to sources, there is a 2% management fee and 25% performance fee. 60 days notice is required for redemptions, according to an investor.

Coffey joined Moore Capital last November and has been in charge of another product, Moore Emerging Markets Fund. Performance of that fund has not been disclosed.

Coffey ran the GLG Emerging Markets fund which had $5 billion in early 2008. He also managed another $2 billion in emerging market strategies at GLG. During the stock market boom, which favored long biased trading in emerging markets, Coffey did well. Following estimated 57% gains in 2007, the GLG Emerging Markets Fund plummeted 37% in 2008.

Coffey originally said he would resign from GLG in April last year to start his own fund business. The fund was reportedly down by 14% that month. He remained with GLG until the autumn, but withdrawals from the product accelerated because of negative performance and Coffey’s resignation, GLG sources said at the time.

The success of Moore’s emerging market products will very much depend on upward trends in relatively illiquid markets, analysts say. Shorting is relatively difficult in those markets.

A Moore Capital spokesman would neither disclose the firm’s performance or assets under management but investors estimate that the firm, which is headed by Louis Bacon, currently manages around $16.5 billion.

Coffey is based in London with the firm’s unit, Moore Europe Capital Management.

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CHARITABLE FOUNDATION

Some of the super-rich such as Bill Gates and Warren Buffett have given away considerable portions of their enormous wealth. One hedge fund-the Childrens

Investment Fund run by Christopher Hohn donates most of its profits to charity.

But no such flamboyant giving at the court of St Louis Bacon.

In 2006 Bacon set up the Bacon Foundation Ltd in the United Kingdom. The Trustees are Bacon himself, his attorney Lawrence M Noe and Moore Capital Director Stephan Mohr is Secretary and a Director.

The company’s objectives are “for such exclusive charitable purposes as the Trustees of the charity may in their absolute discretion determine”. In its first year of existence-to 03/04/07 the Charity received £510,253 from Louis Bacon including

“recoverable income tax” according to the annual accounts. No point in being TOO

generous eh? But none of this had found its way to any charities by the time of the annual accounts.

In the following year to April 2008 no further donations were recorded although the

£510,253 earned  £25,493 in interest. And the first charitable donations are recorded-

3 donations of £10,000 to what are termed “countryside charities”. 2 of these Gifts went to what is generally regarded as a political outfit –the Countryside Alliance

which vociferously demonstrated against the last Labour Government’s banning of

Fox-hunting with hounds. The other gift was to the Songbird Survival Trust.

In the ensuing 12 months, no further donations to the charity were recorded. As for its

Own charitable giving, the Foundation did not repeat its gift to the Songbird Survival

Trust, but increased its gifts to the Countryside Alliance Foundation and the Countryside Educational Foundation to £15,000 apiece.

The last available accounts for period to April 2010 show a positive splurge of activity  with close friend and fellow hedge-fund owner Arpad Busson’s ARK charity for children receiving £40,000, Public School Stowe receiving £250,000 and the Scottish Uplands Appeal getting £45,000 although a note states that amounts of £15,000 for 2011 and 2012 are included in this figure. Don’t want to go crazy here now do we? 

Bacon who owns a grouse moor and fishing rights in Scotland which probably  probably explains these last donations is estimated to be worth some $1.7bn so these sums are not even small change to him. His annual pay-packet runs to several hundred million dollars but as Scott Fitzgerald is famously said to have told Ernest Hemingway “The rich are different to the rest of us”.

WHY IS “KING” LOUIS SO SECRETIVE?

Just what is it with “King” Louis Bacon, probably the single most powerful man

in the burgeoning hedge-fund world? He has houses or estates in London, New York, the Bahamas, Long Island, Colorado ( a small matter of 171,400 acres) and North

Carolina. He earns hundreds of millions of dollars a year and is worth an estimated $1.7bn. He plays rich man’s sports like polo, owns a grouse moor and fishing rights

in Scotland, jets between residences  and generally lives the High Life but he has

NEVER given a single interview to the Press and photos of the great man are few and

far between. He won’t even speak to the press arguing that if he gives the pesky members of the Fourth Estate any quotes this will somehow “legitimize” the subsequent article. Even friendly magazines such as Forbes (King Louis bought his  

Colorado ranch from Forbes owner Steve Forbes for $175m) describe him as   “secretive, risk-conscious and a bit paranoid”. The profile written back in 2004 speculates that Bacon’s paranoia might have started when the schoolkids in his native Raleigh, North Carolina taunted him for wearing glasses and quotes him as saying “Glasses were an affront to my youthful vanity”. The young Bacon took to going without the spectacles until his strict parents found out and ordered him to put them back on.

Or was it when it the man who taught him how to trade commodities, Philip Heymeyer blew his brains out age 37 having lost his fortune by going short on the New York Cotton Exchange rather than face bankruptcy. The profile quotes King Louis as saying “I saw the utter agony and ruination of staying with a losing position”.

Later in the article, Forbes says that staffers at Moore Capital won’t even tell you if

He (Bacon)  is in town. They continue “He’s serious about confidentiality agreements and not above some intimidation. “If I talk, only bad things can happen” says James Capra of Capra Asset Management in New York”.

And the secretive King Louis can also turn nasty and vindictive. According to another

Profile in the Wall Street Journal,”James Abernathy ran a trading group at Bacon’s

Moore Capital Management unit that generated 22.4% gain from March to December

1992. But when Abernathy left the Bacon organization and tried to raise $30m to start his own operation Stonebrook Capital Management Inc, Bacon and his staff disparaged his accomplishments knocking out Stonebrook’s ability to attract funds. He went to a lot of trouble to get the guy knocked out of the community” says one trader who knows Bacon”

 Britain’s Sunday Telegraph said  That “few people on Wall Street or in the City (of London) even know what Bacon  looks like” adding that “those who deal with him rarely comment to the media painfully aware of the multi-billionaire’s passion for secrecy”.

Later in this article Bacon’s rationale for his obsession with secrecy is laid bare. In a

2000 letter to investors, Bacon wrote “We virtually never talk to the press because of

Our long-standing and firmly held belief that we can best build value for our

Investors (and ourselves) if, to the extent possible, we fly “under the radar” in our

Investment philosophy and trading activity”. Note “King” Louis’s almost unconscious

use of the royal “we”. The same piece also states that “According to one story, in 1993 Bacon pleaded with Forbes magazine not to include Moore Capital’s returns in a survey about the excessive profits earned by hedge-funds”

To be continued

HOW PATRIOTIC ARE HEDGE-FUNDS?

It is well-known that hedge-funds and their owners enjoy a number of lucrative tax advantages using tax havens as the domicile of many of their corporate entities. At the first hint of having to pay more tax they have channelled hundreds of thousands of dollars to campaign against any such heinous development. All of this despite the

fact that it would take the average American 35,217 years to earn the amount that top hedge-fund managers earn in just 1 year.

But less well-known is just how fickle the hedge-funds can be. Recent years have seen a significant number of such funds transferring their operations from the UK to Zug in Switzerland which is felt to be more “business friendly” than the starving Exchequer in England.

And now Connecticut hedge-fund managers are threatening to move their operations from the leafy environment of the Nutmeg State to…..Shanghai, the sprawling

metropolis on the Eastern coast of China.

Republican Governor of Connecticut, Dannel P Malloy has scheduled future income Tax increases and the State’s fabled south-western Gold Coast home of over 200

Hedge funds are up in arms. Says Bruce McGuire founder and President of the

Connecticut Hedge Fund Association: “The hedge fund industry is very portable.

People need to be aware of the fact that every time you kick up the personal income tax rate, especially every time you kick it up on higher earners, there is a potential for some of these higher earning hedge-fund types to decide to move somewhere else where they don’t have income taxes or  have a lower rate….There are other parts of the country and other parts of the world that would very much like to have what we have here in Connecticut.”

To underline his unsubtle message McGuire said that other US states such as Florida were keen to foster growth in their hedge-fund sectors and cited a recent tour by officials from Shanghai who had come to study how Connecticut managed to attract so much of the industry. In simple English his message to Malloy was this: If you insist on raising taxes we could move elsewhere even to Shanghai.

Major hedge-funds based in Connecticut include:
 Tudor Investment Corp
 SAC Capital Advisors
 Bridgewater Associates
 Paloma Partners Management Co
 AQR Capital Management
 Viking Global Investors.
  Nice to know that the high earners care so much for the future of our country.

PS: Meanwhile Malloy is also seeking to lay off some 6,500 state employees who have no chance whatsoever of re-locating to China or to any other foreign jurisdiction.

HEDGE-FUND MOGUL PLAYS MONOPOLY

Just how many houses and estates does one man need? King Louis Bacon owns

Houses in New York, London, North Carolina, the Bahamas as well as a grouse moor in Scotland a huge 171,400 acre ranch in Colorado but UK star-trader Chris Rokos

is doing his best to overtake the older man in a private real-life game of Monopoly.

40 year old Rokos is one of the leading lights in London’s Brevan Howard Asset

Management which in 2009 (latest figures available) made a cool £688m profit. He owns a Grade II Listed Mansion in Greenwich, South-East London, a £5m penthouse

apartment in New York and an $8.2m penthouse in Miami. But he is best-known for his headline-grabbing purchase for £18m of 2 former hotels in London’s Notting Hill and his plans to spend a further £20m on knocking the 2 together to form 1 Palatial family house. The proposed redevelopment is so massive that the local Council-Kensington and Chelsea Council deemed the plan to be a commercial Enterprise and demanded £500,000 from Rokos towards providing low-cost Social housing in the area. So extensive are Rokos’s planned changes that his Planning application ran to a numbing 168 pages.

Features include:
 1 Gym
 1 Library
 8 Bedrooms
 1 Home Cinema
 1 Third-Floor Open-Air Swimming Pool
 1 Internal Climbing Wall
 1 Subterranean Garage with Motorised Lift for 2 cars.
 

Like King Louis, Rokos never gives interviews to the press but even the tolerant Notting Hill set (made famous by the Hugh Grant film and by Prime Minister David

Cameron’s residence in the area) have drawn the line at such shameless extravagance.

Rokos seems undeterred and the most bizarre aspect of his redevelopment is a plan to

Dig down four storeys below ground to create a 16ft deep swimming pool and diving

Board “because he loves diving”. Neighbours are extremely worried because of the

structural implications of such extensive work on surrounding buildings but Rokos

seems to have satisfied the Council and work is proceeding apace.

Meanwhile over in Miami, Rokos got  3 bedrooms, 3.5 bathrooms (sic),3 outdoor

Terraces and a pool for his $8.2m.  The mind can only boggle at what constitutes

half of a bathroom in Miami-perhaps redefining a quick shower? But King Louis

better look to his laurels. Young Rokos in on his trail.

“KING” LOUIS AND REGULATION

In an earlier article we looked at “King” Louis Bacon’s obsessive desire for secrecy and anonymity. This piece takes the story further with a look at the hedge-fund mogul’s attitude towards the regulation of his industry, back in 1998 in what was described as “a rare public appearance in London”, Bacon excoriated the calls for more public disclosure in the hedge fund industry and argued that increasing transparency was a threat to successful hedge-fund managers.

“King” Louis told his audience that excessive transparency was one of a number of “telltales” that could signal trouble at a hedge-fund. He said they were in the same category as excessive size, excessive leverage and what he termed excessive “hubris” He went on “Transparency can be a double-edged sword. It can be very disruptive and deadly”. He then went on to argue that the transparency being “foisted” on the industry by the Press could make managers vulnerable to large numbers of copycat investors who would mimic a fund’s trades and make them less profitable for the fund.

The man who likes to fly “under the radar” also said that he was not concerned about plans to legislate for more transparency for funds, plans that had the support of then

President Bill Clinton. “We think the bill is going to be dead so I haven’t been

Paying much intention”. “King” Louis was correct-there was no bill and his and other

Funds went on to make billions of dollars for themselves in the next decade.

In 2010 “King” Louis took a swing at European Union plans to increase regulatory

oversight of the hedge fund industry. In a letter to investors in Moore Capital

Management, Bacon accused the EU authorities of “demonization” of the industry

and said they had adopted a “stance of first kill the canaries in the mineshafts”

In 2005 the SEC timidly “invited” hedge-funds to register with them. “King” Louis’s

Moore Capital along with several other big-name firms declined to do so.

Back in 1995 a Wall Street Journal article headed “New Money Swells Republican

Coffers-Foes of Regulation and Taxes Now Outshine Business Establishment”. The article noted that “Hedge funds, partnerships that invest private money and face virtually no regulation now, saw the Democratic controlled House Banking Committee hold hearings last year on whether they needed Federal oversight.” Under this innocuous threat Moore Global stumped up $200,000 to boost Republican Funds and the WSJ noted that they had never previously given soft money to the Republican Party.

MURDOCHGATE AND THE HEDGE-FUNDS

In the rapidly escalating crisis engulfing Rupert Murdoch’s News Corporation and all its subsidiaries including Fox News, little attention has been paid to the activities of “The Masters of the Universe” hedge-fund owners and managers. The crisis which has now claimed the UK’s top policeman has forced the non-executive directors of News Corp to appoint top lawyers to investigate just what happened at the British News of the World newspaper. Their report will almost certainly be passed on to the US Justice Department to see what, if any further action they decide to take.

So where do the hedge-funds come into the picture? These supposed far-seeing  Geniuses had been buying the UK’s BSky B’s shares on the assumption that the British Government would wave through News Corp’s takeover bid of that highly Profitable organisation. (News Corp currently owns 39% of BSky B’s shares and up until 10 days ago the firm assumption was that before too long they would own all 100%. In anticipation of this event hedge-funds had been piling in to BSKYB’s stock driving the share price up to 849p only to see the price haemorrhage down to 710p as

the scandal unfolded. It is estimated that over £2bn has been wiped off the value of

 the company in just 10 days and several large hedge-funds have suffered heavy

losses. The point here is that hedge-funds are lauded and looked up to as near infallible holders of the way stock markets, currencies and individual stocks are likely to perform. As the succession of SEC prosecutions has shown,. Some of this supposed prescience in picking stocks has been clearly shown to be based on illegally-obtained insider information. But the BSKYB debacle  shows that  without this unfair advantage, hedge-fund managers are just as foolish and fallible as any ordinary mortal.

Anyone looking closely at the BSKYB takeover should have known that the bid was toxically infected because of the connection between the Murdoch-owned News of the World newspaper and the initiators of the bid. Over the last few weeks and months the promiscuous hacking of up to 4000 individuals’ telephones has threatened to explode at almost any time thereby effectively scuppering the bid. But the funds did not do their homework and due diligence, Spotting what they believed  to be the probability of a quick profit on BSKYB shares, they jumped into the mess with both feet.

Will they learn from this mini-disaster? Do not hold your breath.

LEST WE FORGET

Hedge fund bosses and owners like to portray themselves as exceptionally talented spotters of both long and short-term economic trends. The way they tell it they have a sort of sixth sense oralchemists’s skills in being able to know what stocks to purchase. The truth is much grubbier and more mundane. All too frequently these so-called Masters of the Universe rely on inside information to guide their investments.

Proof of this-if proof were needed-comes from the continuing flow of successful FBI/SEC convictions of hedge fund employees or owners for illegally obtaining or using such information to boost returns. (And of course there has been a steady flow of convictions of people running out and out fraudulent Ponzi schemes.

Here are a few examples:

On 7/22/11 German hedge fund owner Helmut Kiener, the founder of the notorious K1 Group of Companies was convicted of defrauding investors of $497m via a Ponzi scheme. He was sentenced to 10 years and 8 months imprisonment. 52 year old Kiener had been found guilty by a German court of fraud, forgery and tax evasion. The former Managing Director of 2 K1 funds in the British Virgin Islands had previously killed himself on the Spanish island of Mallorca to avoid being arrested for his role in the fraud. As usual the crooked Kiener had no real explanation as to why he had committed this huge fraud, telling the court, “with hindsight one is always wiser. I don’t know what drove me” Illustrating just how easy it is for fraudsters to escape detection and proper regulation, the German Regulator Bafin had banned K1 in Germany but Kiener had simply moved his operations to the British Virgin Islands. No wonder that Kiener had been dubbed “the mini-Madoff”.

On the same day that Kiener’s conviction was reported, Danielle Chiesi a former trader for Bear Stearns was sentenced to 30 months in prison for insider trading. Prosecutors alleged that the well-endowed blonde had “used her charms” with company executives in order to obtain insider tips. She was a small part of the FBI’s case against Raj Rajaratnam billionaire owner of the Galleon Hedge Fund.Rajaratnam will be sentenced on September 27^th having been found guilty of all 14 counts of conspiracy and securities fraud in May 2011.Rajaratnam was said to have made over $60m as a result of his insider information.

Since August 2009 over 50 individuals have been tried, and over 45 convicted on insider trading Allegations and  the SEC has charged 138 individuals in civil cases. According to former federal Prosecutor Jonathan New, “The sheer number of people who have been charged and convicted in all these cases is stunning.

REGULATORS AND KING LOUIS.

Louis Bacon is notorious for his disdain for any form of regulation of hedge-funds. The arrogant billionaire feels that he should be allowed to do just as he wants, to base some of his activities in shady off-shore tax havens and to give the US authorities the minimum of information about the workings of his fund Moore Capital.

He is on the record as saying that it is his policy for the fund to “fly under the radar” and not to give interviews to the .press  He is paranoid that someone might steal his “secrets” and piggy-back on his deals. Is this a guilty conscience as this is precisely what others have accused him of doing? He is also on the record as resisting all attempts to regulate the secretive hedge fund industry saying “transparency can be a double-edged sword. It can be very disruptive and deadly.

But despite King Louis’s fervent wishes, in the real world he has had a number of damaging run-ins with regulators leading to a severe questioning of his and his fund’s integrity. Consider the following:

·         In March 2010 the UK’s Financial Services Authority and Serious Crimes Agency raided Bacon’s swish offices at 1 Curzon Street in Mayfair and arrested Julian Rifat one of his star traders as part of a major investigation of an alleged insider-trading ring.

·         In April Morre Capital was fined $25m in New York by the US authorities on charges that a former trader tried to manipulate market prices for platinum and palladium in2007 and 2008. To make matters worse Moore Capital was hit by a class action that alleged that investors had lost significant amounts of money by this attempt. Legal papers claim that the trader was not acting in isolation. His activities were allegedly authorized by “directors” and other “authorized representatives” of the company. They were part of a “conspiracy” responsible for “a systemic practice of blatantly manipulative trades that were unlawful, uneconomic and illegitimate. The investors claim that this “amounted to a pattern of racketeering” that was designed to make Bacon’s hedge fund “millions of dollars” by manipulating the market.

·         In 2008 Steven Harrison a former manager with Moore Europe was fined 52,500 pounds for using Restricted information to buy the bonds of Rhodia, the French chemicals company just days before the company announced a major debt restructuring.

WIT AND WISDOM OF KING LOUIS

“As a speculator you must embrace disorder and chaos”

“Glasses were an affront to my youthful vanity”

“Change is essential to survival..Money management is like a game. There are no rules about the game except that it will change. But most importantly you must never become the game itself. John Kenneth Galbraith once said “There are those who don’t know and those whom don’t know that they don’t know. I say there are those who know they are in the game; there are those who don’t know they are in the game; and there are those who don’t know they are in the game and have become the game”.

“Transparency can be a double-edged sword. It can be very disruptive and deadly.”

“WE virtually never talk to the press because of our long-standing and firmly held belief that we can best build value for our investors (and ourselves) if, (to the extent possible we ”fly under the radar” in our Investment philosophy and trading activities”

PROPERTIES IN THE BAHAMAS

King Louis Bacon owns not just one but TWO in Lyford Cay, the exclusive gated community of the world’s rich in Lyford Cay.-Point House another known as The Squash Court.. He has also bought 2 substantial tracts of land in the surrounding area. Point House is officially owned by a Panamanian company-Point House Corporation. and is registered on The Bahamas Registry for property-owning purposes. Point House Corp is in turn owned by an asset-protection trust. This structure was set up by

Seam McWeeney  of Bahamas lawyers Graham Thompson & Co and as a result of this device stamp tax payment in the Bahamas was avoided as the asset protection trust could change beneficial owner without the authorities being aware. At the time Bacon bought Point House such a process was a common tax avoidance scheme and after all nobody hates paying taxes more than billionaires. That is partly how they became so rich.. Nowadays such blatant tax avoidance would be difficult if not impossible.

The original Bacon trustee had been Credit Suisse (Bahamas) and at first Pamela Klonaris, a parttner in local lawyers Klonaris & Co had insisted that stamp tax SHOULD be paid. But as a result of her principled stand Credit Suisse was replaced by the more pliable Graham Thompson.

In addition to the above 2 properties, Bacon owns an island in the Bahamian Exuma chain along with two other hedge-fund big-wigs: Stanley Druckenmuller and Paul Tudor Jones. In order to buy the island, the three men would have had to receive Investment Board approval from the then administration of Hubert Ingraham and his FNM Party. Happily for Bacon and his hedge fund pals, Ingraham is again in power and eager to do favours for his wealthy chums.

KING LOUIS’S POACHING

KING LOUIS’S POACHING

Everybody knows that capitalism’s upper echelons believe in the naked law of the jungle. It is dog eat dog out in Wall Street and the devil take the hindmost. But this tendency is if anything exaggerated amongst the Hedge-Fund barons who control so much of the world’s wealth. Leading firms openly poach whole teams of analysts and traders from rivals, often skirting if not outright breaking the employment laws.

One man who seems particularly adept at the jungle survival business is King Louis Bacon. In the past 3 Years he has managed to win over 2 of his rivals’ cream of the crop traders, Australian Greg Coffey- Known in the City of London as “The Wizard of Oz” in 2008 and two years later prising loose key rival Brevan Howard’s founding partner Jean Philippe Blochet.

Of the two Coffey’s was the most surprising recruitment because to move Coffey had to forfeit a “golden handcuffs” provision of $160m which was written in to his contract with GLG Partners. At first it was said that Coffey had left to set up his own hedge-fund but this was 2008 in the middle of the credit crunch meltdown and ever-alert for a potential coup, Bacon struck and enticed Coffey to Moore capital where he was made  co Chief Investment Officer for Moore Europe alongside King

Louis. Crucially Coffey also took his 12 member team that he had worked with at GLG. Naturally given the virtually impenetrable nature of hedge-fund operations no details of the golden hello he was likely to have received from a grateful Bacon but it must have been massive. (Star trader Coffey was said to have earned $300m in 2007/8).

In 2010 Coffey bought himself 12000 acres on the Ardfin Estate on the isle of Jura in Scotland. His first action as laird of the manor was to close to the public the gardens of Jura House which is a noted Tourist attraction. A Coffey spokesman said that the gardens were only closed whilst the house was being renovated and would eventually re-open but locals are not holding their breath.

Coffey’s boss King Louis also owns fishing rights and a grouse moor in Scotalnd and the ownership of all three is vested in companies using Moore Capital personnel.

Bacon’s other best-known steal of a rival concerns Jean Philippe Blochet a 47 year old Frenchman. Blochet was a co-founder of rival Brevan Howard Asset Management and he was the B in the Brevan part of the name.  In the sports-obsessed trading environment Blochet is best-known for completing the six-day marathon event Marthon Des Sable is over 150 miles of the Sahara. He was supposed to be very close to Brevan Howard boss Alan Howard-the pair had worked together at Credit Suisse but Blochet still jumped ship after having taken what was described as a”sabbatical” and joined Moore Europe in January 2010.

In July 2011 yet another Brevan Howard veteran, 46 year old James Vernon quit Brevan  Howard having provided the V in the company’s name. As yet there is no sign that he too will join his ex-colleagues at Moore Capital but no-one would be too surprised if he did so.

P.S: Another example of King Louis’s jungle-style mind-set came in 2008 during the credit-crunch debacle. Bacon complained that “Federal bailouts upended our bearish financial plays” after Washington stepped in to rescue Bear Stearns, Freddie Mac and Fannie Mae. Predator would have far preferred to see these companies go to the wall with all the human suffering this would have involved Just so he and his precious Fund could profit from their misfortune.

STRANGE IDEA OF “ENVIRONMENTALISM”

Hedge-Fund Godfather Louis Bacon is proud of his supposed

environmental record on his many estates throughout the world,

loudly trumpeting his efforts to prevent wildlife and to restrict or

prohibit re-development on  his extensive lands. Less well-known is

the fact that Bacon has been able to reap millions of dollars in tax breaks

because of this restriction on development on his estates. Moreover, one of

the valuable side benefits of maintaining stocks of wildlife on his mini-

property empire is that Bacon and his bloodthirsty pals can happily

slaughter the animals to their hearts’ content. Bacon is famed for his

fishing and hunting proclivities and has what is described as a “passion”

for hunting.

But much more hypocritically there is the situation on his 171,400 acre

Trinchera Ranch in Colorado bought from his chum Malcolm Forbes of

the Forbes magazine family for a little matter of $175m. Unsurprisingly

that magazine has been responsible for a number of favourable articles about

Bacon in recent years-most recently in December 2010.

Not long after Bacon bought the ranch, utilities giant Xcel Energy Corp

announced plans to run solar transmission lines that would in part run over

the ranch. Cue outrage from King Louis. In an email interview with the

“Denver Post” King Louis thundered: “Having helped many others in their fight

against outside profit-oriented polluters, I couldn’t shirk this battle when I know

there is so much at stake for the San Luis Valley residents, the range, the

environment, the animals and for all of Colorado”./

Ah yes that pesky profit motive. Who better to declaim against it than a man who has

made a fortune of $1.7bn from its workings.

In February 2011 King Louis was back on his soap-box. “This unnecessary white

elephant project will generate hundreds of millions of profits for Excel’s owners

while sticking the ratepayer with the bill”.

All very laudable and radical even but hang on a minute. One of those profiting from

Xcel’s depradations on the countryside is.. LOUIS BACON via his Moore Capital

Hedge Fund which as has a near $60m stake in…Xcel.

As the London “Evening Standard” gently put it “Bacon can’t have it both ways:” but

then this is what King Louis has done all his life.-preaching the virtues of lower

taxes and less interference from Washington whilst happily accepting lucrative tax

breaks for posing as an “environmentalist”. And his concern for the ratepayers of

Colorado is as laughable as it is hypocritical-not to see nausea inducing.

No ONE is Perfect!

To read much of the financial press one might think that Hedge-funds were run

by demi-Gods who can do no wrong. Tom Wolfe coined the apt phrase “Masters of the Universe to describe such self-regarding stars. Wolfe of course used the phrase

ironically but Wall Street doesn’t “do” irony and so the money men happily adopted

the phrase to describe themselves.

But of course the reality as ever is somewhat different. Consider the following:

*King Louis Bacon’s flagship Moore Capital fund was down 5% for the year to June

16^th.

• Superstar John Paulson’s flagship Advantage Fund did even worse losing 15% 

 over the same period.. According to the respected journal “The Economist” Paulson

lost $500m in a disastrous investment in Sino-Forest a Chinese plantation-operator

accused of fraud by short-sellers. Paulson’s fund had been the largest single

shareholder in the stricken company. So much for the wisdom of the Funds.

• Another supposed super-star David Einhorn’s Greenlight Capital also showed

losses of 5%.

• Overall hedge-funds were down 2.09% in the month of June 2011.

• According to preliminary data from Hedge Fund Research was down 2.12%

compared to the Standard & Poor’s 500 gain of 6%.

*Then there is the question of morality. Take for example billionaire Philip Falcone,

Manager of hedge-fund Harbinger Capital Partners. He “borrowed” $113m from the

Fund to pay his 2008 tax bill. Although he repaid the money in 2010 SEC

Investigators are looking at the loan. Worse his investors don’t seem too impressed

with Falcone’s behaviour and are seeking to withdraw some $900m from the fund.

• Then there is the highly publicised and bitter divorce between the husband and

 wife team who founded IKOS a large European quantitative hedge-fund.  Martin

Coward accused his wife Elena Ambrosiadou of spying on him and using an Israeli

undercover agent to gain his confidence. Ambrosiadou in turn accused Coward and

his associates of seeking to “misappropriate” the firm’s proprietary technology.

• Then of course there was the case of Raj Rajaratnam billionaire manager of

Galleon hedge-fund who was convicted of conspiracy and insider-dealing and is now

awaiting sentencing to what is likely to be a hefty prison term.

• In April Joseph “Skip” Skowron a portfolio manager with Morgan Stanley’s

Frontpoint fund was also charged with insider trading.

• Then there’s the case of Winifred Jiau an ex Primary Global Research consultant.

In June Jiau, 43 of Fremont< California was convicted of 1 count of conspiracy

and securities fraud for passing earnings and other information to 2

hedge-fund managers. Jiau will be sentenced in September.

The list goes on and on as the FBI and SEC belatedly get to grips with the sins both

of commission and omission that charcterised the last few years of financial lunacy.

Watch this space for further reports.

KING LOUIS’S CHARACTER

What kind of a person is King Louis Bacon?

 His obsessive desire for secrecy in both his personal life and the activities of his hedge-funds where he prefers to “fly under the radar” suggest a man driven by insecurities and a need to prove himself. Of course this is not the picture his admirers make but  let’s examine the record.

Back in 1993 the Wall Street Journal published a profile of King Louis significantly titled “Louis Bacon Aims to Win AT ALL COSTS…AND DOES”. The piece detailed Bacon’s passion for hunting evidenced at that time by a recent trip to Zimbabwe to shoot water buffalo with a cross bow and notes that “in his office he shoots hoops or pounds a punch bag to work off the tension”. (His London offices contain a squash court). It is interesting also to note that when Bacon got to Zimbabwe Locals had to tell that the crossbow he had was too small to shoot water buffalo. So he had a larger one specially sent over by jet from New York.

 Describing King Louis as “fiercely competitive” the article goes  on to say “But his critics accuse Mr Bacon of taking the competition too far treating employees harshly and taking predatory advantage of other traders-even friends at any opportunity”. The WSJ article states that “dozens of employees have left Bacon’s employment with many complaining of harsh bullying treatment by Bacon and his top aides”.

Moreover, “some rival traders consider Bacon to be a predator”; “Some firms have declined investments from Bacon out of concern he might use information about their positions to trade against them. Some traders say they are even reluctant to enter into casual conversations with Bacon about their views of the market.”

Bacon can also be vindictive according to the WSJ citing the example of Jerome Abernathy who ran a trading group at Moore’s Capital Management unit that generated a 22.4% gain from March-December 1992. But when Abernathy left the Bacon organization and tried to raise $30m to start his own operation Stonebrook Capital Management Inc, Bacon and his staff disparaged his accomplishments knocking out Stonebrook’s ability to attract funds. “He went to a lot of trouble to get the guy locked out of the community” said one trader who knows Bacon”.

BLUE BLOODED BACON

BLUE BLOODED BACON

King Louis Bacon perfectly illustrates George Orwell’s well-known dictum in

“Animal Farm” that “all animals are equal but some animals are more equal than

others.”. His father was General Manager of Merrill Lynch Realty Mid-Atlantic

in Raleigh, North Carolina after Merrill Lynch had bought his company Bacon

and Co Raleigh-real estate brokers where he had been founder and President.

Not for pampered young Louis the public schools of North Carolina. Oh no-He

went to Episcopal High School in Alexandria, Va. A private boarding-school

founded back in 1839. In 2007-8 tuition fees alone were $43,575 close to the

total annual income of many American families. And this was before adding on

the costs of books etc

The student-teacher ratio at Episcopal is 6:1, which would make most public

school teachers gasp in disbelief. Episcopal has an Honor Code which states:

I will not lie

I will not cheat

I will not steal

I will report any student who does.

Quite clearly, this was one of the aspects of his expensive education that young

Louis swiftly forgot.

To ease his way into the high-powered field of finance, young Louis was aided

by the fact that his step-mother’s brother was the famed Julian Robertson one of the

most successful of the early hedge fund pioneers. It didn’t hurt either that his

brother Zach H Bacon III worked for George Soros another hedge fund titan. Or that

 he was

befriended by yet another enormously successful hedge fund mogul Paul Tudor

Jones. Having graduated from Columbia with an MBA, one day Bacon captained a

 sport-fishing boat off Long Island for Walter Frank who had a seat on the NYSE.

Just like that, Bacon’s career was made-such are the close ties amongst the blue

 Bloods of high finance. By 1982 he was trading futures for Shearson Lehman where

he was mightily helped by the fact that Jones and his brother Zack then working for

Soros’s Quantum Fund both traded through his desk. Some animals are more equal

than others….etc Almost inevitably, Bacon went on

to work for Jones where he worked as a broker from 1986 onwards and in 1989 to

 found his own hedge fund Moore Capital (Moore is Bacon’s middle name).

With friends and relatives like these, it was hard for Bacon to fail. The incestuous

world of hedge funds depends crucially not on what you know but on WHO you

know. Louis Bacon’s background ensured that he had a very considerable head-

start over his rivals in the cut throat world of  traders.

BULLY BACON

King Louis Bacon has a well-advertised disdain and contempt for the Press. He believes that if he even makes a comment to a journalist, let alone gives an interview this will somehow “legitimize” that article and this would jeopardize his infamous “flying below the radar” policy for his hedge fund activities.

But this does not mean he doesn’t care what the Press says about him. He is notoriously thin-skinned about any criticism of himself or of Moore Capital. Teams of highly-paid lawyers scour the media for any mildly derogatory comments and then leap into action flourishing injunctions like confetti.

For example when a pair of unknown environmentalists in the Bahamas issued a pamphlet and held a thinly-attended press conference criticizing Bacon (amongst others), King Louis had his  notoriously aggressive attorneys, Schillings of London leap into action. Not content with using the perfectly competent local lawyers to do their dirty work, Schillings representatives flew out to Nassau and off to the homes of the 2 hapless critics who live on the outer Bahamian islands to personally deliver their wretched legal missives. Talk of using a sledge-hammer to crack a nut. But then what’s the point of being a billionaire if you can’t throw your weight (and money) around?

Then there are Bacon’s attempts to shut down elements of the “blogosphere”. Wisely choosing to use the supine English courts who grant injunctions for the super-rich  at the drop of a hat, King Louis won a meaningless order to be allowed to serve court orders on the Wikipedia, Word press and Denver Post websites. This was essentially a Pyrrhic victory for super-sensitive Bacon because the sites do not fall under UK jurisdiction. Initially Wikipedia Foundation agreed to hand over the information to Bacon’s lawyers but then said they would only hand it over if served with a US subpoena. Automatic, the company behind Word-Press said they would need a US court order but agreed to remove any offensive material from the blogs.

It is ironic that King Louis went after the Denver Post because that paper offered him space in their Columns to explain his NIMBYish   opposition to Xcel Corp’s plan to run solar power transmission lines Over his 171,000 Colorado  Trinchera ranch. Earlier in 2011 Bacon took this opportunity to exercise his right to freedom of speech but now he wishes to deny the same rights to his opponents  One law for the rich and another for the rest of us yet again. Bacon has spent over $100,000 with Colorado public relations outfits to spread his point of view. Bloggers rarely If ever have access to these kinds of funds.

King Louis is probably riled that bloggers and the mainstream press have been quick to point out that despite his so-called principled opposition to Xcel’s plan, his hedge fund Moore Capital has a near $60m stake in….Xcel Energy Corp.

Yet another example of  the well-known maxim “Do what I say not what I do”.