Son-in-law of current Democratic presidential nominee frontrunner Hillary Clinton, Marc Mezvinsky, is closing his Eaglevale Hellenic Opportunity hedge fund after losing “nearly 90 percent” of clients’ money, as reported by the New York Times.
In February of 2015, Zero Hedge reported on the Mezvinsky hedge fund’s losses of 48 percent the previous year.
Like mutual funds, hedge funds allow groups of investors to pool their money together and achieve economies of scale while, hopefully, enjoying a superior return on investment.
Mutual funds, such as the Fidelity Contrafund (FCNTX), have minimums accessible to most investors and can be sold for cash readily. The Fidelity Contrafund has generated a return of 111.82 percent for investors over the past 10 years, compared with a return of near 100 percent in the S&P 500, as reported by Fidelity.
Along the way, late 2008 and early 2009 being a prime example, investors in the Fidelity Contrafund have faced substantial dips in the value of their holdings, of close to 50 percent for some investors at certain points. The value of the fund has always recovered and sits not far from all-time highs. Mutual funds have benefits and limitations.
For the most part, William Danoff, the manager of the Fidelity Contrafund, can only buy stocks, hoping that they rise in value and then sell them for a profit as well as collecting dividends. He is bound by the objectives of the mutual fund. William Danoff can’t bet on stocks to go down in value, or short sell. Likewise, he can’t use leverage or make investments in many types of derivatives. When markets dip, mutual funds, to greater and lesser degrees, are forced to go along for the ride.
Hedge funds, of the type managed by Marc Mezvinsky, are different. There is a much larger minimum investment required, as well as net worth requirements. Typically, investors can only sell hedge fund investments at specified times, often quarterly or yearly. There are often minimum initial holding periods as well.
Some hedge funds are reported to have produced substantial returns for customers shorting markets, trading in currencies and commodities, and through the use of leverage. Gil Morales and Christian Kacher are reported to have earned more than 10,000 percent between 1997 and 2005, according to the synopsis for their book with Amazon, Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market.
Warren Buffett, chairman and CEO of Berkshire Hathaway Inc. (NYSE: BRK-A, BRK-B), has been an outspoken critic of hedge funds. The billionaire is currently winning a $1 million dollar bet with Protégé Partners, begun in 2008, that the S&P 500 Index (^GSPC) would beat a group of the investment company’s hedge funds over a 10-year period. Buffett is described as “killing it,” by Fortune, with the S&P 500 up 65.67 percent, compared with 21.87 percent for the Protégé funds, with two years to go.
Hedge funds range in objective and performance widely. Simply describing an investment as a hedge fund does little to explain what type of underlying investments it deals in and the strategy it uses to buy and sell them; there are as many strategies as there are hedge funds.
The average hedge fund was down 0.63 percent in the first quarter of 2016, according to the New York Times.
The strategy of Marc Mezvinsky’s hedge fund was to buy beaten-down Greek assets in the wake of the country’s economic collapse, hoping to spot value and betting on a recovery — a recovery that has yet to materialize.
“… some of the firm’s earliest investors were Goldman partners, including Lloyd C. Blankfein, Goldman’s chief executive officer, who let Eaglevale use his name in marketing the flagship fund. Ironically this is in addition to the hundreds of thousands of dollars that Goldman paid to Marc’s mother-in-law. One almost wonders who ‘benefits’ Goldman was seeking to get out of this particular relationship.”
The total value of assets managed by Marc Mezvinsky’s hedge fund was reported at close to $400 million in early 2015, and $25 million most recently.
[Photo by Eduardo Munoz Alvarez – Pool/Getty Images]