Delivering Alpha 2011

Delivering Alpha: Live Blog

CNBC.com

Wednesday 9/14/11, 6:05 PM/ET: It's a Wrap...

The Delivering Alpha conference is officially over. Thanks for reading. For an overview of everything that happened today, don't miss our coverage.

Wednesday 9/14/11, 5:55 PM/ET: Lastly, Not a Company, an Idea...

Anne B. Popkin, president of Symphony Asset Management: Levered credit is cheap—loans and high-yield bonds, says Popkin. Volatility in this space will be high, so good risk management is crucial. "Don't bet the ranch and [don't] put all your money to work right away," she says.

"Risk-management is absolutely crucial here, because volatility here is very high," she said.

Wednesday 9/14/11, 5:45 PM/ET: One company...

Daniel Loeb, CEO of Third Point: You generally want to buy great companies with great management, Loeb says, but he found an opportunity to buy what he calls a great company with "horrible" management. Who?

Yahoo!

The company has been led by "a series of people who didn't really know what they were doing," Loeb said. He calls the company's board of directors "clowns," and said no one in Silicon Valley wants to work with them. His company bought a 5 percent stake in Yahoo!, and he believes it will thrive with new management.

What they’ve done wrong? "It hasn’t changed since 2004. The same crappy interface, the same stupid logo. You wonder, what have these guys been doing? The problem is they’ve been led by people that really didn’t know what they’re doing," he said.

For whatever it's worth, reports are coming in that the company might be for sale.

Wednesday 9/14/11, 5:45 PM/ET: Mortgage Opportunities...J. Tomilson Hill, CEO, Blackstone Marketable Alternative Asset Management: Buy pools of non-performing mortgages. "You have the ability to buy mortgage servicing rights at prices we’ve not seen before," he said.

Wednesday 9/14/11, 5:34 PM/ET: Falcone Rising...

Philip Falcone, founder of Harbinger Capital Investments: Hit top pick? Spectrum Brands. Falcone goes through a lengthy list of admirable aspects of the company's balance sheet. It's not a "high octane" stock, but his company owns 28 million shares.

Wednesday 9/14/11, 5:17 PM/ET: Next Up...

Leon Cooperman, CEO Omega Advisors: 2008 is not going to reoccur in 2011, said Cooperman. A recession is unlikely (which isn't to say people will feel especially good), Obama is likely to soften his 'anti-business' stance, and the price of oil is likely to be stable, he said.

Avoid government bonds, and stocks are the "best house in the asset management neighborhood," he said. Buy ANY good value stocks, he said.

Wednesday 9/14/11, 5:11 PM/ET: First Up...

Kyle Bass, founder of Hayman Advisors: The worldwide sovereign debt crisis is unlike anything else in history. Who's in the worst situation? Japan. The countries debt numbers are awful, and their government seems to be fatalistic about their future, Bass said. In that oncoming collapse is a huge opportunity.

"Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate. The opportunity is that the optionality. We see a structural anomaly creating the cheapest option in the world," he said.

Buy price put options on government bonds, Bass said. The best opportunity in the world.

Wednesday 9/14/11, 5:09 PM/ET: Defend Your (Life) Best Idea

Last panel of the day. Here hedge fund manager have a few minutes to present—and defend—their best ideas...

Wednesday 9/14/11, 4:39 PM/ET:  A Coming Credit Crisis?

From a panel featuring Peter Briger, Co-Chairman of Fortress Investment Group; Marc Lasry, head of Avenue Capital; Bruce Richards, CEO of Marathon Asset Management; and Boaz Weinstein founder of Saba Capital Management, moderated by CNBC's David Faber.

David Faber: Can a Greek default be contained?

Marc Lasry: “If Greece defaults, equity markets will be down 10-15 percent, maybe more...It is an absolute nightmare if that ends up happening.”

Bruce Richards: “It has to be contained. I believe all will be behind containment. Banks are way over-levered, with less than 4 percent tier-1 capital. They need to sell alot of assets. A whole lot of assets. What is really required is a TARP for Europe. To keep a run on deposits from happening, garauntee all deposits."

Delivering Alpha - presented by CNBC and Institutional Investor

Faber: Bailing out Greece or Bailing Out the Banks?

Richards: “Draw a line in the sand. Siphon it off and let these countries restructure. Allow restructuring that doesn’t trigger CDS, [Credit Default Swaps]. It’ll have to come from Germany, France, and the IMF has to pony up.”

Wednesday 9/14/11, 4:19 PM/ET: Coast vs. Flyover Country, the Real Estate Perspective

CNBC's Carl Quintanilla is moderating a panel on opporunities in real estate. One memorable quote:

Sam Zell: “The bottom line is there is no supply – everything that exists is going. That’s the good news. The bad news is that the market is resisting raising rents.”

Yet, Silicone Valley is doing pretty good..

Carl Quintanilla: How long can trophy markets on the coast do well when the middle of the country is sucking wind?

Ackman: Forever…

Wednesday 9/14/11, 3:55 PM/ET: The Crowd's Mood

What should the government do to stabilize the real estate market? Tyler Mathisen polls attendees.

The answer? Almost 60 percent say "nothing".

Sam Zell, the chairman of Equity Group Investments, and a panelist, goes one step further. "[Government] should undo what they've already done."

Wednesday 9/14/11, 3:08 PM/ET: Ackman, Reaction

Will buying the HK dollar be Ackman's Soros moment? Time will tell, but hedge fund managers at the conference have their opinions.

One in particular is worried that, Ackman having revealed his strategy, it's too late to take advantage.

Bill Ackman

Incidentally, noted China skeptic Jim Chanos says that if he was to bet on an Asia currency it would be the Singapore dollar.

Wednesday 9/14/11, 2:35 PM/ET: Is China About to Burst?

Speaking of Hong Kong...is the Middle Kingdom about to become unglued? The first afternoon panel—with Daniel Arbess and Jim Chanos—addresses that.

Daniel Arbess, partner at Perella Weinberg, doesn't think so. Chanos, president of Kynikos, thinks the country is structurally imbalanced.

Wednesday 9/14/11, 2:30 PM/ET: Kernan and Ackman

Joe Kernan: "We know weak currencies are wonderful for some countries..."

Bill Ackman: "In any investment, you decide when to move on and when to press. When Bernanke said he's going to keep rates at zero, now its time to press. Look, if China implodes, that's bad for this trade - but that's not likely."

K: "Is this your Soros moment?"

A: "I'm not pushing the government to do anything. But I think it's cheap. The Hong Kong dollar is cheap."

Wednesday 9/14/11, 2:24 PM/ET: How Do You Play This?

Ackman offers three options:

1) Buy Hong Kong dollars outright, and when they print more money you can make 30 percent that day.

2) Buying with leverage. The carry cost is low.

3) Buying options on the currency.

Wednesday 9/14/11, 2:14 PM/ET Ackman's trade:

Go long the Hong Kong dollar, as inflation will force the country to let its currency appreciate by 30 percent.

Delivering Alpha - presented by CNBC and Institutional Investor

Wednesday 9/14/11, 2:05 PM/ET: More Hong Kong Inflation

More Ackman:The only way to solve the inflation problem is to allow the Hong Kong dollar to appreciate. In 3-6 years, the currency will be completely convertible into the yuan. They can do the conversion literally overnight.

Wednesday 9/14/11, 1:59 PM/ET: Hong Kong Inflation

From Bill Ackman's lunch presentation (NOT the Big Revelation): A massive rise in inflation is coming to Hong Kong, especially in residential real estate. Inflation, because of low US interest rates, is affecting their purchasing power. They really have no choice except to print money.

Wednesday 9/14/11, 12:49 PM/ET: LUNCH...

...with the aforementioned Bill Ackman revelation to come. Stay tuned.

Wednesday 9/14/11, 12:48 PM/ET: New Panel: What's on the Mind of Institutional Investors?

Ash Williams, CIO Florida State Board of Administration, to attendees: "American anxiety" i.e. economic hardship, is often followed by American prosperity.

Delivering Alpha
Photo: Heidi Gutman for CNBC.com

Wednesday 9/14/11, 12:22 PM/ET: New Panel: What's on the Mind of Institutional Investors?

CNBC's Brian Sullivan moderates...

Wednesday 9/14/11, 12:07 PM/ET: Does Obama's Tax Plan Matter?

A number of fund managers were discussing Obama's tax plan, finding that it won't impact them much.

Also, they think Warren Buffett doesn't understand carried interest.

Wednesday 9/14/11, 11:39 AM/ET: You Want Class War?

"It's only in a room full of people who make a living on 2 and 20" would it seem ok to cut entitlements for middle and lower class Americans, says Silvers. The country that would result from such a move would be like what "Brazil used to be," he says.

All panelists seem to agree that big investments in infrastructure are necessary.

Hard truths

Wednesday 9/14/11, 11:23 AM/ET: Goverment, Revenues, and Growth

Thomas Steyer of Farallon Capital Management, asserts that the country will not grow if government in 15 percent of GDP. Historically in the post-WWII era it's been between 18 and 20 percent. It's now abnormally low.

Delivering Alpha - presented by CNBC and Institutional Investor

Wednesday 9/14/11, 11:19 AM/ET: Another Hard Truth

The real crisis? We've suppressed wages for a generation, and now households are unable to handle all their debt, says Damon Silvers of the AFL-CIO, a late addition to the panel. His comment starts a small ruckus.

Wednesday 9/14/11, 11:14 AM/ET: The Hard Truth

Former Governor Corzine says the long-term US entitlement picture needs to be addressed in a way he would have been "uncomfortable" saying were he still in office.

Wednesday 9/14/11, 11:04 AM/ET:  The Deficit Question

Solving the Deficit Problem Panel at the Delivering Alpha conference.

Can we solve the chronic America deficit problem? The three participants on our panel—which starts now—gave us a sneak preview of their thoughts.

Tyler Mathisen says most attendees favor a "balanced" approach of both spending cuts and tax increases to deal with it.

Wednesday 9/14/11, 10:50 AM/ET:  They Know Their Crowd

The intermission music so far perfectly suits the mostly middle-aged audience here: The Band's "The Weight" and Led Zepplin's "Hey Hey What Can I Say" play during the coffee break.

Wednesday 9/14/11, 10:45 AM/ET: Larry Fink: A Man Without A Business Card

Shortly after the panel on "The End of America," Black Rock chairman and chief executive Larry Fink was chatting with a much younger man in the back of the ballroom, says CNBC's John Carney.

After a few minutes, Fink began to move toward the door.

"I have to run to get on a call," Fink said. "We should continue this conversation."

"Do you have a card?" the young man asked.

"I don't have a card," Fink said.

Lesson: when you are Larry Fink you don't need a business card.

Wednesday 9/14/11, 10:28 AM/ET: Bigger Not Always Better

80 percent or so of all money in hedge funds is in the same couple of hundred firms, says Seides, which means that many people are, whether they know it or not, essentially following the same limited set of investment strategies. Which makes outperformance much harder to achieve.

"Delivering Fees" panel at the Delivering Alpha conference.
Photo: Heidi Gutman for CNBC.com

Wednesday 9/14/11, 10:12 AM/ET: The Thing About AlphaTed Seides—co-founder of Protégé Partners—notes that in a universe of 10,000 hedge funds, the number of managers who can deliver "Alpha" (market-beating) returns is by nature going to be very small. Nonetheless, he notes that in 2011, virtually all the best asset management talent is in hedge funds.

It's telling, for example, that Warren Buffett turned to two hedge fund managers to help run Berkshire Hathaway, he says.

Wednesday 9/14/11, 10:07 AM/ET: Justify Your Fees

Do hedge fund managers really deserve 2 percent management and 20 percent performance fees? Panel attendee Jon Jacobson gave CNBC's Maneet Ahuja some of his thoughts in advance:

"Delivering fees, in my mind, comes down to delivering a net return to investors that A) has an alpha component - a return over and above that of the market, and B) is accomplished by taking less risk than that of the market.  

Although there are varied approaches to achieving this, the number of managers that have a strong record of doing so over a long period of time is relatively small. As fundamental value investors, we start with the premise that security prices almost always move faster than and, in many cases overshoot, fundamental changes in the underlying businesses. This is driven by the fact that investors are alternately driven by greed on the one hand and fear on the other. Our deep fundamental research focus allows us to build a relatively concentrated portfolio of securities which we believe provides the opportunity to achieve equity-like returns with a high margin of safety. We are agnostic about geography, industry, and security type—our singular focus is crafting a portfolio that will yield the best risk-adjusted returns over the long-term. The long-term orientation and stable nature of our capital along with the investment flexibility allowed us are big advantages. This formula, together with an investment team that has been together for some time with deep knowledge of global sectors, has worked well for us."

Wednesday 9/14/11, 9:56 AM/ET: What Fink Doesn't Want

His 'must to avoid" investment is US Treasuries with 2 percent yields, and corporate bonds with slightly higher yields than that.