A Different Kind of Border Wall

To slow mass migration, stop the illicit capital flight from poor to rich countries.

An asset manager called ____ Capital recently sent out this email seeking referrals:

The US Investor visa program allows one to invest $500,000 U.S. in a government licensed fund for a period of about five years and in around 18 months, a conditional green card is attained for the investor and their immediate family. The investor and their family can live, work and study anywhere in the United States and there are no educational, age or English language requirements.

Most experts report that on September 30th the investment amount will increase from $500k to $1.3m, a significant jump that will price out many potential investors.

There is still time to file before September 30th if you start your process with ____ Capital now.

Others can comment on the practice of selling green cards (and ultimately US citizenships) to wealthy foreigners while millions of other applicants, some of whom would be greater contributors to the United States, continue to wait in line for years. Our concern is one step removed and has to do with the legality of this money. Read more

Capitalism Did Not Win the Cold War

This article first appeared at Foreign Affairs.

Why cronyism was the real victor.

When the Soviet Union collapsed 26 years ago, it was generally agreed that the West had won the Cold War. This was affirmed by the prosperity and possibilities awaiting citizens of Western countries, as opposed to the political and economic stagnation experienced by those in Communist states. A natural conclusion, much repeated at the time, was that capitalism had finally defeated communism.

This sweeping statement was only partially true. If one took capitalism and communism as the only two protagonists in the post–World War II struggle, it was easy to see that the latter had suffered a mortal blow. But there was a third, stealthier protagonist situated between them. This was a system best identified today as cronyism. For if capitalism did win over the other two contenders in 1991, its victory was short-lived. And in the years that have followed, it is cronyism that has captured an ever-increasing share of economic activity. A survey of the distribution of power and money around the world makes it clear: cronyism, not capitalism, has ultimately prevailed. Continue reading at Foreign Affairs >>>

Why Buffett Won His Bet Against Hedge Funds

QE had a lot to do with it.

Active fund manager billionaires Warren Buffett and Charlie Munger have been critical of active fund manager millionaires for their very high fees and chronic underperformance. It is not unusual for the ultra wealthy to trash the merely wealthy for their avarice. After all, ultra wealth is so rare that it can be seen as an act of God, whereas mere wealth is the product of human toil and vanity, arduous and earthly.

Buffett and Munger are all-in on their recommendation that investors should dump active strategies and instead invest in passive indexed mutual funds or ETFs that simply mimic the S&P 500. Although this is a popular line among many seasoned investors, it has been getting long in the tooth and has turned what was once a good idea into a crowded trade, with hundreds of billions of dollars shifting from active to passive.

In our view, Buffett’s advice represents last year’s thinking. This year’s thinking, we argued previously, should be that passive funds are merely free-riding active funds and that past a certain market share, passive strategies will bite investors as badly or worse than active ones. Continue reading at Seeking Alpha >>>

The Way Forward for Hedge Funds – 2

In the first installment, I made a case that hedge funds can regain their popularity by reverting to their initial mandate which was to be hedged. I examine here how such a model hedge fund would have performed in the past 50 years if it had returned:

  • 0% in all years when the market was down.
  • 75% of the market gain in all years when the market was up.

In essence, this fund only has a chance of outperforming the S&P 500 in the long run if the market has a big down year (say 10%+) every few years.

So what do the past 50 years tell us? Read more

The Way Forward for Hedge Funds – 1

Hedge funds should go back to hedging and also consider lower fees.

Equity hedge funds are under tremendous pressure, having underperformed their benchmark in nearly every year since 2008. But can it really be true that the average equity hedge fund is no better over the long run than granny’s passive indexed ETF or mutual fund that tracks the S&P 500?

On one side, hedge funds employ full-time cohorts of smart ambitious highly credentialed people who spend long hours and a lot of money visiting and analyzing companies to find the best opportunities. They sit in beautiful new offices and use the latest in real-time data feeds and state of the art technologies. Read more