Unstructured Finance

Psst, Bank of America has got a deal for you

By Matthew Goldstein

Wanna buy a foreclosed home on a the cheap?  Well, Bank of America has got one for you. Or to be precise, the big U.S. lender has got 556 formerly owner-occupied homes it is trying to unload right now in a bulk deal.

As my colleague Jennifer Ablan and I reported yesterday, BofA, for the second-time in five months, is seeking bids for a bulk sale of foreclosed homes. This second round is much bigger than the first and could be a sign the bank is moving aggressively to sell foreclosed homes with institutional investors eyeing the market.

After our story ran, a source provided a nice overview of the bulk deal that  BofA has  sought bids on–apparently the deadline for putting in a bid was April 4. According to the bulk sale fact sheet, BofA is trying to find buyers for pools of foreclosed homes in 7 states: Arizona, California, Florida, Georgia, Illinois, Nevada and Texas.

The opening bid for a buyer looking to scoop up all the homes was $68.8 million. But it appears, BofA also was willing to accept bids for the pool of homes in sale in each state.

The average beginning bid price for each home was $123,000.

The fact sheet provided by this source says nothing about the condition of the homes or street locations. Presumably a really motivated buyer got that information from the bank before entering a bid.

Wanna buy a foreclosed home on a the cheap, Bank of America has got one for you. Or to be precise, the big U.S. lender has got 556 formerly owner-occupied homes it is trying to unload right now in a bulk deal. Join Discussion

Whither the Yale model?

David Swensen has been called “Yale’s $8 billion man” for outperforming the average university endowment by that amount during the first 20 years of his tenure as Yale’s Chief Investment Officer. Chalk that outperformance up to the success of what’s become known as the “Yale model,” or the insight that institutional investors like endowments or pension funds can achieve outsize returns by allocating a large chunk of their assets to hedge funds, private equity, real estate, and other alternative investments.

As Swensen explained in a lecture he gave to Yale MBAs in 2008 , the Yale model rests on two core tenets: 1) “an equity bias for portfolios with a long time horizon,” because equities and equity-like alternative investments tend to rise in value in the long run; and 2) diversification, because by spreading investments among several asset classes with varying degrees of liquidity, ”for any given level of risk, you can increase the return.”

These days, though, it seems both of Swensen’s credos have become passé in the community of corporate pension fund managers, as Reuters’ Sam Forgione reported late last week:

For the first time in over a decade, more of the $1.246 trillion assets represented by the 100 largest U.S. corporate pension funds is now in bonds instead of equities, according to pension consulting firm Milliman…

“There will definitely be less demand for equities from corporate pensions if you look out the next several years,” said Aaron Meder, head of U.S. pension solutions for Legal and General Investment Management America. Corporations are “tired of the volatility in the stock market, so they want to de-risk their pensions,” he added.

What’s striking here isn’t that pension funds no longer share Swensen’s fondness for allocating money to hedge funds or private equity — after all, Swensen himself believes that the majority of institutional investors who can’t match the resources or qualifications of Yale’s Investment Office “should be 100 percent passive.” Rather, it’s that Swensen’s golden rules of asset management — stocks for the long run and diversification — seem to be out of fashion. Pension-fund managers that have years to ride out losses on their stock portfolios until they turn into gains are increasingly throwing in the towel in favor of less volatile, lower-returning bonds. The advantage of endowments and pension funds that Swensen has touted for years — a near-infinite time horizon — is being ignored.

This risk aversion among institutional investors is trickling down to the retail level, too. Mom-and-pop investors withdrew $4.43 billion from equity funds last week, the largest amount since the start of the year, data from the Investment Company Institute showed today. These investors are also showing a preference for fixed income: bond funds saw with $6.12 billion in inflows that same week, for a total of over $26 billion in the previous three weeks.

The question institutional investors are now asking is whether the events of the past few years require a re-appraisal of principles underpinning the Yale model. Hedge funds, one of Swensen’s darling asset classes, had a particularly bad 2011, with the average fund down nearly 5 percent and some stock-picking funds down 19 percent. The New York Times published a story earlier this week that claimed that over the past five years, a set of public workers’ pension funds that had more of their assets in hedge funds, private equity, and real estate posted lower returns and paid higher fees than those with stodgier portfolios.

The golden rules of institutional investing that Yale's David Swensen pioneered -- stocks for the long run and diversification -- seem to be out of fashion among corporate pension fund managers. Join Discussion

UF Weekend Reads

Don’t get pranked tomorrow. Remember, it’s April Fool’s Day. Here are the latest Weekend Reads as selected by Sam Forgione.

 

From Fortune:

Hedge fund manager Paul Singer’s hardball approach has benefited Republican candidates as his fund battles in court with nation’s that have defaulted on their debt.

From The Guardian:

Zoe Williams writes about how Stephanie Flanders, the BBC economics editor and a former speechwriter for Tim Geithner, relishes bad news.

From Columbia Journalism Review:

Don't get pranked tomorrow. Remember, it's April Fool's Day. Here are the latest Weekend Reads as selected by Sam Forgione. Join Discussion

Diversity on Wall Street, or a lack thereof

By Matthew Goldstein

The shooting death of Trayvon Martin, an unarmed black teen in Florida, has evoked a lot of debate about race in America and the nation’s attitudes to what it means to be a minority.

There’s been a good deal written that major media organizations were slow to react to this tragic story, in part because there simply aren’t enough minority voices on staff. This point was highlighted recently in a  story in The New York Times

That said, minorities also are underrepresented in the industry I spend most of my time writing about—Wall Street. And while it’s no secret that there are few minorities in the executives suites on Wall Street—there are not that many women, either—it’s worth taking look at some disturbing statistics.

A May 2010 by the General Accountability Office, which looked at the issue of diversity in the financial services industry, found that “overall diversity at the management level in the financial services industry did not change substantially from 1993 through 2008. Relying on data compiled by the Equal Employment Opportunity Commission, the GAO reported that minorities held just 10 percent of “senior-level” management positions at financial services firms.

In 2008, the EEOC data revealed that white males held 64 percent of all senior jobs, with African Americans holding 2.8 percent, Hispanics some 3 percent of all senior jobs and Asians holding 3.5 percent of top level jobs.

The GAO concluded  that “without a sustained commitment” from the firms, “diversity at the management level may continue to remain generally unchanged over time.

The shooting death of Trayvon Martin, an unarmed black teen in Florida, has evoked a lot of debate about race in America and the nation’s attitudes to what it means to be a minority. And it's opened discussions about diversity or the lack thereof in newsrooms and on Wall Street. Join Discussion

UF’s Weekend Reads

Here is the latest edition of Weekend Reads courtesy of Sam Forgione. Enjoy.

 

From Barron’s:

The managers of hedge fund Cassiopeia are teaching a lesson or two on trading volatility.

From Bloomberg Businessweek:

Matthew Philips addresses regulatory efforts to catch up with the glitch mob known as high-frequency traders.

Here is the latest edition of Weekend Reads courtesy of Sam Forgione. Enjoy. Join Discussion

It’s Like Deja Vu All Over Again in the Las Vegas real estate market

By Jennifer Ablan

Las Vegas had become the poster child of what many had pegged as the biggest casino during the real-estate boom, all which was engineered by cheap credit and a yearning for owning a piece of the American dream.

The economic toll of the financial crisis swept through towns and communities in terms of home foreclosures, devastated neighborhoods and half-built shopping centers and office complexes.

But on my December visit to Mountains Edge and South Summerlin — large master-planned communities, not far from the Las Vegas strip, for example – I saw several bulldozers doing work in preparing the sites to build houses, after years of sitting idle.

There are signs of hope and renewal with new construction projects ramping up in Sin City and investors snapping up foreclosed single-family homes, rehabbing them and renting them out. The market for foreclosed homes is getting a lot of attention these days, as there are signs the multi-year plunge in housing values is in a bottoming process and Americans become more of a renter nation than an ownership one—at least for the time being.

As my esteemed colleague Matt Goldstein and I reported Tuesday, the lure of fat profits to be made from scooping up foreclosed homes at a discount and turning them into rental properties is attracting not just local entrepreneurs but big institutional investors. And the federal government is getting into the act with a plan by the Federal Housing Finance Agency to stage a bulk sale of some 2,500 Fannie Mae-owned single family homes in Atlanta, Chicago, Los Angeles, Phoenix, parts of Florida and Vegas.

Las Vegas had become the poster child of what some had pegged as the biggest casino during the real-estate boom, all which was engineered by cheap credit and a yearning of owning a piece of the American dream. Join Discussion

UF’s Weekend Reads

Here is Sam Forgione’s suggested weekend reads. Happy St. Patrick’s Day everyone. The calendar says March but it feels like mid-May in NYC.

 

From Dealbook:

Recent graduates are becoming disenchanted with Wall Street careers. Kevin Roose interviews a college grad, a recruiter, professor, and former Goldman employee support to make his point.

From Fortune:

Mina Kimes takes a look at James J. Wang, the head of the small and wildly successful OceanStone Fund, who she describes as being spectrally mysterious.

From The New Yorker:

Here is Sam Forgione’s suggested weekend reads. Happy St. Patrick's Day everyone. The calendar says March but it feels like mid-May in NYC. Join Discussion

When it comes to its hedge funds, Goldman is on the CAIS

By Katya Wachtel

Goldman Sachs’s own hedge fund product  — like the now defunct Global Alpha — is generally reserved for the checkbooks of the investment bank’s wealth management clients. But not always.

For investors looking to get a piece of a Goldman hedge fund for a discount (and without having to actually be a Goldman private wealth customer) the investment bank is offering one of its commodity-focused hedge funds on a third party platform: CAIS.

CAIS Group, which opened its doors in 2009, already offers its customers an entree to brand name managers including John Paulson’s eponymous hedge fund, and Daniel Loeb’s Third Point.  The platform also includes John Thaler’s JAT Capital — one of 2011′s standout performers — on its shelf.

Now, according to a regulatory filing from March 12, CAIS Group clients also have access to the Goldman Commodity Opportunities Fund (the underlying fund of which was launched in 2007). The minimum investment in the CAIS fund is $100,000, according to the filing. As of March 12, $7,265,000 had been raised.

While Goldman’s asset management division, better known as GSAM, has offered some proprietary product on third party platforms over the past 10 years, it is not something the bank does often, said several people familiar with Goldman’s structured product, including former employees.

“I don’t remember placing our funds on external platforms,” said one former GSAM hedge fund employee who asked not to be named due to ongoing relationships on the Street.  “The closest we came was third-party distribution, but that was mostly mutual funds.”

Goldman Sachs's own hedge fund product -- like the now defunct Global Alpha -- is generally reserved for the checkbooks of the investment bank's wealth management clients. But not always. Join Discussion

Goldman vs Goldman

By Jennifer Ablan and Matthew Goldstein

Goldman Sachs’s chief executive Lloyd Blankfein and his likely successor, Gary Cohn, issued a formal response today following a scathing op-ed in the New York Times from Greg Smith, who announced his resignation from the investment firm.

Smith, a banker who worked in Goldman’s equity derivatives group, asserted that several Goldman managing directors had referred to their own clients as “muppets.” In Britain, where Smith is based, “muppet” is used as a derogatory term to describe someone who is regarded as being ignorant.

You can read his list of complaints below.

For their part, Blankfein and Cohn wrote: “We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”

They added: “We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively.  And we have demonstrated that fact.”

We would love to hear where you stand on this matter — whether you work, worked, or want to work for Goldman Sachs. Twitter us @jennablan or @mattgoldstein26 or email.

Goldman Sachs's chief executive Lloyd Blankfein and his likely successor, Gary Cohn, issued a formal response today following a scathing op-ed in the New York Times from Greg Smith, who announced his resignation from the investment firm. Join Discussion

Suite Scams revisited

Virtual offices can be a great cost-saver for a solo attorney, a lone accountant or any other professional who can’t afford the expense  of maintaining a separate support staff to run a business. But these outfits, in which a solo professional gets to essentially rent the services of a receptionist, a secretary and conference space, also can provide cover for bad guys bent on doing mischief.

A case in point is Robert Sucarato, a New Jersey man, who was sentenced Friday to 11 years in a federal prison for using a virtual office as a front for an alleged multi-billion hedge fund that bilked investors out of $1.6 million. A few years ago, when I was at BusinessWeek, I wrote about Sucarato long before federal prosecutors were on his trail. The BW story was called “Suite Scams” and it focused on much more than Sucarato and showed how virtual offices were proving to be a useful tool for Wall Street fraudsters with a slick website and a good marketing pitch.

Former federal prosecutors, back when I talked to them, said they were well aware of how  virtual offices were becoming the hallmarks of scams. But they said there was little  they could do to stop it since the due diligence requirements for virtual office operators are minimal.

Interestingly, a virtual office played a role in the case of Tyrone Gilliams, the Philadelphia commodities trader charged by federal prosecutors with defrauding investors out of about $5 million.

So what’s the lesson here? Well it’s really nothing more than the need for investors to be vigilant and do their homework. It never hurts to do a quick search on a Wall Street advisor’s address and if it’s listed to a virtual office, start asking questions.

Now the fact that a financial wizard is using a virtual office as a base of operation doesn’t necessarily mean something bad is afoot. But it’s reason to ask more questions. And if you don’t like the answers you get, then don’t invest.

 

Virtual offices can be a great cost-saver for a solo attorney, a lone accountant or any other professional who can't afford the expense of maintaining a separate support staff to run a business. But these outfits, in which a solo professional gets to essentially rent the services of a receptionist, a secretary and conference space, also can provide cover for bad guys bent on doing mischief. Join Discussion