California pensioners are ditching hedge funds. Could this change the future for asset management stocks?
California's Pension System, often known as Calpers for short, is a trend-setter in the industry since it is the largest pension in the world.
It is doing so because the returns don't support the high costs of hedge funds, which typically charge about 2% of total assets and a whopping 20% of the total return.
That meant that Calpers spent more than $130 million generating a return that was only 7% (meanwhile unmanaged index funds were returning as much as five times that.)
Hedge funds are generally attractive because they invest in more liquid assets than private equity (liquid assets can be bought and sold more easily) and can take long or short positions.
Put more simply, hedge funds get away with the high costs they charge because they are good at making money in tough times and in boom years. But if Calpers no longer thinks it's worth it, then couldn't other funds soon be in trouble?
Probably not—New Jersey's pensions are adding to their positions in hedge funds. And, unlike privately held firms, public hedge funds usually distribute those high fees back to shareholders.
Though it may sound like an anomaly, there are several publicly traded hedge funds: Och-Ziff Capital Management Group (OZM), and Fortress Investment Group (FIG) both derive a substantial portion of revenues from hedge fund vehicles.
To see how the market was feeling about this sector in general we decided to run a screen. We focused on asset management stocks, since that is the subsection of financial services where most hedge funds are found.
We screened for companies with a market cap above $2 billion, meaning that they had substantial assets under their control. We then limited the screen for signs of increased short selling.
This usually means an increase in bearishness on the stock, since short-sellers make money on their positions with a stock's price goes down. This screen left us with just 3 stocks on our list.
Do you think people will continue to pay a price premium for their hedge fund? Use the list below to begin your analysis and let us know what you think in the comments.
Click on the interactive chart to view data over time.
Shares shorted have increased from 619.59K to 2.51M over the last month, an increase which represents about 1.66% of the company's float of 114.21M shares. Days to cover ratio at 0.55 days.
Shares shorted have increased from 6.71M to 7.67M over the last month, an increase which represents about 1.08% of the company's float of 89.01M shares. Days to cover ratio at 6.68 days.
3. Waddell & Reed Financial Inc. (WDR, Earnings, Analysts, Financials): Provides investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds, and institutional and separately managed accounts in the United States. Market cap at $4.53B, most recent closing price at $53.69.
Shares shorted have increased from 2.49M to 3.58M over the last month, an increase which represents about 1.35% of the company's float of 81.03M shares.
(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, short-seller information sourced from Yahoo! Finance, all other data sourced from Finviz.)
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Lazard Ltd.(LAZ, Chart, Download SEC Filings)
- Legg Mason Inc.(LM, Chart, Download SEC Filings)
- Waddell & Reed Financial Inc.(WDR, Chart, Download SEC Filings)
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