Jerry Marlow
Research, writing, design,
and presentation samples
Hedge fund communications with investors:
2008: A bloody year in the financial markets
Ad copy for a midwestern bank’s
wealth management group:
Personal and professional relationships
built upon trust give meaning
and satisfaction to people’s lives
Real estate development:
Pitch book to persuade Disney
to develop Disney hotel
in old New York Times building
Consumer rights and contract law:
Was your car totaled? Or stolen?
Hedge fund communications
with stakeholders:
Ironwood Global’s proposed solution
to mortgage crisis.
Promotional copy
for Registered Investment Advisor (RIA):
Your most important investment decision:
To whom will you entrust the stewardship
of your family's wealth, hopes and dreams?
Hedge fund pitch book:
Pitch book to persuade
U.S. Department of Housing
and Urban Development (HUD)
to sell underwater mortgages
to Ironwood Global
Option pricing tutorial:
Option Pricing: Black-Scholes Made Easy
Option pricing tutorial:
FX options tutorial
Seminar handout:
How To Value Stock Options
In Divorce Proceedings
Hedge fund communications
with investors
2008: A bloody year
in the financial markets
In a chain reaction, the financial crisis
that began in 2007 went critical in 2008.
The plummeting value of mortgage-backed
securities caused enormous write-downs
at banks and hedge funds. Share prices
of financial institutions plunged.
Interbank lending came to a standstill.
Credit markets were disrupted.
Bear Stearns failed.
IndyMac Bank went into receivership.
Lehman Brothers went bust.
The U.S. government bailed out AIG.
Phone calls that said, “Your collateral
was further hypothecated”
produced sweaty brows.
Money market funds broke the buck.
The commercial paper market
ceased to function.
Banks cut credit to corporations.
Prime brokers raised interest rates
to hedge funds. Prime brokers
imposed restrictions on funds’ ability
to borrow. Panic swept equity markets.
Everyone was selling everything.
Regulators tightened restrictions
on short selling. The U.S. Securities
and Exchange Commission
temporarily banned outright
the short selling of 950 financial stocks.
Bid-ask spreads widened.
The U.S. government’s plan
to buy toxic assets stuttered and stalled.
Governments infused equity capital
into financial institutions. Several times
equity markets surged only to dive deeper.
Equity market volatility soared.
Consumer spending plunged.
The outlook for corporate profits worsened.
For corporate bonds, the risk
of credit downgrades forced prices down.
Concerns about counterparty risk
turned market players wary and defensive.
Investors fled to the safety
of government backed bonds.
The global economy entered a recession.
Fears of short-term deflation
rattled policy makers.
Fears of long-term inflation pushed down
the prices of longer dated bonds.
Commodity prices— except for gold—
plunged. Global government bonds
experienced extreme volatility.
Investors fled emerging-market investments
for the relative safety of the U.S. dollar
and Japanese yen. U.S. automakers
begged Congress for a bailout.
Policy makers argued about
how best to stimulate economies.
CitiGroup staggered and reeled.
And so on.
2008: Few hedge-fund strategies worked.
The near meltdown of the financial system
in 2008 created difficult trading conditions
for most hedge-fund strategies.
Plunging stock prices caused
long/short equity funds that were long
to suffer heavy losses. For long/short funds
that wanted to be short,
the ban on short selling meant
they could not implement their strategies.
The ban on short selling meant
hedge funds could not implement
market-neutral strategies. Funds
with convertible bond arbitrage strategies
could not hedge their bond positions
against price declines in the stocks
into which the bonds were convertible.
Funds with statistical arbitrage strategies
could not sell liquidity by selling short.
Defaults and near defaults
by issuers of convertible bonds
played further havoc
with convertible bond arbitrage strategies.
With everyone selling everything,
historical relationships among asset prices
ceased to exist. Correlations of asset returns
approached one. Strategies that exploited historical relationships no longer worked.
The SEC's temporary ban on short selling
of financial stocks sparked a technical rally
and produced a short squeeze. Hedge funds
with short positions in those stocks
suffered losses.
The surge in market volatility
derailed momentum strategies.
Huge liquidations of bonds
and rampant volatility of bond prices
wrecked fixed income arbitrage strategies.
Global macro and other funds that bet
that asset prices would converge
with their economic values
saw those differences expand
instead of shrink.
The turnaround in commodity prices
punished hedge funds that had taken
bullish positions.
Funds that had long positions
in distressed securities
saw the market prices of their holdings
drop even further.
2008: A harrowing year for hedge funds
Widespread strategy failures caused
many hedge funds to suffer heavy losses.
Heavy losses meant hedge funds
faced margin calls. To meet margin calls,
funds had to sell whatever securities
they could. Forced hedge-fund liquidations
pushed market prices for securities
even lower.
Many hedge funds were highly leveraged.
Leverage multiplied losses.
Investors unhappy with returns
withdrew money. According to TrimTabs,
hedge-fund investors in September
withdrew a record $40 billion.
Redemptions forced funds
to liquidate additional assets
at fire-sale prices.
For hedge funds, losses and redemptions
translate into paltry fee income.
The traditional hedge-fund fee structure
has been 2% of assets under management
plus 20% of profits. For funds running losses,
2008 performance fees are going to be
20% of nothing.
For hedge funds with losses,
lower net-asset values mean the basis
on which management fees are calculated
is smaller. At many funds, big investors
have negotiated asset-management fees
down to 1%. At small funds,
1% of assets under management
isn’t going to cover Bloomberg,
rent, technology and other expenses.
To again be eligible for 20% of profits,
hedge funds with losses in 2008
first have to get asset values
back up to their high-water-marks.
2008 losses will force many hedge funds
out of business
The losses they suffered in 2008
are taking their toll on hedge funds.
Many will disappear—
either by going bust
or by deciding that the low fees
they can expect to earn
will not be worth their efforts.
Manny Roman,
the co-chief executive of GLG,
Europe's biggest hedge fund,
has predicted
that between 25% and 30%
of the world's 8,000 hedge funds
will disappear.
John Mack, CEO of Morgan Stanley,
said that his contacts in the industry
are telling him that, over the next year,
the number of hedge funds
could shrink by 30%. The Economist
has speculated that, over the coming year,
the number of funds in business
could fall by half.
Which hedge funds will disappear?
The greater a fund’s losses on investments,
the greater its leverage, the lower its fee
for assets under management,
the smaller its asset base,
and the greater its redemptions,
then the more likely the fund
will close up shop—
or has done so already.
2008: The fittest hedge funds survive
In the hedge-fund industry,
2008 has been a year of Darwinian shakeout.
The near meltdown in the financial markets
stress tested funds’ strategies, personnel,
infrastructures, fee structures,
relationships with prime brokers
and relationships with investors.
Hedge funds robust enough to survive
the trading conditions of 2008
should be well positioned to excel
under more favorable trading conditions.
2008: Hedge funds were down absolutely but outperformed long-only equity
mutual funds
To justify their performance fees,
hedge funds tout their ability
to generate exceptional absolute returns.
Their returns, they claim,
do not depend on market direction.
Yet, hedge funds are not without risk.
They cannot generate exceptional returns—
or even positive returns—
under all trading conditions.
According to Hedge Fund Research (HFR),
as of October 22, the typical hedge fund
had lost almost a fifth of its value so far
this year. Convertible-arbitrage funds— which typically buy a company’s convertible
bonds and sell its stock— had lost 46%.
Performance through October 22
makes 2008 hedge funds’ worst year
since HFR began compiling records in 1990.
Despite being leveraged, hedge funds
have done better in 2008 than
equity mutual funds and equity-index funds.
As of October 22, the S&P 500 had lost 38%
of its value.
Investors tempted to abandon hedge funds
may wish to consider
how they would’ve fared
had they had their hedge-fund money
in long-only equity mutual funds.
2009: A new world
During 2008, in the United States,
we heard a great deal about change.
In 2009 a new administration
with strong majorities
in both houses of Congress
will take office. To boost the economy,
president-elect Obama has promised
a strong two-year stimulus package.
While Senator Obama ran a campaign
from the left of his party,
his personnel appointments thus far
suggest that he intends to govern
from the center and that he intends
to govern pragmatically— not ideologically.
The economic challenges that
he and his appointees face are daunting.
Yet strong actions with strong support
from Congress and the public
could help stabilize the economy.
The financial crisis is creating
new opportunities
Surgeons have a saying:
“All bleeding stops eventually.”
Eventually the Great Deleveraging of
the global economy will have run its course.
Eventually financial institutions,
hedge funds and other investors
will stop having to dump securities
at whatever prices they can get.
Eventually trading conditions
will become more favorable to some
if not all hedge-fund trading strategies.
To be successful,
hedge-fund trading strategies
do not need rising markets.
Hedge-fund strategies do, however,
benefit from these trading conditions:
-
Ability to sell short
-
Ability to sell liquidity
-
Availability of credit
-
Narrow bid-ask spreads
-
Tendency for securities’ market prices
to converge with their economic values -
Tendency for market prices of related securities to move toward rational prices relative to one another
As massive forced selling of securities wanes,
these more favorable conditions
are likely to reappear.
Moreover, we at Omega and many other
analysts believe that the financial crisis
is likely creating enormous opportunities
for hedge funds. Forced selling forces
the market prices of many securities
away from their economic values.
Big jumps in market volatility
often produce situations in which
related securities are mis-priced
relative to one another. Divergences
of prices from economic values
and relative mis-pricings
create arbitrage opportunities.
As forced selling wanes, hedge funds
robust enough to have survived 2008
will be set to profit from the convergence
of security prices with economic values.
They will be set to profit
as the prices of related securities
move into rational relationships
with one another.
Volatility in the financial markets
may continue to be high. Whether markets
go up or down, higher volatility creates
larger profit opportunities
for option-trading strategies.
2009: New thinking, new policies,
new patterns, new possibilities
In the wake of the biggest financial crisis
since the Great Depression,
the intellectual landscape has changed
and will change further. The near meltdown
of the markets dealt a heavy blow
to the Efficient Market Hypothesis.
The notion that unregulated financial markets
gravitate toward states of equilibrium
has become hard to defend.
Hyman Minsky’s dictum that
“stability creates instability”
has gained credibility.
In the minds of policy makers,
the Efficient Market Hypothesis now duels
with the Financial Instability Hypothesis.
Evolution in economic thinking will produce different regulations and policies.
Different regulations and policies
will produce different patterns
in the financial markets.
However the financial markets evolve,
the hedge funds that survived 2008
will be watching.
They will be looking
for patterns and trends.
They will be analyzing
how securities’ market prices
compare with their economic values.
Hedge funds will be looking
for arbitrage and other opportunities.
They will spot them.
They will seize them.
2009: We hope you will be with us
At Omega, we are monitoring
how robustly different hedge funds
and trading strategies are coping
with this year’s difficult trading conditions.
We are in discussion with hedge funds
about how the evolution of trading conditions
matches up with their strategies.
As we look to 2009, we know that many
of the world’s brightest people
and hungriest minds work at hedge funds.
We believe that the intellectual acumen
that hedge funds bring
to the financial marketplace make them excellent investment vehicles
for institutional investors
and qualified individuals.
We hope that investors who have profited
from their investments in hedge funds
in years prior to 2008 will be with us
as trading conditions evolve in ways
that once again allow hedge funds to execute their trading strategies successfully.
We hope that you will be with us
as the hedge funds with which
we do business exploit
new patterns and new possibilities
in the world’s financial markets.
With best personal regards,
John Smith
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Ad copy for a midwestern bank’s
wealth management group
Personal and professional relationships
built upon trust give meaning
and satisfaction to people’s lives
Researchers who study
what makes people happy are discovering
what people with Midwestern values
have known for a long time:
To enjoy a meaningful and satisfying life,
a person needs to be involved
in relationships that embody
a great deal of trust.
At first blush, the notion
of “happiness researchers”
may make your eyebrows arch.
Even so, the issues they raise
and the cause-and-effect connections
they find can stimulate useful thoughts
about the choices we make
and how we shape our lives.
Happiness researchers consistently find that,
while financial wealth greatly expands
a person’s opportunities and freedom
of action, financial wealth alone
is not the strongest determinant
of the enjoyment and satisfaction
that a person finds in life. Things
like new acquisitions usually produce
only a brief increase in happiness
because we quickly adapt to
and incorporate them into our routines
and expectations.
The greatest factor in a person’s
life satisfaction and enjoyment,
happiness researchers have found,
is personal and professional relationships
that embody mutual trust and empathy.
In the workplace, researchers have found
that trust in management is the aspect
of work that has the greatest effect
on employee happiness.
The importance of trust far outstrips
that of pay.
In times of difficulty, relationships
built upon trust sustain us. Empathy
and counsel from those whom we trust
enable us to overcome setbacks
and grow stronger.
In good times, when we achieve team
and personal successes,
the opportunity to share such moments
with people with whom we have bonds
of mutual trust amplifies our enjoyment
many fold. If someone you trust
helped you achieve the success
you enjoy now, then you know personally
how crucial that quality of relationship
can be.
Moreover, success in the context
of trusting relationships brings
out our better selves. When we benefit
from the wisdom and generosity of others,
we in turn are more inclined to share
with others our gifts and abilities.
Being kind benefits others and adds
meaning and satisfaction to our lives.
In a virtuous cycle, trust, empathy
and wise counsel beget success,
kindness, and generosity of spirit.
Kindness and generosity beget more trust.
The cycle grows.
In short, when a person is surrounded
by trusting relationships,
adversity is easier;
success, more enjoyable;
life more meaningful and satisfying.
Researchers have found that people who
enjoy positive and productive relationships
are likely to live longer, happier,
and healthier lives.
At Trust Point, we understand
that the growth and preservation
of your financial and other assets
is very important. We take asset management
and wealth preservation very seriously.
Yet, we also understand that true wealth
is the meaningfulness and satisfactions
that you enjoy in your lifetime
and that you pass on to those
whom you care about most deeply.
At Trust Point, we want
the quality of interaction
that you have with our professionals
to give you not only the financial, tax,
estate, and legal results you seek,
but also the counsel, empathy, and
understanding essential to an enjoyable life.
Our values guide our actions
and our interactions. We believe that
satisfaction and joy are better than frustration;
kindness, better than selfishness;
and empathetic, thoughtful, expert counsel,
better than generic advice.
At Trust Point, we hire the best
and brightest people we can find.
We educate them in our values
and in the quality of interaction
we expect them to have with you.
Our professionals do their best
to gain a deep understanding
of your goals and concerns.
Every day we ask ourselves
how we can bring our expertise
and capabilities to bear
in a way that adds to the enjoyment
and satisfaction that you gain in life.
Trust Point professionals do not ask
for your trust. Through our actions
and counsel we seek to earn it.
In his book The Politics of Happiness,
Harvard University President Emeritus
Derek Bok surveys the findings and insights
of happiness researchers.
Chapter 1379
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Real estate development:
Pitch book to persuade Disney
to develop Disney hotel
in old New York Times building
To go to PDF of Disney hotel pitch book,
click here.
Pitch book will open in a new window.
Chapter 1380
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Consumer rights and contract law:
Was your car totaled? Or stolen?
Hedge fund communications
with stakeholders:
Ironwood Global’s proposed solution
to mortgage crisis.
To go to PDF of proposed solution,
click here.
PDF will open in a new window.
Chapter 1382
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Promotional copy for
Registered Investment Advisor (RIA)
Your most important investment
decision: To whom will you entrust
the stewardship of your family’s
wealth, hopes and dreams?
Most likely your investment portfolio
represents the results
of your or your forbearers’ toil,
prudence, and good fortune.
Your investments embody the harvests
of days past and your family’s hopes
and dreams for years to come.
Your choice of a steward
for your family’s hopes and dreams
is an undertaking best not entered into
lightly or taken casually.
If you do not have the expertise,
the time and the desire to manage
your investment portfolio yourself,
then the most important investment
decision you will ever make
is your choice of who will manage
your portfolio for you.
What qualifications should you look for
in a portfolio manager?
Global perspective
Managing an investment portfolio
effectively is more challenging than ever:
The United States no longer dominates
the world economy or world trade.
Over the past five years, the dollar
has lost a quarter of its value
against other major currencies.
The future of the U.S. dollar
as the premier international currency
is in jeopardy.
In future years, the value of the dollar
against other currencies will continue
to fluctuate.
Growing demand for and dwindling
supplies of energy and other resources
will continue to put pressures
on commodity prices, governments
and economies.
To be effective today and into the future,
a portfolio manager must have
a global perspective— one that takes
into account how political developments
and technological trends will affect
the growth of economies, the profitability
of companies, the prices of commodities,
and the strengths of currencies.
To be effective today, a portfolio manager
must view investments in any economy—
the U.S. included— in the context
of global trends, cycles and developments.
Attention to preserving
your wealth’s purchasing power
Not only does the decline of the dollar
against other currencies erode
your wealth’s purchasing power,
so can inflation within U.S. economy.
Your portfolio manager must find ways
to protect your wealth against declines
in purchasing power.
Market savvy, psychological poise,
skeptical open-mindedness
The world’s financial markets continue
to grow more volatile and interconnected.
Financial markets are auctions. They are
auctions in which bid and ask prices
reflect participants’ expectations
about the future. Any event or development
that affects people’s expectations
can affect market prices.
To be effective, a portfolio manager
needs the market savvy to recognize
the danger signals of irrational exuberance.
He or she needs the psychological poise
to see when the herd
may be chasing a mirage
or in danger of running off a cliff.
He or she needs the open-mindedness
to recognize the investment possibilities
of new technologies balanced
by the skepticism to know that,
when something seems too good to be true,
it probably is.
Wisdom beyond the conventional
Conventional wisdom
and many financial advisors claim
that the financial markets are efficient
and every investor would be better off
in an index fund. The exceptional portfolio
manager knows that, if markets were truly efficient, they would not go into bubbles.
Recent bubbles in technology stocks
and in the housing market show
that the financial markets
are not truly efficient. Hence, index funds
guarantee neither rational investments
nor wealth preservation.
As the value of the dollar has fallen
over the past five years,
investors in dollar-based index funds
have taken significant hits
in the global purchasing power
of their wealth.
The next time one of your friends
at the club says, “I’m in an index fund.
That’s the smart thing to do,”
you might want to say,
“Being in an index fund doesn’t keep you
out of a bubble. Being in an index fund doesn’t protect your purchasing power.”
Ability to translate global perspective
into investments that work for you—
your situation, your goals,
your time horizon, and your personality
While a portfolio manager needs
an informed perspective to evaluate
the likely reaction of financial markets
to world developments, he or she
is not managing money in the abstract.
He or she is managing your money—
your wealth.
To manage your wealth effectively,
a portfolio manager must have
the sensitivity and interpersonal skills
to relate global developments and
market behavior to your personal situation,
individual goals, investment horizon
and appetite for risk. If your primary goals
are preservation of wealth
and preservation of purchasing power
and your portfolio manager’s goal
is to turn a little wealth into a lot of wealth
as quickly as possible, then, most likely,
you will be exposed to far more risk
than you can tolerate— psychologically
or financially.
If your portfolio manager has
a three-month investment horizon and
you have a twenty-year investment horizon,
you are likely to be in for a bumpy ride.
Focus on after-tax returns
If one of your goals is to control
your incursion of capital-gains taxes,
then your portfolio manager needs
the administrative infrastructure
and skill to take into consideration
the tax basis and holding period
of every security in your portfolio.
When you choose a portfolio manager,
think about the challenges
of managing investments
in a dynamic, global economy.
Find out if the person and the firm
you are considering has the qualifications,
the perspective and the skills
to meet those challenges.
Omega’s Registered Investment Advisors
(RIAs) will manage your portfolio
in the context of a fiduciary relationship
The principals of Omega Capital Advisors,
LLC are Registered Investment Advisors.
We are legally required by the Securities
and Exchange Commission (SEC)
to act in your best interest.
We will provide you with investment advice
and manage your portfolio in the context
of a fiduciary relationship.
We will formulate for you asset allocations
designed to serve your best interests and
match your goals, concerns and personality.
We will do our best to manage
your investment portfolio in a way
that you can understand, that makes sense
to you, that earns your trust and confidence
and that immunizes you from the anxiety—
the alternating euphoria and panic—
that comes from chasing after every latest
fad or bubble in the marketplace.
Omega Capital Advisors brings
a long-term, global perspective
to protecting your wealth and
preserving your wealth’s purchasing power
At Omega, we bring a global perspective
to managing investments. We take
a long-term view.
We believe in global investing
and in global diversification.
Investments in strongly growing economies
of other nations oftentimes offer excellent returns relative to their associated risks.
So long as the value of the world economy
grows, the value of a globally diversified
portfolio will grow.
Returns on investments in other economies
usually have lower correlations with returns
on investments in the U.S. economy than do
additional investments in the U.S. economy.
Investments in other economies thereby
improve portfolio diversification.
The asset allocations we recommend
balance investments in the U.S.
with diversification across global markets.
To achieve optimal diversification,
we believe asset allocations should
go beyond the traditional investments
in stocks, bonds, cash, and real estate.
Because of the low correlation
of their returns with those
of the traditional asset classes,
we believe you also should allocate
some of your assets to investments
in raw materials and energy assets.
We believe that, not only should
your investments preserve your wealth,
some of your investments
should be targeted to preserving
your purchasing power in the face
of potential declines in the value
of the U.S. dollar. Most likely
we will recommend that your portfolio
include investments in metals
and currencies— assets that ordinarily
have the best chance of holding value
if and when the U.S. dollar loses value
either through inflation or
against other currencies.
Our approach to asset allocations
strongly aligns with that of David Swenson
who manages the endowment
of Yale University. During Mr. Swenson’s twenty-plus-year stewardship
of Yale’s endowment, this approach
has achieved exceptional returns.
To guide our long-term investments
in the global economy, we track
economic, political, demographic, cultural, natural, and scientific developments
around the world. We identify
the twenty major trends and issues we
believe will drive investment performance
over the next twenty years. We call
this perspective and analysis
our 20/20 Global Vision.
Omega investments benefit
from the best thinking of many
of the world’s best fund managers
To turn asset allocations into investments,
Omega has ongoing relationships
with fund managers who specialize
in each of the asset classes
in which we recommend you invest.
We have reviewed the performance of
and analyzed the strategies of
every fund manager with whom
we do business. We have good reasons
for our confidence in their abilities
and integrity.
Through these relationships,
we give you and your portfolio
access to the best thinking
of many of the most successful
and reliable fund managers
in the world.
At Omega, we also manage several funds
ourselves. On average, we manage
in-house approximately 50%
of our assets under management.
Adam Quelquechose, President and CEO
of Omega, has managed portfolios
successfully for institutions
and high-net-worth individuals
for over twenty-five years.
Adam’s investment strategies
are especially attuned to maximizing
the long-term benefits of diversification
across markets and asset classes.
When we propose allocation of your assets
to specific funds, we provide you
with comprehensive information
on each fund:
-
Investment strategy
-
Historical return
-
Historical excess return
-
Historical performance
against benchmarks -
Historical volatility
-
Historical composition
We believe each fund
has the potential to serve you well.
We believe the combination of funds
over a long-term investment horizon
will grow your wealth and protect
your wealth’s purchasing power.
We believe our approach to portfolio
management and our fund managers
will save you from the anxiety
and potential catastrophes
that all too often come from chasing
after stellar short-term results
with concentrated allocations.
Chapter 1383
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