Wall Street pros love talk about how regular investors are terrible market timers and thus should just buy and hold for the long haul.

Small investors tend to panic sell at the lows and greedily buy at the highs.

But this stimulus-fueled bull market has proven that the pros are no better. Hedge funds and active mutual funds are badly lagging their performance benchmarks as "alpha"— risk-adjusted outperformance — disappears and stocks across the market increasingly rise and fall together.

And now, with stocks near record highs amid very quiet trading — with volatility near historic lows — regular investors are aggressively cashing out.

Is Main Street onto something? Or have they made a blunder? And who is buying stocks if they're not?

As a reminder, many Street titans like Carl Icahn and George Soros have also recently become very bearish on stocks. Much of the recent buying out of the June market lows has come from a combination of short covering and purchases in the equity futures market. So the only people that are really "bulled up" here are likely central banks like the Swiss National Bank, the Bank of Israel and the Bank of Japan, all of which are actively buying equities.

According to Jason Goepfert of SentimenTrader, domestic mutual funds have lost more than $26 billion in assets over the last four weeks, the largest outflow since 2011. Oddly, this runs counter to many measures showing investor sentiment is dangerously bubbly. But it's a hard data point that cannot be easily dismissed.

To be fair, this reflects a change of opinion at the margins, since investors are still holding nearly the largest allocation to stocks as a percentage of total financial assets in 50 years. And equity assets compared to safe money market assets, while down from recent highs, is above levels seen at the 2000 and 2007 market peaks.

Barclays Capital notes that a similar dynamic is playing out globally as well. Since the middle of March, global markets have suffered $128 billion in outflows from equity funds:

In addition to short covering and futures buying, Barclays analysts note that corporate buybacks have been a major source of support in recent months. Combined with a drought of new IPOs, this has effectively reduced the supply of equities at a time of tepid demand, helping push prices higher. S&P 500 net buybacks rose to $500 billion over the last four quarters from $375 billion in 2013. (Compare that to the $159 billion in total inflows to equity mutual funds and ETFs by "regular" investors in 2013.)

Worryingly, the Barclays team warns that S&P 500 gross buybacks declined by $22 billion in the second quarter (down 15 percent) and new purchase announcements are down $115 billion year-to-date.

Stepping back, regular investors may be onto something here: The mindless share buyback spree — fueled by cheap debt, the "reach for yield" and executives trying to boost earnings-per-share performance by any means — cannot last much longer unless revenue and profits start growing again.

Remember, we're in the midst of a five-quarter-long earnings recession that is expected to last at least six quarters. Analysts expect earnings growth to resume before the end of the year, but that depends on ongoing strength in energy prices, a weakening of the dollar and a rebound in tepid GDP growth. Not to mention the outcome of the upcoming U.S. presidential election and the Federal Reserve's September and December policy decisions on whether or not to raise interest rates.

According to Yardeni Research, and illustrated in the chart above, companies are living on borrowed time as they pay out more in dividends and buybacks than they are earning. The largest offender is the energy sector, with buybacks and dividends exceeding operating earnings by nearly $96 billion.

Unless something changes, foreign central banks could soon be the only ones left buying American stocks.

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NOW WATCH: A Harvard psychologist's advice on how to argue when you know you're right

A decade ago, Netflix held a contest to see who could come up with the best algorithm to improve its recommendation system.

The prize was $1 million, and it became an obsession of many data gurus — one that was as much about the solving the problem as getting the cash.

One of these would-be prizewinners was Jaffray Woodriff, a quantitative hedge funder who found himself pulling eight all-nighters to try to climb to fourth place on the algorithm leaderboard, he told Bloomberg.

The problem was that, try as he might, he couldn't unseat the guy in front of him, data scientist David Vogel.

So Woodriff called up Vogel and convinced him that they should team up.

They didn't end up winning the prize, and Netflix didn't even end up implementing the algorithm that won. But the contest had sparked an enduring partnership that has seen Woodriff and Vogel become two of the "most successful hedge fund managers in the world,"according to Bloomberg.

Woodriff initially hired Vogel as a consultant at his hedge fund, Quantitative Investment Management, and then invested a 25% stake when Vogel launched Voloridge Investment Management two years later.

Why did Woodriff want to bring Vogel on board? The Netflix contest.

"It's a sign of potentially being a great trading quant if you're good at machine learning, no matter the domain or discipline,"Woodriff told Bloomberg. "That's why I was so confident that David would be good at this."

Though Woodriff and Vogel's funds have a small footprint compared with heavyweights like Two Sigma, their returns are impressive. The pair has funds that regularly return over 20% per year, according to Bloomberg, and Vogel's Voloridge is third place in Barron's 2016 list of the 100 best hedge funds.

And just think: Vogel might not have even gotten onto Woodriff's radar had it not been for Netflix.

Read the excellent full profile of the pair by Bloomberg's Dani Burger »

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NOW WATCH: Amazon has an oddly efficient way of storing stuff in its warehouses

The world's biggest hedge fund firm thinks that China is preparing for a bust.

Ray Dalio's Bridgewater says that China has experienced an "unsustainable buildup of credit," which is "typical of debt boom and busts," according to a private note to investors viewed by Business Insider.

"This rapid expansion in credit looks like it has created significant vulnerabilities in the Chinese financial system at a time when the economy is still near the front end of a material loss cycle," the note added.

That said, the $147 billion firm thinks that China will be able to make it through, largely because the country's debts are denominated in China's own currency.

In other words, Bridgewater is saying that it can print more money if need be to get out of a crisis.

"While we believe that China has the resources to manage even a severe bank loss cycle, in large part because the debts are denominated in China's own currency, how the loss cycle will unfold and how it will be managed will have significant impacts on the Chinese economy," the note said.

The note was published last week by Bridgewater staffers, including Larry Cofsky and Matthew Karasz, and was in response to stress tests on China's banking system conducted earlier this summer. The giant hedge fund analyzed the stress-test findings and picked out a couple of key concerns in the banking sector: shadow banking and second-tier banks.

"One of the largest risks to the banking system is its exposure to off-balance sheet non-standard shadow banking products such as wealth management products and trusts," the note said.

Others in the hedge fund industry have also sounded the alarm on wealth-management products in China, including Kyle Bass. He said in a note earlier this year that Chinese banks had used wealth-management products to accelerate loan growth and get around restrictions on lending.

China's second-tier banks are also an issue, according to Bridgewater:

"These banks look vulnerable to us; they are large (more than 30% of bank assets), growing rapidly with increasing reliance on wholesale funding, and they are responsible for much of the growth in opaque on-balance sheet assets as well as off-balance sheet wealth management products."

The note added that Bridgewater is "particularly concerned" about the risk of a funding squeeze at China's second-tier banks.

China has long been on Bridgewater's radar. Last year, amid a Chinese market rout, the firm advised investors to get out of China and said that there were "no safe places to invest."

SEE ALSO: The unlikely history behind one of Wall Street's iconic funds

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NOW WATCH: Hedge fund manager explains why America does not need to be uneasy about a Trump presidency

TPG-Axon Capital Management is shutting its office in Hong Kong, where it employs 10 people, and ending its presence in Tokyo in the coming months, according to a letter sent to investors that was seen by Reuters and a person familiar with the situation.

TPG-Axon Capital Management is shutting its office in Hong Kong, where it employs 10 people, and ending its presence in Tokyo in the coming months, according to a letter sent to investors that was seen by Reuters and a person familiar with the situation.

SEE ALSO: The world's biggest hedge fund expects a bust in China

SEE ALSO: JIM ROGERS: 'If we all bought North Korean currency, we'd all be rich someday'

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NOW WATCH: Here's why the Olympic diving pool turned green

We've all heard about "The Big Short."

The trade was made famous by Michael Lewis' book focused on a band of Wall Streeters who made serious money betting on a housing crisis. The book was later turned in to an Oscar-winning movie starring Steve Carell, Christian Bale, and Ryan Gosling.

If you've seen the movie or read the book, you'll know that shorting the housing market was difficult. Not only did the traders have to spot the oncoming crash, but they had to work through technical difficulties in placing their bets.

One hedge fund manager who got caught up in those difficulties was Hugh Hendry, the contrarian investor who cofounded Eclectica Asset Management. Greg Lippmann, the Deutsche Bank trader portrayed by Ryan Gosling in the movie, pitched Hendry on the trade against the US housing market, but Hendry wasn't a particular fan of the guy.

Here's how Hendry remembers the encounter, according to a colorful interview with Real Vision TV released Friday:

"The Deutsche Bank guy, Gregg, he was in my office in London, I think, three, four times for many hours within the space of a month. He came in and he was offering you nirvana. He was offering you the greatest trade ever. But he would be the last conceivable person who would enter my office and offer me such an opportunity. And so you would dismiss him. Go.

"And then my guys would say, that really, really makes sense. I'm like, really? OK, bring him back. And again, [GROANS] oh, no, no. And he'd be on the phone and he'd be trading his book in front of you. And you're ... [CHOKING NOISES]."

Hendry's team at Eclectica Asset Management investigated Lippmann's trade and realized it was an "awesome, awesome trade"— but it wasn't to be.

The trade involved shorting the US housing market, and the fund's administrators were "uncomfortable about having an asset which they deemed to be very hard to have a credible, timely, and accurate price valuation," Hendry said.

Hendry didn't completely miss out, though. He explained:

"We couldn't sign off. So life's full of cul de sacs, you circle around. And again, the malleable, plasticine macro trader has to somehow re-create the trade elsewhere."

His fund found a related workaround that involved betting on a widening spread between the two-year Treasury bonds and the 10-year Treasury bonds. When the peak of the financial crisis arrived in October 2008, the bet paid off handsomely, delivering a 50% return in October.

Hendry said:

"Now again, with the mastery and the art of macro [investing], the process is so complex that it's not just necessary that you're correct; you need to consider the consequences of being correct.

"We had position whereby the other side [of the trade], the investment banks, they were desperate. They were dying as this thing suddenly came to my strike levels, blew through my strike levels, started to create this monster of a P&L, which was mirrored by a monster loss on the other side.

"And so daily we had pleadings. 'Please, please, please can we remove.' So not only had we conceived of a great monster P&L trade, which was ... the catalyst was adversity. Liquidity came to us, allowing us to monetize and close. That's macro."

SEE ALSO: The world's biggest hedge fund expects a bust in China

DON'T MISS: The unlikely history of one of Wall Street's iconic funds

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NOW WATCH: Warren Buffett's sister needs your help giving away millions

On Sunday morning, around 200 hedge fund employees received a mass email about an activist position in one of the world's biggest asset managers, Och-Ziff Capital Management.

The note came from an unusual source, a man identified only as Michael Young, who wrote from a personal Gmail account.

Young's goals for Och-Ziff were straightforward:

"I. Focus Och-Ziff's attention on increasing tangible book value.

"II. Help Och-Ziff develop an automated trading strategy to decrease human emotion and improve investing performance. This will also increase profit margin by requiring fewer traders to execute trades.

"III. While continuing to focus their attention on tangible book value and investing performance, we will advocate for the sale of Och-Ziff Capital Management to a buyer who can manage the business better."

But one question remained: Who is Michael Young?

Business Insider wasn't included on the email chain, which included Citadel, Eton Park, and DE Shaw, among other top funds. One of the recipients asked if we could find out more.

Young, it turns out, is a 24-year-old Chipotle cook in San Jose, California, who dreams of becoming an investor full time, he told Business Insider in a phone call.

He realizes that in the world of asset management, his investment is small potatoes. For the Och-Ziff stake, he cobbled together $1,000 of his savings — a situation he compared to David and Goliath. Och-Ziff manages $39.2 billion.

But by sharing his thesis with some of the top minds in finance, he figured he might band together others who would in turn advocate for change, too.

"I wanted to use my voice in order to draw attention to what the company has not been doing over the years," Young told Business Insider.

One of Young's points is that Och-Ziff should up its game in quant trading — letting computers make buy and sell decisions — which it doesn't currently employ. Otherwise, he said, it would fall behind its competition.

This is the first time Young has made such a big move announcing his position, he said.

"There are a lot of companies that need owners to come in and say, 'Listen, we all together own the company,'" he said. "We all need to come together and say if we want change — let's lay it out."

He manages his day job with his passion for investing by pulling all-nighters researching investments.

"If I get off work at 11 p.m., I'll stay up until 5 or 6 a.m. or so, just making sure I'm not missing anything with the numbers," he said.

Young got into investing at age 19, when he read "The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance." Since then, Carl Icahn and Warren Buffett have become his idols.

"The same rules that Icahn and Buffett abide by — these are the principles I carry," he said.

Would he like to work for a fund one day?

That wasn't the purpose of the email, he says, but it certainly crossed his mind.

"Right now, the answer would be yes," he said. "That would allow me to ... learn more from the people I look up to."

A spokesman for Och-Ziff declined to comment.

SEE ALSO: The world's biggest hedge fund expects a bust in China

DON'T MISS: How one hedge fund manager missed out on the 'Big Short'

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NOW WATCH: Kobe Bryant is starting a $100-million venture capital fund

The rise of passive investing has fundamentally altered the business of Wall Street.

It is changing money management, as dollars flow from actively managed funds to index-tracking funds. It has changed stock trading.

It may also be changing the quality of research produced by investment banks for active-investment firms like hedge and mutual funds.

"To the extent that passive investing takes more and more share [from active investing], then the sell-side gets less revenue to devote to research, which is not good for us, the buy-side," Steve Einhorn, vice chairman and head of macro research at Lee Cooperman's $5.5 billion hedge fund Omega Advisors, told Business Insider. "We might not get as good a flow of research as we otherwise would."

Passive investing, which generally means tracking a market-weighted index or portfolio rather than actively trading, has steadily eaten away at active-investment management over the past several decades. Passive investing isn't as lucrative for brokerages, which, as middlemen, earn money off of the buying and selling of stocks.

These brokerages often also produce sell-side research, which buy-side investment firms like hedge funds and mutual funds fold in to their analyses. With less trading and less need for equity research, analysts are at risk.

A group of analysts at Bank of America Merrill Lynch led by Andrew Stimpson recently touched on this concern too.

"The popularity of passive products is leading to continued pressures on trading revenues." they wrote. "This also removes a traditional customer for the banks: research analysts do not have anyone/do not have any need to contact the passive funds."

Sell-side firms, which have a financial interest in propping up active trading, have been fighting back. Last month, Sanford C. Bernstein & Co. argued that passive investing is "worse than Marxism" in a note to clients.

The analysts highlighted the upsides of passive investing, such as the lower costs, but argued that passive investing's encroaching share creates an undesirable side effect — decreasing the allocation of capital to companies that deserve it.

The note, which garnered a lot of buzz on Wall Street, said (emphasis added):

"Ultimately this goes to the heart of the question, what is the social function of active management in equity markets, and indeed of sell-side equity research?"

"In the wake of the financial crisis we think it is even more important than normal to demonstrate that there is indeed a social function. A field of endeavour that performs no social function is ultimately unsustainable if it has a cost that is imposed on the rest of society. Any such activity will, in the ultimate analysis, simply be regulated out of existence.

"However, there is a clear and distinct task that active management (and, by extension, sell side research) performs. This is in the allocation of capital either directly through the raising of capital in primary markets or else indirectly in the information discovery process. This is a laudable task and needs to be recognised."

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NOW WATCH: Apple ditching the headphone jack actually makes a lot of sense

Cairn Capital, a London-based fund management firm with $8.6 billion in assets under advice, has made a big hire. 

The firm, which focuses on the structured credit markets, has hired former HSBC trader Asif Godall as deputy chief investment officer, according to people familiar with the matter. He will start in October. 

Godall was the global head of traded credit at HSBC before leaving the bank in 2015. He had previously set up the bank's global macro strategies trading group. 

He was listed on Financial News' list of rising stars in European finance in 2012, when he was aged 36.

Cairn Capital, which was set up in 2004, agreed a deal with Italian bank Mediobanca last year that saw the bank take a 51% stake in Cairn. Mediobanca has an option to buy some or all of the remaining 49% after three years. 

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NOW WATCH: Self-made millionaire reveals the biggest money mistake you might be making

In 2015, Mallory Downing was hustling for a hedge fund job.

Like many of her peers at Columbia Business School in New York, she sent out hundreds of résumés. She met with more than 100 people in interviews or informal coffee meetings. She was set on a career in investing and knew the hedge fund model was for her.

"Getting into this industry requires some serious conviction," she told Business Insider.

Not long after, a prominent hedge fund manager stood in front of a group of female investors and said he wasn't sure why he couldn't find any to hire.

That manager was Bill Ackman, founder of Pershing Square Capital Management, and he was speaking at a June event hosted by 100 Women in Hedge Funds, an industry group.

After his talk, things changed slightly. Pershing Square's senior counsel, Jenna Dabbs, joined Ackman's 10-person investment team.

Still, the lack of women on the team, at least until recently, is curious. Ackman has recruited men at young ages. One was made a partner by age 29.

This problem isn't unique to Ackman's firm. The senior team at another activist hedge fund, Starboard Value, is all male and all white.

So is ValueAct Capital's, whose nine investment partners are also all white men.

Starboard Value didn't respond to requests for comment. ValueAct representatives, both women, pointed out that they both hold partner roles, though they are in legal and investor relations, not investing. As for Ackman's Pershing Square, women also work in units outside investing at his $12.5 billion hedge fund.

That setup is common in hedge funds. Women are very much present in compliance, marketing, and operations roles, but largely absent from investing jobs, the crux of the industry.

Industrywide, only 3% of senior investment roles in hedge funds were held by women in 2012, according to a 2014 article in the trade publication CIO.

So why the disconnect?

Hedge funds aren't trying to find women

A hedge fund is a loose term used to describe a wide array of investment firms that deploy an even wider range of investing strategies.

But one trait is common — almost none of them focus on hiring women, according to two recruiters.

"Most funds want to go out and hire the best talent," said Michael Goodman of recruiting firm Long Ridge Partners. "They don't care if it's a man or a woman. Typically, they're going to find the male universe is larger."

Goodman estimates that about one in five of the investment experts he could suggest to hedge funds is a woman. That count includes traders, analysts, and portfolio managers.

Another recruiter, David McCormack, CEO of DMC Partners, says he rarely gets requests by hedge funds to provide a diverse slate of candidates.

"Hedge funds just want the best performers in the industry," he said. "It isn't driven by diversity hiring."

Hedge funds, which are more often small investment firms than institutional behemoths, are culturally apart in this regard, he added. Banks and traditional asset managers are more likely to ask recruiters to include female candidates, McCormack said.

"I'm not saying hedge funds don't care," he added. "It's just their biggest priority is performance, not the makeup of them internally."

McCormack has also found a shortage of women to choose from. Women with the skill set for long-short equity — one of the most common hedge fund investment strategies — make up about 5% of candidates, he estimates.

It's about who you know

Investing is one of the last frontiers where women are this underrepresented. One of the few female executives in the industry thinks it may be getting worse.

Värde Partners' Marcia Page said that when she started her career at Cargill's trading arm in the 1980s, about a third of the traders around her were women. She can't think of an investing firm with that level of female representation now.

"Frankly, we have actually gone backwards," she said.

This isn't just a hedge fund problem — women across finance are underrepresented. The executive committees of the six biggest US banks are only 20% female, for instance, according to a Wall Street Journal analysis.

It might also just be harder for women to find investing jobs, particularly at hedge funds.

That's because candidates often have to know the right people to hear about a job. Positions are not usually publicly posted, so jobs are found through networking, which tends to be stronger among men, according to people working in the industry.

Most hedge funds don't have transparent recruiting processes as banks do with programs on college campuses.

Hedge funds tend to recruit via word of mouth, including through external firms that help them run their businesses, said Elizabeth Havens, a recruiter at David Barrett Partners who specializes in placing women in investment roles at endowments, foundations and family offices.

"Unless you're explicitly asking [for diverse candidates], the numbers are on the men's side," she said.

Business Insider asked Ackman about his hiring process. He declined to comment for this article, but one of his spokespeople, John Pinette, said this is how it works: A recruiter and/or trusted contact within Ackman's network makes recommendations for an open role. Ackman tells recruiters he's eager to consider female candidates, but few show up in the stack of résumés he receives. That's partly because Ackman prefers to recruit from private equity, a field with few women.

Unconscious biases

Hedge funds may fall prey to unconscious biases, too.

"You tend to look for candidates that look like the people that have been successful in the role before," said Meredith Jones, author of "Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too)."

"So if you've always hired white men and they've been successful in those roles, then unconsciously — and I don't think it's on purpose — you are likely going to continue to look for those kinds of people," she said.

That's why if investment firms want a diverse staff, they have to to make an active effort to find minorities and women, Jones said.

These unconscious biases aren't restricted to hiring — or hedge funds, for that matter.

Aurelia Lamorre-Cargill, a longtime banker who headed Barclays' global FICC trading unit before recently starting hedge fund Argon Capital, said women face unconscious biases throughout their careers that may hold them back.

"There's a fine line between aggressiveness and assertiveness," she said. "What is perceived as assertiveness for men is perceived as aggressiveness for women."

Broken pipeline, aggressive culture?

The other side of this, of course, is the pipeline problem. Few women are opting for careers in investing, especially at hedge funds. Part of that might be tied to perception, according to Lamorre-Cargill.

Women "might have a view of hedge funds being a more aggressive culture," she said. That may not necessarily be true; Lamorre-Cargill says that her own fund is not. "Sometimes that's how the media also portrays them."

Women also lack examples of successful women in investing, particularly on college campuses, says Downing, the recent Columbia Business School student.

That makes it "harder for women to visualize how a career in investing could work for them, which I think leads women to opt out of the career path," she wrote in an email. "In reality, cultures vary wildly from fund to fund, and there are very successful and inspiring women in investing, so I think there are misconceptions holding some folks back."

Some women also don't mind being one of the few on a team. One female analyst, who works at a multibillion-dollar New York hedge fund, said that while the disparity is real — she is the only woman on the 15-person investment team — she doesn't mind it.

"I've never been intimidated by men," she told Business Insider. She spoke on condition of anonymity because she wasn't authorized to speak to media. "I've always had a lot of male friends, and some of my best friends are men. It suits my personality."

When she goes to her children's after-school events, she says she constantly checks her Bloomberg terminal on her phone.

And that need to keep up with the markets also means it's harder for women who want to take time off from work — potentially for kids — to get back into their careers.

"It's extremely difficult to come back because you've lost touch of the markets," she said. "If you're interviewing as a portfolio manager or analyst, they'll ask you, 'What are your investment ideas?'"

'Returns are returns'

One advantage for women in investing is that performance is a quantifiable measure. That means it's easy to see who is performing well.

"Irrespective of one's gender, race, ethnicity, etc., returns are returns," Nancy Davis, who runs her own hedge fund, Quadratic Capital Management, wrote in an email. "As a result, I think that women who enter investment management can potentially succeed solely based on results, not by having to navigate a so-called boys' club."

Meanwhile, some groups are working to close the gap in the pipeline.

A nonprofit called Girls Who Invest mentors college-aged women in summer-long classes with perks like paid internships. Another group called "Rock the Street, Wall Street" focuses on training girls in high school.

And at 100 Women in Hedge Funds, women who are already working in the space share jobs and host events with some of the industry's most prominent players, like Bill Ackman.

These initiatives might help hedge funds in the long run as performance lags. Hedge funds are underperforming the S&P 500 for the eighth year running.

More gender diversity could help the industry exit its slump, Point72 Asset Management's Doug Haynes recently said. Funds are suffering from groupthink, and diversity in background would help them produce better investment ideas, he added.

For some, the tide appears to be changing.

"It's amazing the number of conversations that continue to come up about trying to get more women into our investment stream," said Kelly Rau, an audit partner at KPMG who researches the topic. "It's dramatically on the radar."

As for Downing, the business school student who dreamt of an investing career, hustling paid off. She joined a New York fund earlier this year as an investment analyst.

BI EXPLAINS: What is a hedge fund?

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NOW WATCH: London is building Europe's tallest residential skyscraper

Famed short-seller Jim Chanos was on a stock-picking panel at the CNBC and Institutional Investor's Delivering Alpha Conference in NYC.

"I want to talk about what is not too boring — the world of Elon Musk," he said.

Specifically, Chanos is talking about Tesla merging with SolarCity.

"Just to underscore ... what kind of damage this merger will do to Tesla shareholders, we ran a Z-score."

A Z-score is a predictor of bankruptcy.

"The bottom line is that Tesla, which was slightly above the red line, puts itself well under the red line by buying SolarCity," he said. "The combined SolarCity and Tesla, which we think will have a cash burn of a$1 billion a quarter, will constantly need access to capital markets."

Chanos argued that SolarCity's model is just uneconomical — and he's made this argument before — yielding no value to Tesla at all.

"To burden your own balance sheet with the kind of business ... strikes us as the height of folly."

When the Tesla board was approached to do a bridge loan for SolarCity, Tesla "punted," Chanos said.

"Yet they're going to buy the equity at a premium. Again, this is puzzling to any student of corporate governance."

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NOW WATCH: Self-made millionaire reveals the biggest money mistake you might be making

A prominent conservative hedge fund billionaire is blaming central bankers for the slow economy.

Paul Singer, the founder of the hedge fund Elliott Management, said Tuesday that policymakers needed to consider fiscal policies to spur the economy, arguing that they had created a risky environment for investors.

"Central bankers say, 'Growth hasn't really picked up, but in the absence of what we're doing it would have been a lot worse,'" Singer said at the CNBC Institutional Investor Delivering Alpha conference in New York. "I don't think that's right."

Singer was referring to the policies of low interest rates enacted by central banks around the world after the 2008 financial crisis.

"Eight years of ever-declining rates and ever-increasing radicalism in other monetary policies have not created a sustainable, accelerating uptick in growth," Singer added. "What they have done is created a tremendous increase in hidden risk. Risk that investors don't exactly know or have faced about their holdings."

"I think it's a very dangerous time in the global economy and global financial markets," he added.

Instead, he said, government policymakers should focus on changing policies in tax, regulation, trade, and education, though he didn't go into detail about such policies.

Singer is a big Republican donor but hasn't completely backed Donald Trump, the Republican presidential nominee, and he even said earlier this year that Trump would create a depression.

Singer also said Tuesday that the bond markets were facing a bubble situation, and he recommended that investors sell their 10-, 20-, and 30-year bonds.

"These are not safe havens," he said. "In fact, there's a tremendous amount of risk."

He has also recommended holding gold.

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NOW WATCH: KRUGMAN: Financial markets aren't taking a Trump victory very seriously

Three top investors just shared a stock pick during a panel at the CNBC Institutional Investor Delivering Alpha conference in New York City.

The players were:

• Robert Bishop, the founder of Impala Asset Management
• Jim Chanos, Kynikos Associates founder and managing partner
• Bill Miller, the founder, chairman, and chief investment officer at LMM

Throughout the conference, speaker after speaker has described this market as dangerous — discussing how low yields have pushed investors toward desperation and how it seems as if assets are fully priced, making it hard to find value.

So pay attention.

First up, Miller:

Miller said his son described his pick as both "boring and obvious."

He's long the S&P 500 and short the 10-year Treasury. "Treasurys are hardly a risk-free asset," he said. "This more or less mathematically has to work."

Miller is also long the stock of the beleaguered company Valeant Pharmaceuticals.

"Forget about the earnings number and just focus on free cash flow," he said.

He added that the company was a busted rollup that would eventually turn into a leveraged buyout.

"It's a completely different company, different management ... you should be able to make 25%, 30% on Valeant in the next five years," he said.

He added that it should now be considered a slow-growth regular pharmaceutical company.

Next, Bishop:

The idea is Teck Resources, a company that trades in the US and Canada. It's a mining stock, so this is a commodities/metals story. You have to believe that prices will go up as Chinese demand improves.

And there's something to be said for that, as there are signs that the Chinese government is acting to stabilize its economy, despite saying last year that it was working toward allowing it to normalize. Generally, its stimulus has been about infrastructure — especially property development — which is great for metals.

Bishop said the world was trying to slow its production of metals and China specifically was limiting the days coke and coal could be mined.

Teck Resources makes zinc, copper, coke, and coal. It has also cut costs significantly.

Lastly, Chanos:

Chanos rehashed a short position he had already announced: his short of the world of Elon Musk.

On Tuesday he focused on Tesla's merger with SolarCity, which he said was "a completely flawed business model."

"The bottom line is that Tesla, which was slightly above the red line, puts itself well under the red line by buying SolarCity ... The combined SolarCity and Tesla, which we think will have a cash burn of $1 billion a quarter, will constantly need access to capital markets," he said.

He said the proof of that, and of the fact there's something wrong with corporate governance at Tesla, was that the Tesla board refused to provide a bridge loan to SolarCity. That was disclosed in merger documents.

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It's not easy to be a hedge fund manager today.

One-time lucrative fees are going down for many, and the market environment is such that many managers are having trouble making money for their investors.

But Ray Dalio, founder of the world's biggest hedge fund, thinks he'd be able to launch a fund today, despite industry headwinds.

"I think that the market environment will always be exciting," Dalio said at the Delivering Alpha conference in New York hosted by CNBC and Institutional Investor. "And the question is whether you're adding value or not. I think, most importantly, whether you're going to add value in a bad time."

Dalio's firm is one of the most successful of all time and has raked in assets even as performance has lagged this year. The Westport, Conn. firm manages around $150 billion.

"So I think that it depends how you play the game," he said. "And there will be opportunities. And the important thing is whether you also make money in the good times and the bad times."

When host Andrew Ross Sorkin asked Dalio asked if Dalio could launch Bridgewater today, he said: "Oh, yeah."

Bridgewater, to an extent, is an outlier. Many hedge funds are facing pressures to lower their fees, which are traditionally two percent of assets and 20 percent of performance.

Funds that are returning in the single digits struggle to charge high fees, Ross Margolies, the founder of Stelliam Investment Management, said on a separate panel at the conference.  

Investors are questioning why they are paying high fees when the average hedge fund has underperformed the S&P 500 index for the past eight years.

Still, for those that hit it out of the park, investors are lining up.

"There has been constant fee pressure but also extraordinary people who can charge 3 and 30, and you’re happy to pay, if that’s what the manager is going to deliver," said Mary Erdoes, CEO of JP Morgan Asset Management.

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A hedge fund manager who shut down his fund following a government raid is now lashing out.

David Ganek shuttered his hedge fund Level Global following a government raid at his offices in 2010. Last year, he filed a sued the FBI and New York's Southern District, calling that raid "reckless."

On Tuesday, Ganek said that the government's choice to raid his fund was unjust.

"It was political, a pandering to what was going on in the world that time," Ganek said at the Delivering Alpha conference in New York hosted by Institutional Investor and CNBC.

Ganek also said that Preet Bharara's office, which brought charges against people working at his firm, did not engage with him when he tried to negotiate the lawsuit he eventually brought last year.

By Ganek's telling, he and his attorneys sent a draft of the complaint to the government before filing, to know beforehand if they were "barking up the wrong tree."

"I was sensitive to not charge people who weren't involved," Ganek said.

But the government declined Ganek's offer to engage, Ganek said.

In 2014, courts overturned an insider-trading conviction of Level Global's co-founder Anthony Chiasson.

Spokespeople for the US attorney's office and the FBI declined to comment.

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Carl Icahn is asking regulators for the option to up his stake in Herbalife up to 50%.

That would be a huge increase since he is currently limited to 35% of shares. Icahn said he currently owns about 20% of Herbalife's shares.

Icahn said he is asking the FTC for permission to raise his stake. He also said that Herbalife would be better off as a private company to be rid of Bill Ackman, Icahn's rival who has famously shorted the company.

Icahn made the comments at the Delivering Alpha conference hosted by CNBC and Institutional Investor on Tuesday.

Herbalife is up 2.5% in after-hours trading after falling 3% earlier during trading hours on Tuesday.

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Bridgewater Associates — the world's largest hedge fund, with $150 billion in assets under management and 1,700 employees — says it is "bloated" and will "improve efficiencies" of its non-investment teams.

The firm made the announcement in a letter sent to clients on Thursday that was obtained by Business Insider.

Bridgewater's leadership team told its employees in a town hall Thursday that it would be laying off employees and overhauling its organizational structure and technologies in its Technology, Recruiting, Facilities, and Management Services team.

The team writes that this move is "coming at a time when our fundamentals are very strong" but that rapid growth of its non-investment units in the past five years has resulted in areas that "became bloated, inefficient, and bureaucratic."

"The new management leadership is now digging into the areas of inefficiency to improve them," the team writes. "Naturally that will involve some significant changes to people, processes, and technologies."

The leadership team notes that under normal conditions it would not be notifying its clients of this change but is doing so "because we have recently experienced distorted reporting in the media" and want to provide the "real story." This is a reference to earlier reports this year from The Wall Street Journal and The New York Times, which Bridgewater founder Ray Dalio publicly expressed issues with.

You can read the full letter below. It's signed by Dalio, co-CIO Bob Prince, co-CIO Greg Jensen, co-CEO Eileen Murray, president David McCormick, and co-CEO Jon Rubinstein.

"Dear —,

In a town hall meeting with employees today, we conveyed to the company that we will be conducting a renovation to improve efficiencies at Bridgewater, especially in the non-investment areas such as Technology, Recruiting, Facilities, and Management Services.

In the past, we made these sorts of internal changes privately and wouldn't have bothered telling you about them as you won't be directly affected. However, we decided to bring them to your attention because we have recently experienced distorted reporting in the media about what is happening at Bridgewater, so we want to provide you the real story.

To be clear, this renovation is coming at a time when our fundamentals are very strong: Our investment process is better than ever, our financial position is rock solid, our key employees who built the firm wouldn't want to work anywhere else, and our clients remain confident in us (as expressed in their collectively investing $22.5 billion in new money since 2015).  We are making these changes as a part of the ongoing process of constant improvement that has been the key to our success over the past 40 years.

Background 

As you know, about a decade ago, our assets under management were growing rapidly and Bridgewater's leadership faced a choice: to remain a boutique or become an institution. To institutionalize Bridgewater meant building out areas of the company that a boutique doesn't have or only modestly has, such as Security, Technology, HR, Facilities, Legal, etc. Building out those areas required us to hire a lot of people.

As a result, we grew dramatically. In 2003 Bridgewater had 150 employees; in 2011, when we began our management transition, we had 1,100; now we have 1,700. About 70% of this growth in headcount was in our non-investment areas. As one might expect, some of these areas became bloated, inefficient, and bureaucratic. As you know from dealing with us, we want to have pervasive excellence.   

To deal with this situation, earlier this year, we realigned our management team to help push through needed improvements.  These changes included Ray temporarily stepping back into active management of the firm as co-CEO, joining the existing senior management of Eileen Murray (co-CEO, who has been helping lead the company since 2009) and David McCormick (President, who has likewise been helping lead since 2009). We also brought in Jon Rubinstein as a co-CEO and made some other management changes. An added benefit of this shift was that it allowed Greg Jensen (who has been at Bridgewater 20 years) to devote his full attention to his role as co-CIO along with Ray and Bob Prince (who has been here for 30 years).  These shifts in management roles were consistent with our plan to figure out how to best transition the leadership of the company over 10 years. (We are now 5 years into that plan.)

The new management leadership is now digging into the areas of inefficiency to improve them. Naturally that will involve some significant changes to people, processes, and technologies. As mentioned, the vast majority of this renovation will be in the non-investment areas that have seen the most growth to make them more effective in supporting our investment and client service areas.

As always our evolutionary process will be imperfect, iterative, and transparent, and it will make us more efficient. 

What is of paramount importance is our sticking to the culture that has led to our excellent results. It is best summarized in the following sentence: We want meaningful work and meaningful relationships through radical truth and radical transparency. Transparently bringing problems to the surface and regarding them as intolerable might lead some people to wrongly conclude that we have more problems than organizations that don't transparently bring problems to the surface.  Our employees and our clients understand that this difference is essential to our success. It is also through this radical truth and transparency that they have learned to trust our integrity as well as our abilities.

As always, if you have any questions, let us know.

With appreciation for your understanding,

Ray, Bob, Greg, Eileen, David, and Jon"

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Crispin Odey is having a tough year.

His UK-based hedge fund is down about 35% this year through August, according to an investor letter. The firm manages around $8.9 billion.

And Odey is blaming central bankers, and in particular low interest rates, for creating an unsustainable economy.

"It would certainly be simpler to follow the market," he wrote. "But then we would be ignoring the fundamental data."

His explanation for his fund's terrible performance, while quite macro-focused, is coherent and compelling. Here's what he had to say:

The world got too expensive.

"As individuals gained access to leverage in a world that was globalising, individuals became richer (thanks to asset price inflation) even if their incomes were constrained by growing international competition. However, by 2005 asset price inflation and the expansion of the balance sheet had created a world in which wage earners could no longer afford the asset prices. The reaction of the authorities since then has been to lower interest rates so as to support asset prices and intervene via QE where appropriate."

The response has been ineffective.

"Productivity in the west has now fallen to almost negative rates, investment has stalled and individuals have turned against globalisation. This is a long answer as to why Brexit was always likely to be popular in the UK. It also lies behind Trump's possible success later this year. Without productivity growth, capitalism becomes unpopular, globalisation becomes unpopular and politicians become unpopular."

Fighting the Fed is a losing bet.

"It is always dangerous to fight the Fed and that is what we have been doing this year. The world economic growth continues to disappoint despite the benefit of lower energy costs. Corporate earnings in most parts of the world have continued to fall and now the USA is experiencing falling earnings. My thinking this year was that stock markets would follow earnings. What we did not expect was that markets would re-rate massively into an earnings downturn. Moreover, it still seems to be a re-rating which is not supported by hopes that earning will soon recover but only by the monetising undertaken by central banks."

The search for yield is driving everything.

"The quest for yield explains 100% of this year's performance. Quite apart from the pain that this policy is bringing to pension funds, insurance companies and banks, it has ensured that individuals have been buyers of dividend streams which are not underwritten by earnings streams. There is nothing sustainable about the current status quo."

Equities are overvalued.

"Since 2011 the earnings for the FTSE 100 companies have fallen from 500 to 119 currently or nearly 80%, whilst the stock market has risen by around 10%. That would be okay if we were at the beginning of an upcycle but indications point to a peaking in demand for most production. This peaking is coinciding with new capacity coming on stream. No wonder sentiment is a little off colour."

Money is headed toward risky destinations.

"Keynes wrote in the thirties that 'people should travel, goods should travel but savings should never travel.' I never understood that remark until now. The developed world has always had a surplus of savings because on the whole capital is protected and labour is not. In the developing world they are always chronically short of capital because labour is protected and capital not. Sadly savings, thanks to QE, are going into a place where the odds of their survival are slim. Who is responsible for these irresponsible policies?"

ValueWalk reported earlier about the note.

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A $600 million hedge fund has made a big hire from Lee Ainslie's Maverick Capital.

Winston Holt has joined Electron Capital as president and will lead the marketing and investor relations team, according to an emailed memo that was sent Thursday and was viewed by Business Insider. 

Jay Livnat, Electron's managing director, is transitioning out of the role and will be advising the hedge fund on an external basis, the note said.

Electron, which was launched by a group of former SAC Capital traders, managed about $592 million including borrowed money as of year-end last year, according to a regulatory filing.

Holt headed director of investor relations and was a managing director at Maverick. He left Maverick in June, according to a person with knowledge of the matter.

Maverick managed $11.6 billion as of June this year, according to an investor update obtained by Business Insider.

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We now know how Carl Icahn's Herbalife sale fell through, thanks to a report by Michelle Celarier at Fortune.

Icahn and Bill Ackman have had a long-running feud over Herbalife, the nutritional supplements company. Ackman is short the position, Icahn is long. Their battle came to a head earlier this summer, when the Wall Street Journal reported that Icahn was shopping around Herbalife shares.

Since then, Icahn has skirted around confirming the story, and as recently as last week, avoided a question on it during his interview at the Delivering Alpha hedge fund conference in New York.

The latest story by Fortune involves a Jefferies exec texting Ackman while he was vacationing in Italy to ask for a meeting to discuss a potential sale. Jefferies shopped the idea around to other investors, too, but the deal eventually fell through.

Here's Fortune:

"In the end, despite at least a month of scouring Wall Street, and hamstrung by legal restrictions (more on that later), the best bid Jefferies was able to get Icahn was for a little more than 11 million, of Icahn’s 17 million, Herbalife shares at a price of $51.50 a share—about $10 south of where shares of Herbalife were trading on the open market at the time, sources familiar with the bid said. (People close to Jefferies put the figure a few dollars higher.) It didn’t take Icahn long to reject the bid."

For the full story, head over to Fortune >>

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The Securities and Exchange Commission has charged Leon Cooperman of Omega Advisors with insider trading.

The trading involves Atlas Pipeline Partners, according to the SEC complaint.

Cooperman is a hedge fund industry legend and manages Omega, an iconic New York fund with about $5.5 billion in assets.

Here's what the SEC's charges are:

• Cooperman used his status as one of Atlas' largest shareholders to "gain access to the executive and obtain confidential details about the sale of this substantial company asset."
• He and Omega Advisors bought Atlas shares despite explicitly agreeing not to use the information for trading purposes. When Atlas publicly announced the asset sale, its stock price jumped more than 31%.
• Cooperman tried to cover his tracks, contacting the executive "to fabricate a story to tell if questioned about this trading activity."

Earlier this year, following notice that Omega was under investigation, Cooperman said he didn't believe his firm had violated any securities laws.

"In short, I don't believe the government investigations will have a meaningful impact on our ability to serve you," Cooperman said during a call with investors in March. "Were I to reach a contrary conclusion, I'd close up shop and give you back your money." He said at the time he had no plans to do so.

Cooperman is considered a legend in the hedge fund industry and has a rags-to-riches story, growing up in the Bronx as the son of a plumber. Today he is worth $3.1 billion, according to Forbes.

Cooperman wrote a letter to investors on Wednesday, defending himself and saying he had not engaged in improper conduct.

CNBC reports that the SEC reached out to Cooperman for a settlement but he turned it down.

Here is the SEC's statement:

"The Securities and Exchange Commission today charged hedge fund manager Leon G. Cooperman and his firm Omega Advisors with insider trading based on material nonpublic information he learned in confidence from a corporate executive.

"The SEC alleges that Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma. Cooperman allegedly used his status as one of APL's largest shareholders to gain access to the executive and obtain confidential details about the sale of this substantial company asset. Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent.

"According to the SEC's complaint, when Omega Advisors received a subpoena nearly a year-and-half later about its trading in APL securities, Cooperman contacted the executive and tried to fabricate a story to tell if questioned about this trading activity. The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement.

"'We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,' said Andrew J. Ceresney, Director of the SEC's Division of Enforcement. 'By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.'

"The SEC's complaint further charges Cooperman with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times in this regard.

"The SEC's complaint was filed in federal district court in Philadelphia and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors as well as an officer-and-director bar against Cooperman.

"The SEC's investigation was conducted by Brendan P. McGlynn, Oreste P. McClung, Patrick A. McCluskey, and Polly A. Hayes of the Philadelphia Regional Office, and supervised by G. Jeffrey Boujoukos. The litigation will be led by David L. Axelrod and Mark R. Sylvester. The SEC appreciates the assistance of the Financial Industry Regulatory Authority."

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