Hedge funders dominated Forbes' most recent "30 Under 30" list for finance.

Twelve of them are on the 2017 list, including Michael Buckley, who works at Stanley Druckenmiller's Duquesne Capital, and Anthony Massaro, who works at Bill Ackman's Pershing Square Capital Management.

The list for finance was chosen by a pool of judges comprising Sonia Gardner, the cofounder of Avenue Capital Group; Thomas H. Lee, the founder of Lee Equity Partners; and Jennifer Fan, a portfolio manager at Millennium Management.

The acceptance rate to the list is under 4%, according to Forbes.

The twelve hedge fund staffers who made it to the list were: Anish Abuwala (29), Raja Bobbili (29), Michael Buckley (29), Ben Friedman (29), Dhruv Maheshwari (28), Anthony Massaro (29), Alex Nomitch (29), Daniel Rasmussen (29), Ben Solarz (29), Andy Stafman (29), Colter Van Domelen (29), and Franklin Zhao (29).

Abuwala, a portfolio manager at Caxton Associates, works with Joshua Berkowitz, who made his name as a trader working with George Soros. Abuwala started in the hedge fund business at Berkowitz's Woodbine Capital, and he moved to Caxton with Berkowitz and other former Woodbine colleagues. He graduated with a degree in finance and international business from New York University and has worked at Morgan Stanley, Lehman Brothers, and BlackRock, according to his LinkedIn profile.

Bobbili is an investment analyst at Abrams Capital, a Boston-based investment firm founded by David Abrams. According to Forbes, he manages "one of Wall Street's most concentrated and successful portfolios." He is a graduate of MIT and Harvard Law School and holds an MBA from Harvard Business School.

Buckley is an analyst dealing with global stock investing at Duquesne Capital, the hedge fund of investing legend Stanley Druckenmiller. He holds a bachelor's degree in applied mathematics from Harvard.

Friedman is a portfolio manager at CQS, a London-based asset-management firm, focused on investing in high-yield and distressed securities. According to his LinkedIn profile, he was previously a high-yield trader at Bank of America Merrill Lynch. He holds a bachelor's degree in political science from the University of Pennsylvania.

Maheshwari is a research analyst in the quantitative arm of hedge fund manager Steven Cohen's Point 72 Capital Management, according to Forbes. Previously, he was a vice president at Goldman Sachs Asset Management.

Massaro is a partner at Pershing Square Capital Management, where he, according to Forbes, is involved in the firm's investments in Mondelez and Chipotle. According to his LinkedIn profile, Massaro previously had a two-year stint with the investment-banking division of Goldman Sachs and holds a bachelor's degree in economics, finance, and accounting from the University of Pennsylvania.

Nomitch works as a stock trader at Viking Global Investors specializing in energy names, according to Forbes. Previously, he worked as an investment banker at Goldman Sachs' natural resources division. He is a double major in economics and mathematics from Dartmouth College, and he graduated with "nine academic citations: five in economics, two in mathematics and one each in computer science and chemistry."

Rasmussen is the founder of Verdad Fund Advisers, a fund that aims to deliver private-equity-style returns in the public market. He is the author of "American Uprising: The Untold Story of America's Largest Slave Revolt" and holds a bachelor's degree from Harvard and an MBA from Stanford. He previously worked at Bain Capital and Bridgewater Associates.

Solarz is a principal at the $6 billion hedge fund SPO Partners working on "technology, media and communications equities,"according to Forbes. He is a Yale graduate who worked as an analyst in the Yale Investments Office before joining Blackstone and then the hedge fund Eton Park.

Stafman is a partner at Sachem Head Capital Management. He was earlier an associate at Silver Lake Partners, after graduating from the Wharton Business School with a degree in finance.

Domelen is a partner at Chase Coleman's Tiger Global Management, where he oversees technology investments "including billion dollar stakes in Amazon and Priceline,"according to Forbes. He was previously "trained by Mary Meeker while a research analyst at Morgan Stanley," Forbes said, and he lists Morgan Stanley's Mobile Internet Report as a publication on his LinkedIn profile. He is a Duke University graduate in economics.

Zhao is a macro trader at Commonwealth Opportunity Capital. His "winning 2016 trades included a bet on US inflation, Yen rates, Eurozone stress and volatility in the Chinese yuan,"according to Forbes. Previously, he was an options and fixed income trader at Deutsche Bank Securities. He graduated from Harvard majoring in physics.

Click here for the Full Forbes 30 Under 30 list.

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The financials sector led the stock market to new highs after President-elect Donald Trump won the election, on optimism that fewer regulations and higher interest rates would benefit banks. 

Goldman Sachs' gain in the month after the election made up one-third of the points that the Dow Jones Industrial Average increased by. 

But Wall Street's so-called smart money — hedge funds and other large money managers — are pulling out of the sector as Trump prepares to take office in 10 days.

"UBS' proprietary flow data indicates that both hedge funds and managed funds especially have recently become sellers of financials even as "retail" flow, especially into ETF products, remains positive," said Julian Emanuel, a US equity and derivatives strategist, in a note January 9.

"In light of financials' recent outperformance, we ask whether such returns indicate the presence of "Long Legs" to the rally, or is the action more like a "Last Hurrah"? The move higher since the election coupled with high earnings expectations leave financials vulnerable to a near-term pullback," Emanuel said. 

According to FactSet, the financials sector is expected to report year-over-year earnings growth of 13.8%, the second highest of all eleven S&P 500 sectors. JP Morgan, Bank of America and Wells Fargo will report fourth-quarter earnings on Friday, kicking off the peak reporting season for the sector.  

Beyond financials, some other strategists have cautioned about a near-term retreat from the sharp post-election move.

Jeff Gundlach, the founder of DoubleLine Funds, cautioned clients in December about a sell-off around inauguration day. He cited a pattern in the S&P 500 since 1952: stocks tend to rise after the election, but drop in the weeks after inauguration as the reality of the new president's task ahead sets in.  

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Speaking at the World Economic Forum in Davos, Switzerland, SkyBridge Capital co-founder Anthony Scaramucci said that he has sold his firm.

"I have just sold today," he said, according to the report.

President-elect Donald Trump last week named Scaramucci as an assistant to the president.

Bloomberg reports that Scaramucci had said earlier this month that he had already received bids for SkyBridge.

Scaramucci is expected to make an official announcement later on Tuesday, according to Bloomberg.

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RON Transatlantic, the investment firm led by George Hornig, and HNA Capital, a part of the Chinese conglomerate HNA, are taking a majority stake in SkyBridge Capital, the investment firm founded by Anthony Scaramucci, an adviser to President-elect Donald Trump.

Scaramucci announced earlier Tuesday at the World Economic Forum that he was about to sell the firm, but he didn't name the buyer.

Hornig is the former chief operating officer at Credit Suisse Asset Management and PineBridge Investments. He was also a key fundraiser for outgoing President Barack Obama.

HNA Capital is a part of HNA Group, a Chinese conglomerate with over $90 billion in assets.

SkyBridge is a fund of hedge funds, meaning it invests in other hedge funds. It was founded in 2005 by Scaramucci and has about $12 billion in assets under management, catering to rich dentists and doctors who wouldn't otherwise be able to invest in hedge funds.

SkyBridge has lower investment minimums than direct hedge funds.

The sale comes at a tough time for the fund-of-hedge-funds industry, which has been criticized for fees that are often higher than the costs for direct hedge funds. Aurora Investment Management and Carlyle Group's DGAM shut down their operations last year.

The first half of 2016 saw the biggest outflows of assets from the fund-of-hedge-funds industry in seven years, according to the InvestHedge Billion Dollar Club. SkyBridge's assets fell by $1.1 billion over that period, to $11.7 billion, according to the ranking.

Trump last week named Scaramucci as an assistant to the president. Scaramucci served as an adviser to Trump during his campaign and had said earlier this month that he had received bids for SkyBridge.

Here's the statement:

"New York, NY (January 17, 2017) — SkyBridge Capital ('SkyBridge'), a leading global alternative investment firm, announced today that it has signed a definitive purchase agreement with RON Transatlantic EG ('RON Transatlantic') and HNA Capital (US) Holding ('HNA Capital US') for a majority stake in the firm. Financial terms of the transaction were not disclosed.

"SkyBridge's investment offerings include commingled funds of hedge funds products, customized separate account portfolios, hedge fund advisory services and a long-only mutual fund. SkyBridge managed or advised approximately $12 billion in assets as of November 30, 2016. SkyBridge has an exceptional retail distribution platform which brings its alternative and other asset management products to the mass affluent investor channel. The firm also hosts the SALT Conference, one of the world's leading thought leadership and investment forums that convenes global leaders across business, finance and public policy to discuss economic trends, geopolitical events and investment strategies.

"SkyBridge will continue to be led by its current senior management team and its full investment team will remain intact. SkyBridge founder, Anthony Scaramucci, will step down from his role as co-managing partner and will no longer be affiliated with SkyBridge or SALT, effective immediately.

"The SALT Conference will be spun out as a standalone entity. This year's SALT Conference, scheduled to be held May 16-19, 2017, in Las Vegas, will continue as planned.

"'It has been an honor and privilege to help build SkyBridge and work alongside some of the most talented individuals in the asset management industry who day in and day out demonstrate an unrelenting passion and commitment to helping our clients fulfill their long-term financial goals,' said Anthony Scaramucci. 'While I am moving on to a new chapter in my career, I am truly excited about what the future holds for SkyBridge and the opportunities that RON Transatlantic and HNA Capital US will bring to serving the firm's clients. SkyBridge and SALT are in great hands and will continue to thrive.'

"George Hornig, CEO of RON Transatlantic Financial Holdings, and former chief operating officer of Credit Suisse Asset Management and PineBridge Investments, will be joining the board of SkyBridge to work with its senior management on initiatives to grow SkyBridge's product offerings and distribution platforms. 'We are very excited for the opportunity to continue to expand the business that Anthony and his team have created and built,' said Hornig. 'Now, together with the world-class resources and networks of HNA and Transatlantic, we feel the "sky" is the limit for how far we can take SkyBridge.'

'"SkyBridge is a unique and innovative investment platform with a powerful brand that is well positioned to provide retail investors and their financial advisors with one-stop access to sophisticated alternative investment products,' said Guang Yang, CEO of HNA Capital US. 'Our investment in SkyBridge is an important step in HNA Capital's strategy to build a global asset management business. We look forward to working with the world-class management team of SkyBridge and our partners at RON Transatlantic to accelerate SkyBridge's long-term growth and development.'

"The transaction is expected to close in the second quarter of 2017."

About RON Transatlantic

"RON Transatlantic is a diversified holding company with interests in the financial services, logistics, energy and brewing/beer sectors."

About HNA Capital US

"HNA Capital US is the New York-based subsidiary of HNA Capital, the financial services unit of HNA Group, a Fortune Global 500 company focused on tourism, logistics and financial services. A full service financial solutions provider, HNA Capital includes a diverse set of global businesses in equipment leasing, insurance, investment banking, securities and credit services. HNA Group is a global company with over $90 billion of assets, $30 billion in annual revenues and an international workforce of nearly 200,000 employees, primarily across North America, Europe and Asia. For more information, please visit www.hnagroup.com."

About SkyBridge Capital

"SkyBridge Capital is a global alternative investment firm with approximately $12 billion in assets under management or advisement as of November 30, 2016. Addressing every type of market participant, SkyBridge's investment offerings include commingled funds of hedge funds products, customized separate account portfolios, hedge fund advisory services and a long-only mutual fund. The firm is headquartered in New York and has offices in Palm Beach Gardens, London and Seoul."

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The Securities and Exchange Commission has fined 10 investment firms for violating pay-to-play rules.

Bill Ackman's Pershing Square Capital Management is among them and has agreed to pay $75,000 over a $500 political donation, the SEC said on Tuesday.

Here's what happened, according to the SEC: In 2013, an employee at Pershing Square made a $500 campaign contribution to a candidate for governor of Massachusetts. Such a donation was not allowed because that candidate, if elected, had the ability to influence the selection of investment funds for the state's pension plan, PRIM.

Pension plans often invest in hedge funds and other investment funds, and PRIM had been an investor in Pershing Square at the time.

After the employee made the donation, the person asked to get the money back and did, according to the SEC. The donation was $350 in excess of the limit, Pershing Square noted in a statement.

"Pershing Square has determined that agreeing to this settlement is in the best interest of the firm," the company said, adding that it was unaware of the contribution at the time it was made.

After learning of the $500 donation, Pershing Square filed an exemption application with the SEC last year, the firm said.

The employee in question is Paul Hilal, who was an analyst at the time, according to a Reuters report from last year about the exemption application. Hilal left Pershing Square earlier last year to start his own hedge fund. He declined to comment for this article.

At the time, Pershing Square called the donation "an unintended violation," Reuters reported.

The other nine firms that the SEC fined include Adams Capital Management, Aisling Capital, and FFL Partners, and they are paying $35,000 to $100,000 each, the SEC said. None of them, including Pershing Square, have admitted or denied liability.

Here's the full SEC statement:

Washington D.C., Jan. 17, 2017 —

The Securities and Exchange Commission today announced that 10 investment advisory firms have agreed to pay penalties ranging from $35,000 to $100,000 to settle charges that they violated the SEC’s investment adviser pay-to-play rule by receiving compensation from public pension funds within two years after campaign contributions made by the firms’ associates.

According to the SEC’s orders, investment advisers are subject to a two-year timeout from providing compensatory advisory services either directly to a government client or through a pooled investment vehicle after political contributions were made to a candidate who could influence the investment adviser selection process for a public pension fund or appoint someone with such influence. The SEC’s orders find that these 10 firms violated the two-year timeout by accepting fees from city or state pension funds after their associates made campaign contributions to elected officials or political candidates with the potential to wield influence over those pension funds.

“The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. “Advisory firms must be mindful of the restrictions that can arise from campaign contributions made by their associates.”

Without admitting or denying the findings, the 10 firms consented to the SEC’s orders finding they violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-5. The firms are censured and must pay the following monetary penalties:

• Adams Capital Management– $45,000
• Aisling Capital– $70,456
• Alta Communications– $35,000
• Commonwealth Venture Management Corporation– $75,000
• Cypress Advisors– $35,000
• FFL Partners– $75,000
• Lime Rock Management– $75,000
• NGN Capital– $100,000
• Pershing Square Capital Management– $75,000
• The Banc Funds Company– $75,000

The SEC’s investigations were coordinated by Louis A. Randazzo, who conducted them along with Kevin B. Currid, Brian Fagel, Natalie G. Garner, William T. Salzmann, and Monique Winkler of the Public Finance Abuse Unit and Kelly Gibson and Benjamin D. Schireson of the Philadelphia Regional Office.

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BOSTON (Reuters) - One of President-elect Donald Trump's top liaisons to Wall Street's business elite launched a mutual fund three years ago for mom-and-pop investors that lags most of its peers.

Hedge fund impresario Anthony Scaramucci, 53, has secured a top White House job as an adviser and public liaison to government agencies and businesses. He said on Tuesday he would sell his stake in SkyBridge Capital after growing the investment firm to more than $12 billion in assets in little more than a decade.

Known affectionately as the "Mooch" in the financial industry, Scaramucci joins former Goldman Sachs mortgage bond trader Steve Mnuchin and distressed investor Wilbur Ross as they are picked a Trump cabinet members and pause their pursuit of private wealth for government service.

SkyBridge's $480 million SkyBridge Dividend Value Fund has lagged 80 percent of its peers over the past year, with its A-class shares posting an 18.83 percent total return, according to Lipper Inc, a unit of Thomson Reuters. It ranks 433rd out of 519 funds.

Peer funds, on average, have done much better with a 1-year total return of 23.94 percent.

The fund, which pays investment management fees to SkyBridge, also is more expensive than peer funds. Its net expense ratio of 1 percent of net assets compares to a median ratio of 0.78 percent for the group, according to Morningstar Inc.

At SkyBridge, Scaramucci proved to be one of the best hedge fund industry salesmen, getting wealthy clients into the hottest funds as they clamored for the services of prominent managers such as John Paulson.

Scaramucci, who is attending the World Economic Forum in Davos, Switzerland, and SkyBridge were not available for comment.

As hedge fund returns began to lag and investors began complaining about hefty fees some years ago, Scaramucci capitalized on the investor frenzy for higher yields amid historically low interest rates by launching the SkyBridge Dividend Value Fund in April 2014.

With a $100 minimum initial investment for individual retirement accounts, the fund courted regular people, compared to some of the SkyBridge hedge funds that required minimums between $25,000 and $25 million for direct investors.

A Harvard Law School graduate, Scaramucci has frequently said one of his best skills was knowing when to get out of the way and letting other people do their jobs.

Brendan Voege has managed the dividend value fund since its inception under the supervision of SkyBridge Chief Investment Officer Raymond Nolte.

(Additional reporting by Ross Kerber in Boston; Editing by Richard Chang)

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A hot new hedge fund says the tech industry is up for a wave of deals worth billions of dollars — and it is betting big on companies that could benefit.

Margate Capital, a New York fund launched last year by former Paulson & Co. partner Samantha Greenberg, lays out the thesis in its fourth-quarter investor letter, a copy of which was obtained by Business Insider.

"We believe we are in the early innings of a substantial wave of consolidation in the technology industry, specifically within semiconductor and software verticals," Greenberg wrote. "We jokingly say that each month we read about a 'new hundred billion dollars' raised to pursue technology assets."

Here are three examples, as per the letter:

"(1) the recently announced $100Bn Softbank Vision Fund, backed by Softbank and Saudi Arabia’s Public Investment Fund; (2) a November Wall Street Journal article noting that technology-focused private equity firms have raised $100Bn from 2015 to 2016 (on top of $50Bn in 2014) to pursue technology deals; and (3) China’s announcement that it is dedicating $100Bn to purchase and invest in semiconductor assets."

Margate, which manages about $200 million, is "particularly bullish on software consolidation as the universe of software buyers continues to expand," the letter added, noting the emergence of "a new category of software company acquirers"— industrial conglomerates.

Here's Greenberg:

"This is illustrated by two marquee transactions in Q4: Siemens' acquisition of Mentor Graphics for $4.5Bn and Koch Industries' $2.5Bn investment in Infor (at >$10Bn valuation). We similarly expect General Electric to pursue software acquisitions, in furtherance of its GE Digital business strategy and to achieve its stated target of growing its revenue base from $6Bn to $15Bn."

In line with its investment thesis on tech, Margate is investing in Cornerstone OnDemand, which has received takeout offers. "With CSOD’s current stock price 20% below where it traded in September and its fundamentals poised to accelerate, we continue to be excited about the position," the letter said.

Margate's strategy launched August 1 and returned 5% net of fees through the end of 2016 compared with 4% for the S&P 500, according to the investor letter.

Greenberg is one of very few women managing their own hedge fund. As a partner at Paulson & Co., she headed the group that invests in the media/cable/satellite and consumer sector.

Last year Greenberg pitched a bet on the Walt Disney Company at the Robin Hood Investors Conference in New York.

Her latest letter adds to the thesis, describing the company as a "logical acquisition target" for Apple. "Apple has talked about the benefit Apple sees when it owns exclusive content, and owning Disney would reduce Apple’s exposure to product cycles, expanding AAPL's valuation multiple," Greenberg wrote. "It would also be an accretive use of Apple's cash and even more so if Apple's $200Bn of offshore cash can be repatriated favorably."

Disney, along with Cornerstone, is among the firm's top five long positions, according to the letter.

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Hedge funds are piling into the same bets ahead of the inauguration of President-elect Donald Trump.

There are "extreme market positions in all asset classes," according to Societe Generale. It said the "extreme positioning inevitably raises the question of whether investors have run ahead of themselves."

The popular trades include:

• "Net short positions on 10-year Treasury notes are at historical highs, implying that rising US bond yields remains among hedge funds' major convictions."
• "Hedge funds have (very) high expectations for the domestically oriented US small caps of the Russell 2000."
• "Historically long on copper and oil."

The logic behind these trades is obvious. The Trump administration is expected to increase fiscal spending and focus on employment, which in turn could lead to higher inflation and higher rates. And his pro-business policies and plan to cut taxes are expected to benefit US-oriented stocks.

"Never before have hedge funds been so bullish on the Russell," Societe Generale said. "This would suggest that hedge funds are fully convinced that Trump's economic policy, centered on protectionism and fiscal stimulus, will work out well for US small-cap companies."

Trump's policies are also expected to promote economic growth and construction, benefitting cyclical commodities such as oil and copper.

"The growth environment is clearly supportive, with an extension of the economic growth cycle and rising oil demand creating the right conditions to revive the OPEC cartel," Societe Generale said.

Let's look at the charts:

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Hedge funds are betting on higher yields.

They're bullish on US small caps.

They're long oil.

LONDON — A fund run by famed London investor Crispin Odey had one of its worst years ever in 2016, according to an investor letter seen by Business Insider.

Odey Asset Management's OEI Mac fund, which is managed by the hedge fund's founder Crispin Odey, declined in value by 49% in 2016, according to Odey's December letter to investors.

That marks the fund's worst performance since 1994, according to historical data included in the letter. Odey's fund lost 40.7% of its value in 1994 after the Federal Reserve unexpectedly raised interest rates.

Odey Asset Management did not immediately respond to Business Insider's request for comment.

The OEI Mac fund is Odey's main European fund and aims to "achieve long-term capital appreciation" through bets on stocks, currencies, and bonds.

Odey's fund delivered negative returns in every month from July to December in 2016, the letter shows, but also suffered big losses in February and March, including a 24.4% slump in the later month.

The performance marks the second difficult year in a row for Odey. Data in the letter shows the OEI Mac fund lost 21.3% of its value in 2015.

Odey Asset Management is one of London's best-known hedge funds and manages over $7 billion in client money. Its founder, Crispin Odey, is famed for his successful trading of the financial crisis, delivering 43.4% growth of the OEI Mac fund in 2008.

Odey was a prominent supporter of the campaign to leave the European Union in last year's referendum. He was one of the founders of the "Vote Leave" group, which became the official Brexit campaign, and is donated just over £500,000 to the cause.

A fund manager at Odey Asset Management reportedly made £110 million betting against the pound in the immediate aftermath of the Brexit vote but Odey himself has been bearish on the vote's economic effects, warning clients last year of likely recession in Britain and a collapse in stock values. This bleak outlook has led Odey to place large bets on another looming crash, as the Financial Times reports. So far, these have yet to pay off.

Odey attacks global productivity issues in December's letter to investors and blames economists and central bankers for fomenting problems. He writes: "What started out as a temporary last resort has become the only way to keep things going.

"By keeping asset prices high and encouraging them to go higher, by underwriting these prices, the rich have got richer without it helping the economy. So now the politics starts to get messy. The Haves against the Have Nots. "

He closes the letter saying: "This economic cycle is now 7 years old. It has become old, but like King Lear, not wise."

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NEW YORK (Reuters) - Investors are starting to sour on the idea of reimbursing hedge funds for multi-million dollar trader bonuses, lavish marketing dinners and trophy office space.

Powerful firms such as Citadel LLC and Millennium Management LLC charge clients for such costs through so-called "pass-through" fees, which can include everything from a new hire's deferred compensation to travel to high-end technology.

It all adds up: investors often end up paying more than double the industry's standard fees of 2 percent of assets and 20 percent of investment gains, which many already consider too high.

Investors have for years tolerated pass-through charges because of high net returns, but weak performance lately is testing their patience.

Clients of losing funds last year, including those managed by Blackstone Group LP's <BX.N> Senfina Advisors LLC, Folger Hill Asset Management LP and Balyasny Asset Management LP, likely still paid fees far higher than 2 percent of assets.

Clients of shops that made money, including Paloma Partners and Hutchin Hill Capital LP, were left with returns of less than 5 percent partly because of a draining combination of pass-through and performance fees.

(For a graphic on the hedge funds that passed through low returns, click: http://tmsnrt.rs/2iLRB3T)

Millennium, the $34 billion New York firm led by billionaire Israel Englander, charged clients its usual fees of 5 or 6 percent of assets and 20 percent of gains in 2016, according to a person familiar with the situation. The charges left investors in Millennium's flagship fund with a net return of just 3.3 percent.

Citadel, the $26 billion Chicago firm led by billionaire Kenneth Griffin, charged pass-through fees that added up to about 5.3 percent in 2015 and 6.3 percent in 2014, according to another person familiar with the situation. Charges for 2016 were not finalized, but the costs typically add up to between 5 and 10 percent of assets, separate from the 20 percent performance fee Citadel typically charges.

Citadel's flagship fund returned 5 percent in 2016, far below its 19.5 percent annual average since 1990, according to the source who, like others, spoke on the condition of anonymity because the information is private.

All firms mentioned declined to comment or did not respond to requests for comment.

In 2014, consulting firm Cambridge Associates studied fees charged by multi-manager funds, which deploy various investment strategies using small teams and often include pass-throughs. Their clients lose 33 percent of profits to fees, on average, Cambridge found.

The report by research consultant Tomas Kmetko noted such funds would need to generate gross returns of roughly 19 percent to deliver a 10 percent net profit to clients.

'STUNNING TO ME'

Defenders of pass-throughs said the fees were necessary to keep elite talent and provide traders with top technology. They said that firm executives were often among the largest investors in their funds and pay the same fees as clients.

But frustration is starting to show.

A 2016 survey by consulting firm EY found that 95 percent of investors prefer no pass-through expense. The report also said fewer investors support various types of pass-through fees than in the past.

"It's stunning to me to think you would pay more than 2 percent," said Marc Levine, chairman of the Illinois State Board of Investment, which has reduced its use of hedge funds. "That creates a huge hurdle to have the right alignment of interests."

Investors pulled $11.5 billion from multi-strategy funds in 2016 after three consecutive years of net additions, according to data tracker eVestment. Redemptions for firms that use pass-through fees were not available.

Even with pass-through fees, firms like Citadel, Millennium and Paloma have produced double-digit net returns over the long-term. The Cambridge study also found that multi-manager funds generally performed better and with lower volatility than a global stock index.

"High fees and expenses are hard to stomach, particularly in a low-return environment, but it's all about the net," said Michael Hennessy, co-founder of hedge fund investment firm Morgan Creek Capital Management.

INTELLECTUAL PROPERTY

Citadel has used pass-through fees for an unusual purpose: developing intellectual property.

The firm relied partly on client fees to build an internal administration business starting in 2007. But only Citadel's owners, including Griffin, benefited from the 2011 sale of the unit, Omnium LLC, to Northern Trust Corp for $100 million, plus $60 million or so in subsequent profit-sharing, two people familiar with the situation said.

Citadel noted in a 2016 U.S. Securities and Exchange Commission filing that some pass-through expenses are still used to develop intellectual property, the extent of which was unclear. Besides hedge funds, Citadel's other business lines include Citadel Securities LLC, the powerful market-maker, and Citadel Technology LLC, a small portfolio management software provider.

Some Citadel hedge fund investors and advisers to them told Reuters they were unhappy about the firm charging clients to build technology whose profits Citadel alone will enjoy. "It's really against the spirit of a partnership," said one.

A spokesman for Citadel declined to comment.

A person familiar with the situation noted that Citadel put tens of millions of dollars into the businesses and disclosed to clients that only Citadel would benefit from related revenues. The person also noted Citadel's high marks from an investor survey by industry publication Alpha for alignment of interests and independent oversight.

Gordon Barnes, global head of due diligence at Cambridge, said few hedge fund managers charge their investors for services provided by affiliates because of various problems it can cause.

"Even with the right legal disclosures, it rarely passes a basic fairness test," Barnes said, declining to comment on any individual firm. "These arrangements tend to favor the manager's interests."

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Billionaire hedge fund manager George Soros on Thursday reiterated his belief that President-elect Donald Trump is "an imposter and con man and a would-be dictator."

Soros, 86, said at the World Economic Forum in Davos, Switzerland, that he is convinced the president-elect will fail.

"He stands for that other form of government, which is the opposite of an open society," said Soros, who is a Holocaust survivor and Hungarian immigrant. "It's really better described as a dictatorship or a mafia state."

Soros said Trump "would be a dictator if he could get away with it," but that US institutions are strong enough to prevent that scenario. He also said the ideas that guide Trump are "inherently self-contradictory" and that those contradictions are "embodied by his advisers."

Uncertainty, he said, is "at a peak" right now.

"It's impossible to predict exactly how Trump is going to act because he hasn't actually thought it through," Soros said. "He didn't expect to win. ... He was engaged in building his brand."

Asked how the business community should deal with Trump going forward, Soros said, "I will keep as far away from it as I can."

On the topic of international relations and global trade, Soros said China would be "greatly helped" by Trump.

"I think Trump will do more to make China acceptable as a leading member of the international community than the Chinese could do by themselves," he said.

This isn't the first time Soros has spoken out against Trump. He described the president-elect in similar terms in December. He said Trump's proposed Cabinet "comprises incompetent extremists and retired generals" and that the US would "be unable to protect and promote democracy in the rest of the world."

The billionaire investor supported Hillary Clinton during her presidential campaign and donated millions to a pro-Clinton PAC. He also donated to Clinton's campaign in 2008.

Soros lost about $1 billion after Trump's political victory, according to The Wall Street Journal, having made bearish bets that later came back to bite him. Still, his fund gained 5% over 2016, according to The Journal.

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Billionaire hedge fund manager George Soros said Theresa May is unlikely to last long in power with a divided cabinet and slim parliamentary majority.

"It is unlikely that Prime Minister May is actually going to remain in power," Soros, 86, said at the World Economic Forum in Davos, Switzerland, in an interview with Bloomberg Television's Francine Lacqua.

"She already has a divided cabinet, a small majority in parliament, and I think she will not last," he said.

Soros also said that the UK is "in denial" about the negative economic effects of leaving the European Union.

Soros said living standards will drop at some point and people will change their minds about leaving the EU.

"At the moment the people in the UK are in denial," said Soros. "The current economic situation is not as bad as predicted and they live in hope."

"But as the currency depreciates, inflation will be the driving force that leads to the decline in living standards. It will take a while but it will happen. And then they'll realise that they're earning less than before because wages won't rise as costs of living. It's much harder to divorce than get married. The desire for rapprochement will grow."

Before Brexit, Soros predicted "the pound would fall by at least 15% and possibly more than 20%," on a vote to leave the EU, which has proved to be true.

Soros, whose hedge fund made £1 billion betting against the pound on "Black Wednesday" in 1992, struck a dark tone on the future the EU. "The European Union has become too complicated and people are alienated. And anti-EU parties and movements are gathering force and things look very bleak," he said.

"The European Union has become too complicated and people are alienated. And anti-EU parties and movements are gathering force and things look very bleak," he said.

Soros ended with concerns that tensions between China and the US over trade could lead to worsening global security. "If you start a trade war it can easily deteriorate in other conflicts, it's very dangerous," he said.

In the same interview, Soros attacked President-elect Donald Trump as "an imposter and con man and a would-be dictator."

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By Svea Herbst-Bayliss

BOSTON, Jan 20 (Reuters) - U.S. President Donald Trump's policies could lead to more violent stock market movements, something prominent hedge fund manager Lee Ainslie said could help his portfolio rebound after a lousy 2016.

Ainslie's $11 billion Maverick Capital missed out on a rally sparked by Trump's unexpected election in November and ended the year with double digit losses in its biggest funds, underperforming the broader stock market and most hedge funds.

But the manager, a protege of storied industry investor Julian Robertson, wrote to investors in a letter dated Jan. 17 and seen by Reuters on Friday, that he was confident his firm will make money this year. Stocks that ran up could fall back and bets against some retail stocks will pay off, he said.

"Maverick has a long and consistent history of generating strong returns after periods of loss," the letter said.

The Maverick Fund LDC lost 10.6 percent and the Maverick Levered fund fell 20.9 percent.

Rising prices and tight labor markets could threaten economic growth and Trump's uncertain foreign policy plans, trade and tax policies could translate into more stock market gyrations, Ainslie wrote.

"Did I mention that the President-elect has a habit of sending random and sometimes bizarre tweets in the early morning hours?" the letter said. "Such uncertainty on a vast range of critical issues will likely breed higher volatility in the equity markets."

Ainslie's call for more stock market volatility seems currently out of step with other observers and recent market behavior. The VIX, which measures volatility, has been running below its historical average in January. But markets can reverse fast.

"The market's perspective on expected volatility can change quickly and violently ... we believe we are well-positioned to endure a higher volatility environment," Ainslie wrote.

Maverick's largest positions included computer software company Adobe Systems Inc, social media company Facebook Inc, biopharmaceutical company Pfizer Inc and discount travel company Priceline Group Inc.

He did not identify the retailers he is betting against and cautioned that it was not a simple "assessment of the ecommerce vs. bricks and mortar Battle Royale.""We no longer believe the theme is "Short Retail". We are now in the early innings of what we believe is called "Omni-Channel Evolution" and stock selection has never been more important," he wrote.

Despite losses, Ainslie said investors stuck with the firm and added new money every month in 2016. (Reporting by Svea Herbst-Bayliss; Editing by David Gregorio)

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Another Wall Street investor expects a strong year for stock pickers.

Leon Cooperman's Omega Advisors says active equity managers will be able to take advantage of increased volatility.

That's according to an investor letter from the equity-focused hedge fund dated January 19, a copy of which was viewed by Business Insider. The letter was written by Omega founder Cooperman and vice chairman Steve Einhorn.

"Active management needs asset and individual security volatility," the letter said, which the firm expects to come.

Increased volatility should come for four reasons, according to the letter:

• Tightened central bank policies. "Very friendly Federal Reserve/global monetary policies have dampened fixed income volatility, in turn restraining equity market/individual stock volatility. The Federal Reserve has started to tighten policy and central banks in the Euro area and Japan are likely at their limit of friendliness. Global monetary policies have almost certainly reached the limit of their friendliness and should therefore no longer limit risk asset price volatility to the extent this was the case in the last several years."
• Fiscal stimulus. "Fiscal stimulus is almost certain in the US in 2017 and this change in policy mix, from pure monetary/no fiscal to less monetary/more fiscal, should lift risk asset volatility."
• Expansion. "An ever lower standard deviation of US economic growth and inflation explain a portion of currently below-average risk asset volatility and this should reverse given the above average length of the U.S. economic expansion, a greater portion of our growth attributed to the more volatile capex sector, and an almost certain lift in wage and consumer inflation."
• Trump. "With the arrival of Mr. Trump in Washington, the risk of a boom/bust economic outlook has increased," the letter said. That's because Trump's administration has pitched fiscal stimulus even though the US economy is close to full employment. "This is highly unusual – the unemployment rate is typically much higher than current when fiscal stimulus is introduced," the letter said.

"2016 was a 'tale of two cities,' a first half which brought challenges to active stock pickers and tailwinds to defensive/passive investors and a second half  which brought the reverse," Cooperman and Einhorn wrote in the letter. "The critical question currently is which 'city' will dominate in 2017."

Omega isn't the first to point out the potential for stock pickers, with many others expecting a strong year. That would be a change in fortune for many active managers, particularly hedge funds, which have been criticized for lackluster returns.

Last year, Omega's flagship fund returned 7.7% net of fees compared to 5.5% for the HFRI equity hedge index, according to the letter. This year through January 18, the fund was up 2.1%, according to the letter.

Last year, the Securities and Exchange Commission filed charges against Omega and Cooperman with allegations of insider trading. Cooperman has said he is innocent and plans to fight the charges.

Omega currently manages about $3.5 billion, according to a person familiar with the matter, and has faced outflows following the charges.

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Lee Cooperman's Omega Advisors has released a 51-page note to investors that details the hedge fund firm's market outlook for 2017.

One big takeaway: Things are looking good for stock investors.

Here are some of the key points from the Thursday letter, which was written by Cooperman, who founded Omega, and the firm's vice chairman, Steve Einhorn:

• Solid S&P 500 growth. The S&P 500 can deliver an 8% to 10% return in 2017, "consisting of earnings per share growth of approximately 8% (aided by a lower corporate tax rate and added share repurchase funded from repatriated cash), a dividend yield of 2% and a slightly lower than current market P/E."
• Low yields. Fixed-income markets in the US and developed economies have Omega expecting US shares to rise, in part because low yields will encourage investors to move to stocks.
• Rising interest rates "should not pose a problem for US shares."Among Omega's reasoning: "A large portion of the lift in bond interest rates to be experienced this year will stem from expectations of more confidence in economic growth and a lift in the bond market term premium/less safe haven flow rather than from a lift in inflation expectation ... these reasons for a bond rate increase should not be problematic to the S&P 500 P/E."

"If our S&P 500 [earnings per share] and bond rate discussions is correct, investors should likely have their 'cake and eat it too' in 2017 — well above average earnings growth without an attendant problematic lift in bond interest rates," Cooperman and Einhorn added in the letter.

A copy of the note, which also detailed why 2017 would be a great year for active managers, was reviewed by Business Insider.

Last year, Omega's flagship fund returned 7.7% net of fees compared with 5.5% for the HFRI equity hedge index, according to the letter. This year through Wednesday, the fund was up by 2.1%, according to the letter.

The Securities and Exchange Commission filed charges against Omega and Cooperman last year with allegations of insider trading. Cooperman has said he is innocent and plans to fight the charges in court.

Omega manages about $3.5 billion, according to a person familiar with the matter, and has faced outflows following the charges.

SEE ALSO: LEE COOPERMAN'S OMEGA: 2017 is the year for stock pickers

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Hedge funds have a reputation for being shrouded in mystery.

But SumZero, an online community of buy-side professionals, has just made them a little less mysterious by revealing how much some people in the industry get paid.

Their 2017 compensation report for hedge fund professionals analyzes the 2016 compensation information of approximately 4,500 of their more than 13,000 members.

The report breaks down the compensation of those users based on job title, years of experience, firm size and investor performance.

"Title remains an important factor in compensation at hedge funds, even when accounting for experience," the report said. "Thus while years in the industry are important, titles and the corresponding responsibility come with greater monetary rewards."

The median pay for hedge fund executives, including bonuses, was $400,000. That number is flat compared to 2015. Now that may not sound like a lot when you think of all the billionaire hedge fund managers covered in the media, but SumZero's community skews younger, and wealthier members tend not to disclose their information.

In addition, it is important to note that there are thousands of hedge funds, with a large number of small funds and a handful of industry giants. Some of these small funds might be staffed by a single employee.

To read the report in full, click here.

The median pay for hedge fund executives, including bonuses, was $400,000.

Those working at bigger funds tend to earn more.

It pays to be in New York.

Mutual funds and hedge funds are full of excuses, according to the man who revolutionized investing for Main Street.

John C. Bogle created Vanguard, which in 1976 launched the first index fund – a fund that passively tracks the stock market.

Passive investing took some time to catch on, but in recent decades index funds like Vanguard's have eaten up the assets of active managers like mutual funds and hedge funds, which try with their own analysis to beat the markets.

Active managers face a big business problem with the indexing trend. Active management fees are much higher than index funds', and at the same time many active managers aren't outperforming their index benchmarks – leading investors to question why they should pay money for underperformance.

Meanwhile, lots of criticism has been leveled at index funds – from allegedly creating anti-trust concerns to distorting markets – but Bogle won't have any of it.

In an extensive interview with Business Insider, Bogle laid out his counterattack against those that criticize passive investing. Here's an excerpt from our chat (emphasis added):

Levy: Another criticism I hear is that index funds are somehow distorting the market. How would you respond to that?

Bogle: You just look at the math. I won't get into the damn trading in ETFs, trading from one bank to another. I don't see how that distorts the market because it's bankers trading with bankers.

As for the traditional index funds like ours, we’d probably account for — let me guess — less than 1% of the volume trading on the New York Stock Exchange. We just go in and buy the darn stock and hold it forever. And if we get more money in, we buy some more, and if we have money going out, which is pretty rare these days, we sell some. It's not a big part of the marketplace.

People are just throwing up a whole lot of straw men in the hope that they can find some piece of mud that will stick. That's probably what I'd do if I were in their position.

These active managers have a real business problem. They are losing money. Vanguard accounts for over 100% of the cash flow in the industry. One firm. All the other firms in the industry together are losing money, losing cash flow. Of course they don't like it. I understand that. But it was never my design to build a colossus.

To read the full Business Insider interview with Bogle, head over here.

SEE ALSO: The man who transformed investing for Main Street sees a bleak future for Wall Street's money managers

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Elliott Management, the $31.6 billion New York hedge fund run by Paul Singer, sees a major change coming to the financial markets as a result of President Donald Trump's election. 

It's just too soon to know exactly what will follow.

"Much of the contemplated agenda is supportive of growth (e.g., reforming the tax code, streamlining regulation and expanding natural resources production)," the fund wrote in an unsigned fourth-quarter letter to investors. "Other proposals could be harmful to growth depending on how they are implemented (e.g., more restrictive trade policies and tariffs)."

Stocks have rallied to record highs since Trump's election, with the Dow Jones Industrial Average gaining more than 9%, in part as investors have focused on the growth-supportive aspects of Trump's presidential promises. Trump has promised to slash regulation on the environment as well as taxes. 

But some are worrying that this sudden run-up has stocks looking expensive again. The cyclically adjusted price-to-earnings ratio, a valuation metric based on the last 10 years of average earnings and calibrated for inflation, is at the highest level since the early 2000s.

In the letter, Elliott also raises the risks that this run-up in shares poses.

"It is too early to determine, at what may be the dawn of a new era, whether stock prices are too far 'over their skis' or are actually on the verge of reflecting the opportunities posed by the low baseline for potentially much higher growth created by the reversal of eight years of growth-repressive and distorted fiscal and monetary policies.

Similarly, it is premature to conclude whether bond markets have been overly pessimistic these last few weeks or if the recent declines in prices are only the beginning of a sustained rise in interest rates. After all, even at current levels of bond prices, which are down several percent from their highs just a few months ago, bond prices do not provide a reasonable return after accounting for current inflation, much less the rate of inflation which could be expected if economic growth picked up meaningfully."

Elliott's flagship fund returned 4.4% for the fourth quarter and 13.1% last year, according to the letter.

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Hedge funds have a reputation for being shrouded in mystery.

But SumZero, an online community of buy-side professionals, has just made them a little less mysterious by revealing how much some people in the industry get paid.

Their 2017 compensation report for hedge fund professionals analyzes the 2016 compensation information of approximately 4,500 of their more than 13,000 members.

The report breaks down the compensation of those users based on a number of factors including job title, years of experience, firm size and investor performance.

"Title remains an important factor in compensation at hedge funds, even when accounting for experience," the report said. "Thus while years in the industry are important, titles and the corresponding responsibility come with greater monetary rewards."

The median pay for hedge fund executives, including bonuses, was $400,000. That number is flat compared to 2015. Now that may not sound like a lot when you think of all the billionaire hedge fund managers covered in the media, but SumZero's community skews younger, and wealthier members tend not to disclose their information.

In addition, it is important to note that there are thousands of hedge funds, with a large number of small funds and a handful of industry giants. Some of these small funds might be staffed by a single employee.

To read the report in full, click here.

The median pay for hedge fund executives, including bonuses, was $400,000.

Those working at bigger funds tend to earn more.

It pays to be in New York.

A key portfolio manager behind Elliott Management's famous Argentina bet has stepped down.

Jay Newman, a lawyer who joined New York-based Elliott in 1995, will act as a consultant for Paul Singer's $31.6 billion hedge fund firm, according to a January investor letter reviewed by Business Insider.

"Newman has decided to retire from being a senior portfolio manager and being involved in the hedge-fund industry on a full-time basis," the investor letter said.

Newman didn't immediately respond to a request for comment.

In the early 2000s, Elliott started buying up Argentinian debt after the country's economic collapse. According to a 2016 Wall Street Journal report, Newman's thinking on the matter went like this: "If Argentina's economy improved, the bonds would gain in value. If the nation defaulted, Elliott would join a creditor committee, as in any restructuring, and push to profit from a debt restructuring." Newman became a public representative for Elliott over time, speaking to financial news outlets about the matter.

Last year, Argentina agreed to pay $4.7 billion to Elliott and three other hedge funds to settle its debt saga. Elliott's bet yielded $2.4 billion, about 10 to 15 times as much money as the hedge fund put on the wager 15 years before, according to the Journal report.

More recently, Elliott's flagship fund returned 4.4% for the fourth quarter of 2016 and 13.1% for last year, according to the investor letter.

SEE ALSO: Paul Singer's Elliott: '8 years of growth-repressive and distorted fiscal and monetary policies' are coming to an end

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