Absolute Return Symposium 2007

Absolute Return Symposium 2007


From the billions of dollars hedge funds made shorting subprime to the billions lost in the quant meltdown, 2007 was a year of extremes – and excitement in the U.S. hedge fund industry that shows no signs of abating this year. "There will be a lot of funds going out of business in the coming year, but there will be a lot of people starting," said Byron Wien, chief investment strategist at Pequot Capital, at the opening panel of the 2007 Absolute Return Symposium, an annual event that was held in December. "This is a performance business, and it lives and dies by performance."

As Wien noted, "the funds that did well recognized what was going on in credit early." Among them were several funds run by keynote speaker John Paulson, president and senior portfolio manager of Paulson & Co., who gave symposium participants a step-by-step analysis of how he shorted the housing bubble, taking home a 590% return in one fund, increasing assets by about $20 billion in the process and winning an unprecedented three Absolute Return awards last year.

Paulson's view for 2008? "Credit costs will continue to rise, and we'll have at least a slowdown in the economy and likely a recession," he told a packed auditorium. "And interest-rate cuts may not be enough to halt the decline."

Paulson's view was echoed by many of the symposium's 31 speakers, who almost to a person were glum not only about a cyclical downturn of the U. S. economy but about the country's long-term prospects. Many hedge fund managers seem to think both the United States and the dollar are past their prime. As Wien noted, "One of the more important lessons I've learned from a macro standpoint is that the United States is just another country and the balance of economic power is clearly shifting to the East."

"The U.S. is 29%, now, of world market cap, and falling. And I imagine most people are overweight the United States," echoed John Burbank, the founder of Passport Capital, another keynote speaker.  
Passport also earned triple-digit returns (and won Absolute Return's Fund of the Year Award) by shorting subprime, using a funds flow analysis and "counting on the capital markets raising as much as [they] can until it's a bust. I've seen this now several times in 12 years," he said.

"Liquidity has reversed," said Burbank. "Everybody owns too many dollars. People don't own enough non-dollars. They don't own enough hard assets."
With the world's markets at an inflection point, the hedge fund industry also faces unprecedented business issues. Will more funds go the public market route? Does the bank hedge fund model have too many conflicts? Symposium participants addressed these issues, in addition to investment strategy outlooks, in the two-day event.

Wed 05 - Thu 06 Dec 2007

The Times Center, New York