Marc Lasry and Mark Fisher: Navigating the Crisis Past, Present and Future

Includes: AAL, DV, STRA, TRMP
by: Chris Cather

Opinions weren’t entirely grim at the Wharton Hedge Fund Conference on February 20th: a continuing industry shake-out will be offset by a historically unprecedented opportunity to buy world-class companies at low valuations.

And while Bernie Madoff was not in attendance, other industry survivors were.

Still, the legendary Wharton School at the University of Pennsylvania, the Mecca of Finance, may be less of a breeding ground for Masters of the Universe than it used to be.

Wharton Dean Thomas Robertson echoed the new reality in his opening statement: the financial center of the world is no longer New York or London, but Washington, home of the Fed, World Bank, and IMF.

Alternative investment asset managers, regulators and academics met on a cold grey day in Philadelphia to discuss the financial crisis and its effects on the hedge fund industry.

There was consensus among panelists that there is no one definition of “hedge funds.” But they share a few common characteristics as alternative investments differentiated from more traditional funds:

  • Different relationship with investors.
  • Can take bigger position than mutual funds which must be highly diversified.
  • Fee structure: performance fee of 2 and 20% - 2% management fee + 20% profits.
  • Highly leveraged.
  • Less transparent and regulated.
  • More speculative than hedging strategies.

By far the most entertaining and biggest takeaways of the WHFC were from two of the keynote speakers: Marc Lasry of Avenue Capital, and supertrader Mark Fisher of MBF Clearing Corp. Some highlights:

Marc Lasry

Chairman, CEO, and Co-Founder

Avenue Capital

Topic of Presentation: Market Opportunities

On the Past and the Present

  • Primary cause of crisis was leverage accompanied by increasing pressure to generate high returns.
  • Avenue Capital didn’t rely on leverage and will emerge from the carnage as survivors.
  • Views current financial crisis as greatest investment opportunity in history for those who have capital.
  • Everything’s cheap: historically unprecedented opportunity to buy world class companies at low valuations, around 2-3x EBITDA.

What is Avenue buying in current environment?

Buying distressed debt of:

  • Chicago Tribune
  • US Air (LCC)
  • Trump Entertainment Resorts (TRMP)

Cash is King

  • Avenue is holding 40% of portfolio in cash.
  • Lot of cash sitting on the sidelines waiting to see what happens.

Future of Hedge Funds

  • Shakeout will continue and funds will go out of business because of redemptions.

For more in depth on Marc Lasry at the WHFC, see a fellow Seeking Alpha contributor’s take.

Mark Fisher

Founder and CEO

MBF Clearing Corp.

Topic of Presentation: The Bear Market and Market Psychology

Trading Philosophy and Forecast

  • Differentiates between trading and investment.
  • Next five years will be golden age of trading rather than investing.
  • Traditional fundamental analysis will not be successful in this environment.
  • Trading capitalizes on fear and market perception.
  • Trading philosophy is keep it simple: good news, bad action, bad news, good action.
  • Likes to think way out of the box.
  • Economy won’t rebound until market psychology changes.
  • First determines how much he can lose, not what he can gain; on the lookout for Black Swans.

Stock Tip

  • Short on education stocks like DeVry (NYSE:DV) and Strayer Education (NASDAQ:STRA) trading near their 52 week highs.
  • Long on infrastructure/water stocks: shortage of fresh water will be most pressing issue over next ten years.

For more on Mark Fisher.