Michael Steinhardt talks Buffett, America with CNBC

Legendary hedge fund manager, Michael Steinhardt has a few things on his mind and he shares them readily in this interview with CNBC.





















A few highlights from Steinhardt's chat with the CNBC crew: 

• Hedge fund management is not the elite business it once was. Managers today content with low double digit returns, versus emphasis on true performance and 25%-40% annual returns in Steinhardt's days.  

•  Asked if he could repeat his performance today, Michael demurs, "I don't know". He notes that magnitude of funds involved in hedge funds is much larger today. Emphasis has shifted to making money off a large asset base, as opposed to performing for your investors. 

• You don't have to do what everyone else is doing. You do need to understand the way in which your perspective is different than the world's (your edge).

• Steinhardt is concerned about savers (old folks and retirees) getting shafted by near zero interest rates and inflation. This is a terrible situation for Americans.

• Buffett's carefully crafted PR persona and his philanthropy-in-one-fell-swoop approach are "worth reflecting on". 

• Superficially, the United States is doing okay. Steinhardt looks at the inflation picture, the valuations in the stock market, and America's economic strength and its cultural standing in more depth.

Seems a lot of the comment surrounding Steinhardt's interview today focused on the Buffett side of the equation (especially given the forum; CNBC is Buffett ass-kissing central). 

While it is interesting to hear someone publicly question Buffett's "PR" persona and his philanthropic gestures,  I'm actually more interested to hear Steinhardt's take on the economy and the reality of inflation, as well as how that affects the average person in America today. 

This rich guy gets it - why do all the pointy-headed academics have such a hard time voicing these simple truths (maybe because they're paid to do the opposite)?  

Posted byDavid

Swiss Village Cuts Tax Rate to Attract More Hedge Funds from London
THE GUARDIAN: Pfäffikon is already one of the two headquarters of Man Group, the world's largest publicly traded hedge fund, and UBS recently built a base in the Alpine enclave

One-in-four hedge fund managers have moved from London to Switzerland. Photograph: The Guardian
A peaceful Swiss village that has become an unlikely rival to Mayfair is cutting its income tax rate to attract more hedge fund managers from London.

The Swiss area of Höfe in Schwyz, which includes the village of Pfäffikon, plans to cut its basic tax rate to 15% from 17% next year. It hopes to attract hedge funds that are angered by higher taxes in Britain and the public outcry against the banking industry.

Surrounded by hills and meadows, Pfäffikon is already one of the two headquarters of Man Group, the world's largest publicly traded hedge fund, otherwise based in London. The Swiss bank UBS has also recently built a base in the Alpine enclave, near Zurich.

"We know that many London-based funds are not happy with rising taxes in Britain, so this is a reminder that Switzerland and Pfäffikon are positioning themselves as a hedge fund hub," said Marcel Jouault, of the business promotion department at Pfäffikon. "Many office buildings will be completed in 2011 and 2012. Lowering taxes will attract more businesses."

The village, once mostly dependent on agriculture, has registered more than 300 businesses so far this year, including Avis Asset Management, Commodity Partners, Fargill Investments, Sussex Partners, Hadrian's Wall Capital, Highland Capital Management and Twelve Capital.

Support businesses such as bookshops, travel agencies and beauty centres have proliferated. The city is also building a centre to host smaller hedge funds. >>> Elena Moya | Monday, October 18, 2010

Rasmussen v. Lord Myners (and the rest of the City)

In case you missed it, Open Europe last week organised a debate on the EU's proposed new rules for hedge funds, private equity firms, and various other funds currently not regulated by EU law. In good-old Brussels fashion the proposal goes under the acronym AIFMD (Alternative Investment Fund Managers Directive), and has been recieved with some scepticism in the City of London - to put it mildly.

In a Guildhall filled to the brink with angry pin-striped suited City people, the AIFM Directive's key proponent, Poul Nuryp Rasmussen, fearlessly explained why he didn't think the proposal goes far enough. The arguments aside, you have to give Rasmussen credit for his dedication, courage and willingness to walk into what can only be described as a lion's den. And he certainly stood his ground. During the course of the debate, it became evident that Rasmussen knows more about the alternative investment industry than the industry itself perhaps feels comfortable admitting. It would be a mistake to underestimate him, particularly as he still - despite no longer being an MEP - has much input into what kind of amendments the socialists in the EP will put down on the draft Directive.

Rasmussen carries a lot of respect around Europe. During the 90s he took on the unions in Denmark in a bid to get the Danish economy up and running again - a point he was keen to make at the end of the debate. This, he said, highlights that he's a "pragmatic Scandinavian" and a "pro-growth guy" (in addition to being an economist). He's not out to get the City of London. A Scandianvian economist with pragmatist credentials is the nightmare opponent for the alternative investment industry, insofar as he'll draw a lot of sympathy from around Europe (and hedge fund managers aren't exactly the most popular kids on the block). However, notwithstanding his courage and the rest of it, the arguments are against Rasmussen on this issue - as we've outlined here.

The main counter-blast to Rasmussen's arguments did not come from any of the industry representatives, but from City Minister Lord Myners, who used surprisingly strong rethoric - no doubt mindful of his audience. In particular Lord Myners hit out at "the lamentable lack of consultation" which preceded the Directive, and said that the proposal amounted to "protectionism hiding as if it were protection".

One of the most interesting admissions from Rasmussen was that the Directive was designed to keep fund managers from the rest of the world out of the single market, unless they "pay a price". "No one can have my Danish passport", Rasmussen said. As we've argued many times before, this type of protectionist thinking remains one of the EU's greatest flaws. Whether it's raising barriers to global capital flows and investment, or free trade in products and agricultural commodities, this kind of approach leaves everyone worse off.

This flaw is more than enough reason to oppose the draft Directive in its current form.

Showdown over alternative investment

In HFM Week, we're today setting out our thoughts on one of this year's most contentious EU proposals: the Directive on Alternative Investment Fund Managers (i.e. stricter rules for hedge fund and private equity managers and various other more or less obscure managers with alternative investment styles). The proposal is up for discussion and amendment in the European Parliament and the Council this autumn.

It's clear that there will be a Directive, but exactly what it will look like is a completely different story. In a nutshell: The Directive will - quite literally - force more transparency on fund managers, while giving them the opportunity to market their products across the EU once they've been authorisied to do so. Within reason and market practice, these are no bad things.

However, overall, the Directive is in danger of becoming a prime example of bad business law - especially when viewed through the prism of the Commission's own 'better regulation' principles. As we argue in the article, the Directive's objectives and benefits are unclear, it is riddled with legal uncertainty, and it is inconsistent with both existing regulations and prevailing market practices. Perhaps most critically, the Directive is protectionist to its very core.

The battle will primarily take place over the Directive's protectionism and the provisions which seek to overturn how managers are stuctured and how they go about their business (which could seriously harm the industry, restrict investor choice, etc.).

In the absence of a proper Impact Assessment on the proposal from the UK Government, Open Europe will soon publish a report on the possible impact of the Directive on the industry, investors and the wider economy. Watch this space.

What do you mean you haven't got time?

For anyone who didn't catch our press summary this morning, the Government has admitted that it will not carry out an Impact Assessment (IA) on the EU's proposed new Directive on hedge funds and private equity - otherwise known as the Alternative Investment Fund Managers Directive.

The idea of an IA is to weigh the costs and benefits of proposed regulation to see if it is worth it.

In response to an FOI request by Open Europe, the team at the Treasury confirmed that,

"because of the foreshortened time scale on which the directive is being negotiated, we will not be publishing a formal impact assessment."

Foreshoretened time scale? Well, the proposal is certainly being rushed through at a worryingly fast pace. It's widely acknowledged that the Commission, in the wake of the financial crisis, was under immense pressure from the European Parliament and some member states to quickly produce a Directive on hedge funds (never mind that most commentators agree that alternative investments funds were not a cause behind the crisis as even the Commission's press release on the AIFMD states). The result was a very poorly drafted, unworkable and inconsistent draft Directive.

This is precisely why a good, robust Impact Assessment is so essential. The "foreshortened time scale" and the poorly drafted Directive make it even more important that the Government (in a transparent manner) assesses what the proposal will actually mean in practice and how it can be improved.

But does the Treasury really not have time? The proposal was tabled on 30 April, and will be subject to revisions and negotiation throughout the summer and autumn. We know EU documents can sometimes be a bit of a snooze-fest but surely there is a crack team at the Treasury who can put a partial IA together during this time period?

Government guidelines explicitly state that "any proposal that imposes or reduces costs on businesses or the third sector requires an Impact Assessment" and the BERR Department for Business, Innovation and Skills website instructs Ministers to "make use of the UK Impact Assessment when lobbying other member states to win support for the UK position."

In fact, back in 2003 Tony Blair promised:

"no proposal for regulation which has an impact on business, charities or voluntary bodies should be considered by Ministers without a regulatory impact assessment being carried out."

This might all seem a bit obscure, but it's extremely important. A rigorous IA can identify potential costs and benefits of EU proposals and identify the impact on jobs, competiveness, growth and the rest of it. Used properly, it can inform UK negotiators when arguing over the details of important EU rules in high-level meetings in Brussels.

Last year, we spent six painful months going through over 2,000 of the UK Government's IAs. In the subsequent report, we recommended that the Government use IAs as a bargaining tool, to lay out which aspects of EU proposals would be unworkable, or that would impose un unacceptable cost. Of course, this would require a rigorous IA produced in time to inform the UK negotiating position - which, again, is what the Department for Business also recommends.

As we've said before, if this were a proposal that affected the French agriculture sector or the German auto industry it would have been strangled at birth. Although the UK Government finally has begun to pay some attention to the AIFM directive, it needs to do far more to show that it's willing to fight the UK corner on this one.

Starting with an assessment of what the hell it's all about.