James Chanos, President of Kynikos Associates, whose fund accounts for 90% of institutional short funds in the US, delivered a very well-thought out keynote at last week's Investorside research conference, on "Independent Research at the Crossroads."
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Introduction Yale BA. He has $2.9b under mgmt. And there's only $3.3b in institutional shorts overall. So has >90% of the market.
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James Chanos:
It's best for me to speak after lunch because my talks are "unsettling but not nauseating."
Independent research is a cottage industry, with low barriers to entry. Flexible.
Is free speech not protected in bull markets?
Forces of darkness:
*issuer intimidation
*litigation
*soft dollar concerns
*customer concentration
1985: he's had private detectives go thru his garbage.
1983: critiqued Waste Management Inc. Said it was accounting spam. The (size extra-large) CFO told him, 'This is a small town, OK?' Fortunately, nothing came of it.
Owen Lamont at yale has done great research on this, showing that the more an issuer intimidates, the worse their underperformance later.
2 current cases:
- Overstock
- Biovail
Organized plaintiff's bar is now looking into the short selling business, which is bad news for independents.
Keep your business in federal not state courts...they're much friendlier to free speech than state courts.
Hedge funds are only 5 -10 percent of equity value worldwide, but could be 20-40 percent of trading volume.
Problem you in this audience should be concerned with: 50% of total hedge fund dollars are from fund of funds, and as much as 80% to 90% of inflow in last 2 years.
Given the 2 layers of fees, Fund of Funds will soon pull back.
FORCES OF LIGHT
*sell side backsliding
*customer growth
*recent history