Hedging Bets

New Jersey’s next governor, Phil Murphy, in a facebook town hall had some thoughts on the state’s retirement system investing in hedge funds:

Without those inflated values that Alternative Investments get to make up the funded ratio of the New Jersey retirement system (by one measure the lowest of any state at 30.9%) would be even lower. And then there is the issue of what hedge funds are into. We got a peek this week.

Back in March, Brigade won firm of the year at the Absolute Return Awards, which recognize the investment world’s best-performing hedge funds. A Bloomberg report from January said that the firm’s main fund returned almost 23% in 2016 and that Brigade has more than $18 billion in total assets under management. The firm describes itself on its website as “specializing in credit investment strategies.”

That paragraph was taken from this story:

The hedge fund allegedly defrauded of $4.6 million by WFAN morning-show host Craig Carton and a co-conspirator is New York-based Brigade Capital Management, SI has learned. The firm’s general counsel, Aaron Daniels, declined to comment.

In 2016, Carton and co-conspirator Joseph Meli enticed Brigade and an unnamed individual investor by explaining that they had options to purchase millions of dollars of sought-after concert tickets at face value, which they could then resell for a hefty profit, alleges a civil complaint today from the Securities and Exchange Commission (SEC). The artists Carton and Meli touted to investors included Adele, Justin Bieber, Barbra Streisand, Katy Perry, Roger Waters, and Metallica. According to the SEC, though, no such agreements ever existed, and Carton used Brigade’s money to pay off extensive personal gambling debts and an earlier investor. (Meli was accused earlier this year of orchestrating a larger, similar fraud involving tickets to Hamilton and other shows; his trial is set for November.)

I listened to Craig Carton occasionally. He did not strike me as a shrewd financial mind in the Warren Buffet mold. Yet he can get a hedge fund to give him $4.6 million to pay off his gambling debts. And when did ticket scalping become an investment strategy?

Google Brigade Capital Management and you find them linked to several public pension funds:




16 responses to this post.

  1. Posted by Tough Love on September 9, 2017 at 3:59 pm

    It’s a bit like Trump.

    The internal thought process goes something like this …………..

    You’re only a crook, a liar, or a lowlife, NOT for doing such, but ONLY if you get caught.


  2. Posted by George on September 11, 2017 at 2:55 pm

    1:45 Restaurant example does not work for me.
    2:11 Sophisticated inicies? What’s that? What would vanguard founder John Bogle say?

    It will be interesting to see if the hedge funds can be exited, what if they have bonds, derivatives and obligations and debts that would need to be resolved.

    I am curious if the hedge funds actually hedge.


  3. Posted by Anonymous on September 11, 2017 at 6:44 pm

    The Oracle of Omaha won a $1M bet against hedge fund manager Ted Seides. Buffett believed a low cost S&P 500 index fund would do better than a high-ranking hedge fund….https://finance.yahoo.com/video/warren-buffett-wins-1m-bet-165453788.html


  4. Posted by George on September 12, 2017 at 11:39 am

    Private Assets Are the New Hedge Funds

    “Hedge funds outpaced a historic bull market for the S&P 500 in the 1990s”


    • Posted by Seesaw Junior on September 12, 2017 at 1:52 pm

      What was the NET ROI after “fees” fromt the hedge funds, far more than the 1.6% they beat the S&P 500 index fund by.


  5. Posted by Anonymous on September 12, 2017 at 6:12 pm

    How is this post relevant to NJ pensions?


  6. Posted by Tough Love on September 13, 2017 at 2:11 pm

    Interesting article from an Ohio Public Sector retiree with a financial background….



    Now let the “denying” begin !


    • Posted by Tough Love on September 13, 2017 at 2:15 pm

      Woophs, the above is a 12 page article. To start at the beginning, change the 12 at the end of the link to a 1


  7. Posted by S Moderation Honestly on September 13, 2017 at 3:57 pm

    My personal favorite…

    PENSIONS 101

    ” The general standard for a pension plan is to maintain a funding level of 80% of ‘actuarially accrued benefits’.”



    • Posted by Tough Love on September 13, 2017 at 4:19 pm

      The goal should always be a 100% funded ratio, and if it’s not WELL OVER 100% after an 8 year bull market (especially when valued under the very liberal valuation assumptions used by Gov’t pensions plans), then they are deeply underfunded.


      • Posted by S Moderation Honestly on September 13, 2017 at 5:25 pm

        Tough Love on September 12, 2017 at 7:58 pm

        “(b) No, a funding ratio in the 82%-84% range for Private Sector Plans is not a “game changer”, and well within reasonable expectations as plans recover from the great recession of 2008. Single employer Corporate Plans are overall in good shape. Many multi-employer (union) plans are basket cases…”



        • Posted by Tough Love on September 13, 2017 at 6:12 pm

          Not sure what your question is, but I stated that …… “Single employer Corporate Plans are overall in good shape” ……. because :

          (a) Unlike Public Sector Plan valuations, that 82% to 84% is calculated using the far more CONSERVATIVE standard required of Private Sector Plans, and would be likely be close to 110% funded if valued using EXTREMELY LIBERAL and commonly used Public Sector Plan assumptions and methodology. Would you NOT can the latter (110% under Public Sector Plans assumptions/methodology) even “well-funded”?

          (b) Private Sector Plans generally have much shorter periods (7 years) over which they catch up on underfunding, and can’t use methodology (common in the Public Sector) that back-loads that catch-up.


  8. Posted by S Moderation Honestly on September 13, 2017 at 8:48 pm

    No question, merely an observation. From 2000 to 2003, both public and private systems went from well overfunded to about 80% funding. By 2007, they had both come back to full funding. That’s how it works (yes, I understand they use different criteria. We all got that.) I don’t have records for private systems, but in the 80s, CalPERS was more underfunded than in 2003-04. They came back. That’s how it works (yes, I understand they use different criteria. We all got that.)

    All I am saying is that 2007 was different, for both sectors. They are coming back more slowly. Neither public nor private sector have come back in seven years, as they did in 2000-2007.
    It was a game changer. (Did I mention, I understand they use different criteria. We all got that.)



    • Posted by Tough Love on September 13, 2017 at 9:01 pm

      Quoting SMH (twice)……………

      “yes, I understand they use different criteria. We all got that.”

      No, I doubt that you understand or acknowledge the EXTREME difference in valuation assumptions & methodology. PRIVATE Sector Final Average Salary DB Plans are NOW (on average) almost TWICE as well funded as PUBLIC Sector Plans if valued using the SAME assumptions & methodology.

      Private Sector Plan sponsors, actuaries, and experts in pension Plan funding have long accepted that Plans with such low funding ratios (such as the ones that now exist for MANY Public Sector Plans) have only a VERY small chance of pulling out of it.

      Public Sector Plans refuse to acknowledge that because:

      (a) they believe that Taxpayers can and will be forced to make them hole, and

      (b) the Unions have been VERY successful in getting Public Sector Pension Plan protections implemented (Constitutional, Contractual, Case, Law, etc.) that do not exist for Private Sector pension Plans.

      Only time will tell.


  9. Posted by Earth on September 13, 2017 at 9:43 pm

    Earth to TL:

    Well, as long as we can make them hole, everything else is moot.


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