• Dallas-based Maverick Capital's flagship hedge fund hasn't made money in the first half of this year.
• Chief Lee Ainslie blames his short book.
• Ainslie says investors are confusing secular trends with cyclical ones.
• "We are seeing the beginnings of the perfect storm," he wrote.

Lee Ainslie's Maverick Capital is having a tough year.

The firm's flagship Maverick Fund USA made no money in the first half of 2017, according to a client letter reviewed by Business Insider. The S&P 500, which the fund compares itself to, rose 9.3% over the same period.

Dallas-based Maverick, which manages about $10.5 billion firmwide, primarily blamed its short book – but said it is not fazed.

"The median stock in our investable universe was up 7.7% in the first half of the year, and our shorts were up 12.6% – outperforming (to our detriment) the median stock by almost 5%," Ainslie wrote in the letter released last week.

"On the short side, periods of frustration are not uncommon and are typically followed by periods in which short selling is actually quite rewarding," Ainslie added.

One of Ainslie's main theses is that investors are confusing secular trends with cyclical ones.

"We believe we are seeing the beginnings of the perfect storm where investors will be faced with the reality that things in fact are not different," he wrote.

As part of that trend, which he titled the "secular trend of cyclical confusion," Ainslie highlighted exchange-traded funds – a common lament in recent hedge fund managers' letters, as passive investing dominates more and more of the investing landscape.

"The proliferation of capital focused on non-fundamental factors confuses short-term stock price responses, causing investors to question links between price and fundamentals," Ainslie wrote. "Flows into instruments that allocate capital through predetermined ratios without regard to current or future fundamentals distort prices in the short term, but such distortions create wonderful opportunities that fundamental investors should be able capitalize upon over a longer-term timeframe."

Ainslie also detailed sectors which he believes are ripe for short selling. Among them is retail, which has been beleagured by the rise of online shopping.

He wrote:

"Current operating momentum continues to be mistaken for secular growth and a competitive advantage. As long as next quarter's earnings are considered safe, a multi-year negative trend in store numbers, revenues, operating profits and earnings can be perceived to be less relevant in the eyes of the market for a period of time."

Maverick did not indicate its positions in retail in the letter.

The letter continued:

"Today, we observe – consumer electronics players in multiple geographies, apparel wholesalers levered to declining physical retail spaces, and food retailers who even absent online competition did not cover their cost of capital – all trading at multi-year highs across a variety of valuation metrics. We believe these businesses present an incredibly compelling short opportunity set. Product cycles come and go in consumer electronics. Fashion fads can create peaks in demand. Even food retailers can excite customers with innovations like prepared meals. Ultimately, however, those changes are temporary and the secular forces against their business models will prevail."

Maverick said it is also short companies that are facing disruption.

Those shorts include "a traditional camera company trading at over 20x earnings facing cannibalization from mirrorless cameras with comparable picture quality for a fraction of the price" and "an ATM producer feeling the pressure of the migration away from cash and the migration toward online banking."

Ainslie described this bucket of businesses as "'melting ice cubes' – businesses that decline each and every year until they disappear."

"We used to contemplate shorting these businesses at 10-13x earnings," he added. "Now we contemplate shorting these businesses at 20-26x earnings. The opportunity set within this theme has never been more compelling."

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Less-than-stellar Wall Street trading results will likely have an impact on this year’s bonuses.

While investment bankers will probably see big jumps in their annual bonus, securities traders likely won’t get the same increase — and could even see a 5% drop, according to a new report from HR consulting firm Johnson Associates.

The data was first reported by Bloomberg News’ Sarah Ponczek:

Fees from advising on mergers and selling stocks and bonds for companies rose at four of the five biggest firms last quarter, offsetting lower trading results. Bankers who underwrite equity and debt will probably see annual bonuses surge 10 percent to 20 percent or more, while those in retail and commercial banking can expect raises of 5 percent to 10 percent.

As markets climbed steadily higher this year, the VIX volatility index plunged to historic lows. Trading desks, once the powerhouse of banks’ profitability, took big hits because of the drop.

Goldman Sachs, JPMorgan, and Bank of America all reported declines in fixed-income trading in the second quarter. Morgan Stanley was the only bank to post trading gains, despite what the CEO called a "subdued environment."

Hedge fund employees can also expect their bonuses to increase up to 5% this year. That's despite some name brand funds not doing well. According to investor letters obtained by Business Insider, many major funds are struggling to find positive returns.

Maverick Capital, a $10.5 billion hedge fund manager, made no money on its flagship fund in the first half of 2017. The S&P 500, which the fund compares itself to, rose 9.3% over the same period.

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• Graham Capital, a $14.4 billion Connecticut-based hedge fund, is facing a tough year for performance, with 13 of its 14 strategies losing money.
• The firm has raised about $1.5 billion this year in fresh money from clients, mostly to its quantitative strategies.
• "Although August is often considered to be a quiet month for macro markets, ongoing political tensions are likely to continue to make headlines," Graham's founder, Ken Tropin, wrote in his latest client letter. 
• With stock markets at record highs and volatility at record lows, there's all the more reason to be diversified, Tropin added.

A $14.4 billion macro hedge fund is having a tough year – but still raising money.

Graham Capital Management is in the red for 13 of 14 strategies listed in a July client letter reviewed by Business Insider, despite a better month in July for many of the funds.  Graham, which is based in Rowayton, Connecticut in a Tudor-style mansion, runs discretionary and systematic macro strategies.

The firm's flagship Tactical Trend strategy, a quantitative fund which manages about $5 billion, is down -2.3% after fees this year through July. Two of its other large funds, which separately manage several billion dollars each, are also in the red.

Kenneth Tropin, the firm's founder, said in his July client letter that the flagship fund "declined modestly for the month as losses from trading in commodities, specifically energies and agricultural futures, more than offset gains in the currency and equity sectors."

Tropin also noted the record-high stock markets and record-low volatility levels. "The relative importance of true portfolio diversification is in our view becoming increasingly relevant," he wrote.

Tropin continued: "Although August is often considered to be a quiet month for macro markets, ongoing political tensions are likely to continue to make headlines while concerns over the sustainability of equity market strength persist. The coming months should provide clarity regarding QE roll off in Europe and balance sheet roll off in the US while market participants remain focused on geopolitical developments."

Graham's worst performer, Tactical Trend Capped Beta, which is a derivative of the flagship strategy, is down 15.4% after fees. Graham's K4D-10V fund is down -3.03%. Meanwhile, the Absolute Return Class A fund, which is the biggest of the firm's discretionary strategies, is down -5.2% this year through July.

To be sure, macro funds overall have been having a rough time this year. The HFRI Macro index returned just 0.07% this year through July.

A spokesman for Graham declined to comment.

The firm has grown over recent months, raising about $1.5 billion this year, mostly in its quantitative strategies, a person familiar with the matter told Business Insider. Graham's firmwide assets now stand at $14.4 billion, up from $8 billion a little over two years ago. The firm launched in 1994 with about $30 million.

Computer-driven strategies have long been raising money from hedge fund investors. Some are drawn to lower fees that money managers are charging for quant strategies.

In a June letter also reviewed by Business Insider, Tropin had noted that he was expecting Graham's performance to improve.

"While performance on a year-to-date basis may be disappointing, it is well within the expectations and risk-return profile for both our systematic and discretionary strategies," Tropin wrote in the letter. "In fact, in Graham’s twenty-three years since inception, these periods have often been followed by strong performance and we remain committed to capitalizing on the shifting market environment to generate compelling risk-adjusted returns over the long-term."

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Some of the world's largest hedge funds have lost money this year – or made barely any – even as markets have hit record highs.

The funds are run by firms including Bridgewater Associates, the largest hedge fund firm in the world, and Two Sigma, one of the fastest-growing firms.

The weak performance is especially striking, as the S&P 500 has delivered 10.4% through July. In addition, 54% of active managers outperformed their benchmark Russell 1000 index in the first half of 2017, according to Bank of America Merrill Lynch. At this pace, they're headed for their best year since 2007.

To be sure, many of these funds have gotten to the size they are due to strong performances in previous years. Still, the weak 2017 performance by some of the biggest names in the hedge fund industry highlights the challenge facing many managers.

The HFRI Weighted Composite Index, which tracks hedge funds, returned 4.8% this year through July.

What follows are this year's returns for major funds, after fees. All the figures come from private client documents reviewed by Business Insider, unless otherwise noted. These funds manage money for public pensions, university endowments, sovereign wealth funds and the rich, among other big investors.

All asset figures, unless otherwise noted, come from the HFI Billion Dollar Club ranking, which measures firmwide hedge fund assets and are from the start of the year.

Bridgewater Associates, the world's largest hedge fund firm which says it has about $160 billion

• Pure Alpha II flagship fund: -2.8% this year through July
• Pure Alpha fund:  -1.6% this year through July
• Major Markets fund:  -7% this year through July

One of Bridgewater's strategies has posted gains:

• All Weather: 6% this year through July, according to a person familiar with the matter. 

Two Sigma, $30.4 billion

• Absolute Return Macro Cayman (CTA strategy):    -7.19% this year through July
• Two Sigma's Risk Premia strategy made essentially no money in the first half of the year, returning 0.06%.
• The firm's Compass Cayman fund is down 3.8% this year through July 28, according to data from HSBC. 

One of Two Sigma's funds has gained this year, however:

• Absolute Return Cayman Fund: 1.25% in July and 6.31% this year through July

Maverick Capital, $11 billion

• Maverick Fund USA: 0% through June
• Maverick Levered: -1.7% through June

Some of Maverick's funds have gained, however:

• Maverick Long: 10.7% through June
• Maverick Long Enhanced: 10.8% through June
• Maverick Select: 4.9% through June

Greenlight Capital, $7 billion at mid-year, per the Wall Street Journal

• -2.8% through June

Carlson Capital, $10 billion. All figures through July.

• Black Diamond Thematic fund: -14.2% 
• Double Black Diamond, LP:  -2.1%
• Black Diamond Partners, LP: -3.7%
• Black Diamond Relative Value Partners, LP:  -3.2%
• Black Diamond Energy, LP: -6.8%

Some of Carlson's funds have gained, however:

• Black Diamond Arbitrage Partners, LP:  6.2% 
• Black Diamond Mortgage Opportunity, II:  5.6%

Graham Capital, $14.4 billion as of August, per Business Insider reporting 

• The firm's flagship Tactical Trend strategy, a quantitative fund which manages about $5 billion, is down -2.3% after fees this year through July
• Tactical Trend Capped Beta, which is a derivative of Graham's flagship quant strategy, is down 15.4% after fees. Graham's K4D-10V fund is down -3.03%. 
• The Absolute Return Class A fund, which is the biggest of the firm's discretionary strategies, is down -5.2% this year through July.

Highfields Capital, $12.4 billion

• The Highfields Capital IV LP fund, the firm's biggest fund with about $5.6 billion, returned 1.2% for the first half of the year.

Balyasny, $12.6 billion

• Balyasny's Atlas Global fund was basically flat through June, returning 0.08%.
• Atlas Enhanced fund was also eseentially flat, returning 0.78%.

Caxton Associates, $8 billion

• The Caxton Global Limited Investment Limited fund lost 11% through August 1, according to HSBC data.

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John Burbank's Passport Capital is shrinking.

The firm is managing just $900 million, about half of what it did at the start of the year.

In an investor letter dated July 31, the firm told clients:

"For the second quarter, the Fund had net outflows of $480 million. Firm-wide, net outflows (not including the Long Short hedge fund strategy liquidation, effective 4/30/2017) totaled approximately $565 million. At quarter-end, net of June 30th redemptions, Fund assets stood at $275 million and Firm assets totaled approximately $900 million."

Earlier this year, Passport shuttered its long-short fund, which managed about $833 million.

Passport, in hedge fund assets, managed about $2.1 billion firmwide at the start of the year, according to the HFI Billion Dollar Club ranking.

The firm had already been bleeding assets, as that start-of-the-year figure was 45% lower than at the start of 2015, per HFI. A spokesperson did not immediately return calls seeking comment in time for publication.

Burbank famously shorted the subprime mortgage crisis. Investors in Passport's flagship fund, the Passport Global Strategy, got a 219% payout in 2007, according to a Forbes report from the time.

The Passport Global fund is down 16.8% after fees for the one year trailing to end of July 2017. 

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Dan Loeb’s Third Point hedge fund, which manages roughly $17.5 billion in assets, has sold its entire stake in Snap Inc., according to regulatory filings released late Friday.

The SEC filings represent second quarter holdings by Third Point, so the firm's positions could have changed since the end of the quarter.

Third Point had originally purchased 2.25 million shares of Snapchat's parent company during the first quarter of 2017, filings show.

Despite Snap's steep losses, leaving the company's shares down 30% since its IPO in March, Third Point managed to earn a 4.6% return on its Offshore Fund, bringing its total returns for the year to 10.7%, Reuters reported.

In addition to Snap, Third Point also sold its shares of Salesforce and Qualcomm. Salesforce stock is up roughly 29% since the beginning of the year, while Qualcomm is relatively flat for the same period.

Snap stock closed at $11.75 Friday in New York, after taking a major hit on Thursday after a disappointing earnings statement in which the company announced an adjusted loss of $0.16 a share.

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Viking Global Investors, a $30 billion hedge fund manager, sold off all of its 1.08 million shares of Google’s parent company, Alphabet, during the second quarter, according to regulatory documents filed Monday.

The stake is valued at around $891.8 million.

The Greenwich, Connecticut-based firm also acquired 1.1 million shares of China’s Alibaba valued at $155.1 million, bringing its total tech holdings to 46% of its portfolio.

In June, Viking founder and CEO Andrea Halvorsen said the fund would be returning $8 billion to investors as part of an effort to let its traders hold smaller, more liquid positions. He also announced Daniel Sundheim, Viking’s CIO and 15-year-veteran would leave the firm.

Viking is hoping to return to prominence after a rocky 2016, which left its main fund down 4%. This year the fund is up over 9% through July, according to Bloomberg. 

Shares of Alphabet were trading at $922.02 at midday in New York, up about 0.84% above its opening price.

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(Reuters) - Several big-name hedge fund investors trimmed their stakes in healthcare companies in the second quarter as the sector led the broad U.S. stock market higher, rallying amid a Republican effort to repeal and replace President Obama's signature healthcare law.

Jana Partners sold all of its shares in nine healthcare companies, ranging from small-cap biotech company Acadia Pharmaceuticals Inc to health information company WebMD Health Corp to insurer Aetna Inc, according to quarterly filings released Monday.

Billionaire Daniel Loeb's Third Point sold 175,000 shares, or about 18 percent of its stake, in health insurance company Humana Inc and 5 million shares of hospital products maker Baxter International Inc, or approximately 10 percent of its prior position. Shares of both companies are up more than 20 percent year to date.

Farallon Capital Management LLC, founded by Tom Steyer, dissolved its stakes in pharmaceuticals companies Eli Lilly and Co and Bristol-Myers Squibb Co, according to filings. The hedge fund also trimmed stakes in AstraZeneca Plc and Allergan Plc.

Healthcare stocks in the S&P 500 rose 6.7 percent in the second quarter, more than double the 2.6 percent gain in the broad S&P 500 index, after trailing the broad market following Donald Trump's surprise victory in the Nov. 8 presidential election.

Senate Republicans delayed a vote on a healthcare overhaul bill on June 27 after it became clear that they did not have enough votes for it to pass. One month later, a scaled-down plan to replace Obama's Affordable Care Act failed in the Senate.

Healthcare stocks have underperformed since the current quarter began on July 1, dipping 0.5 percent compared with a 1.9 percent gain by the broad S&P 500, suggesting that the move by hedge fund managers could signal the end of the rally.

"If sentiment from certain institutional investors weakens for healthcare it could negatively impact stocks" despite the sector's strong fundamentals, said Todd Rosenbluth, director of mutual fund research at CFRA Research.

Quarterly disclosures of hedge fund managers' stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of tracking what the managers are selling and buying. But relying on the filings to develop an investment strategy comes with some risk because the disclosures come 45 days after the end of each quarter and may not reflect current positions.

Overall, hedge funds gained 1 percent in the second quarter, according to Chicago-based fund tracker Hedge Fund Research, less than half of the 2.5 percent gain in the first quarter.

There were few signs that hedge fund managers were attempting to call a bottom in energy stocks as the falling price of oil helped send the sector down 7 percent in the quarter. Third Point sold all of its stake in Rice Energy Inc , Halcon Resources Corp, Enerplus Corp, and Pioneer Natural Resources Co.

Jana Partners sold all of its stake in Resolute Energy Corp , while Omega Advisors sold its entire stake in seven energy companies, including Cheniere Energy Inc, Eclipse Resources Corp, and Williams Partners LP. (Reporting by David Randall; Editing by Jennifer Ablan, Phil Berlowitz and Steve Orlofsky)

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Appaloosa Management, the $7 billion hedge fund founded by David Tepper, sold off all of its 100,000 shares of Snap, Inc. during the second quarter, according to regulatory documents filed Monday.

The stake is valued at around $1.26 million based on Monday’s closing price.

The New Jersey-based fund purchased the shares of Snap at some point between the company’s IPO on March 2 and the end of the first quarter on March 31.

Depending on when Appaloosa purchased the shares, and when exactly it sold, it is likely that the firm took a sizable hit thanks to Snap’s almost constant decline in stock price since going public.

The SEC filings represent second quarter holdings by Appaloosa, so the firm's positions could have changed since the end of the quarter.

Despite the possible loss, Appaloosa’s holdings were up 18% during the quarter, according to Bloomberg. The S&P 500 rose 2.6% during the same period.

Appaloosa also increased its holdings of Snap competitor Facebook by 448,868 shares, or 24%, giving the fund's total investment in Facebook a valuation of $355.7 million, according to Bloomberg.

Shares of Snap closed at $12.60 on Monday, up 6.51% from a record low earlier in the day thanks to disappointing earnings reported Friday. 

SEE ALSO: Dan Loeb ditched all his shares of Snap

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Apple is trading higher by 0.63% at $160.85 early Monday after regulatory filings showed big-name money managers are buying up shares.

In an SEC filing on Monday, Buffett's Berkshire Hathaway disclosed it  increased its Apple stake to $18.8  billion, or about 2.3% of the company.

Buffett wasn't the only famous investor piling into the tech giant.

David Tepper's Appaloosa Management announced it increased its Apple stake to $90 million.

Both firms may have changed their positions since the time of filing.

Shares of Apple are up 38.12% this year.

Click here to watch Apple shares trade in real time...

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LONDON (Reuters) - Big computer-driven hedge funds such as AQR Capital Management, Aspect Capital and Two Sigma lost money in the first seven months of 2017, with human stock-pickers making better returns.

The average hedge fund made 4.8 percent from the start of the year to July 31, Hedge Fund Research data shows, but a lack of market direction, June's sharp reversal and low volatility has made trading more difficult for automated funds.

"Trend-followers are looking for long, drawn-out, directional moves and look to ride that trend as long as possible," Tom Wrobel, Director of Alternative Investments Consulting at Societe Generale, said.

"When there's a sharp reversal – like in June – they lose money because it goes against the established position."

Returns on hedge funds betting on macroeconomic trends were down by 1.4 percent on average to July 31 after losses of between 1.2 and 1.8 percent in three out of the first seven months of 2017, HFR data showed.

Losses may have been exacerbated by lower market volatility as trend-following funds typically put on larger positions in such conditions, a strategy that would have backfired for them when trends reversed.

Among the biggest losers was AQR Capital Management's $16 billion managed futures strategy, which lost 6 percent in the first seven months, data compiled by BarclayHedge and reviewed by Reuters revealed.

Two Sigma's Compass Fund, which has $2.5 billion in assets under management, lost 4.4 percent over the same period, while London-based Aspect Capital's flagship $3.9 billion diversified fund lost 3.4 percent, the data showed.

AQR, Two Sigma and Aspect Capital declined to comment.

Winton Capital, the fund set up in 1997 by David Harding, was down 0.8 percent, a source close to the firm told Reuters. Harding helped fund the "remain" campaign in Britain's European Union referendum last year.

And Leda Braga's Systematica Investments' BlueTrend, which was founded in January 2015 after spinning out of former hedge fund BlueCrest Capital, was down 6.4 percent.

However, some computer-driven trend-following funds bucked the trend, including Braga's Systematica Alternative Markets programme, which made gains of 11.2 percent, a source with knowledge of the firm told Reuters.

Also successful during the period were the five main trend-following AHL funds run by Man Group, which all delivered returns of between 0.5 percent and 10 percent over the same period, according to its website.

Man Group is the world's biggest listed hedge fund.

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Renaissance Technologies, a secretive $73 billion quant fund founded by math whiz James Simons, gave employees the opportunity to increase their stakes in the firm's flagship fund by 50% or more after President Trump's election — if they could do it in three weeks.

At least six employees took out sizable loans in order to do so, Bloomberg News’ Miles Weiss reports.

“Many RenTech staffers were caught off guard when told in early December that these limits would be significantly raised for the first time in years,” writes Weiss.

With the fresh $2.1 billion injected in January, Renaissance's Medallion fund returned an 11.6% profit in the first half of this year. 

While the figure isn't as high as comparable periods from 2015 and 2016 — when the fund saw returns of 18% and 21%, respectively — RenTech is still beating many of the largest hedge funds, including Bridgewater Associates and Two Sigma, which have struggled to post gains this year, Business Insider earlier reported.

Renaissance was founded in 1982 and is known for its secrecy. The company has long held that any cash infusions, like this one, could have a negative effect on returns. 

During the second quarter of this year, Renaissance’s total assets rose 9.5% to $78.3 billion, regulatory documents filed last week show. During the same period, the S&P 500 — a benchmark for hedge funds — rose just 2.6%.

Read the Bloomberg story here

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Activist investor William Ackman laid out his case for changes at Automatic Data Processing Inc on Thursday, saying the payroll processor needs to improve its profit margins and integrate its business lines.

Ackman's hedge fund Pershing Square Capital Management disclosed earlier this month an 8 percent holding in the $50 billion U.S. human resources outsourcing company and nominated three directors to serve on its board.

ADP has strongly resisted the approach, refusing Ackman's request to extend the company's director nomination deadline and publicly criticizing the investor and his strategy.

Ackman said in a conference call the company has underperformed its competitors and failed to properly integrate the products it has amassed through acquisitions.

"ADP's margins are vastly below what they should be," Ackman said on the call, saying the stock price could double in five years without the company needing to change its dividend, capital structure or credit rating.

Earlier this month, Pershing Square's disclosure of it stake in the company sparked a testy-back-and-forth between the activist fund and the company which handles Americans' paychecks.

In an interview with CNBC last week, ADP CEO Carlos Rodriguez compared Ackman's request to extend the deadline for nominating board members to "a spoiled brat in school asking the teacher for an extension for their homework." Pershing Square has said that Rodriguez "unfairly characterized" their interactions to make the fund's efforts "appear unreasonable." 

Pershing Square is seeking three board seats, including one for Ackman. ADP has said that its nominating/corporate governance committee will evaluate Ackman's nominees "as they would any other potential directors."

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• Pershing Square, an activist hedge fund run by Bill Ackman, recently took a stake in ADP.
• ADP's board includes the dean of Columbia Business School, Glenn Hubbard.
• Pershing Square has close ties to the dean's school, donating hundreds of thousands of dollars for an investment contest for Columbia students. 
• Pershing Square's move to shake up ADP's board creates a conflict for the dean, though it's easy to fix, experts say.

The human resources and payroll company ADP is under attack from an activist investor who wants to add new directors to its board as he seeks to shake up the company.

ADP says it'll consider the nominees, but for one of ADP's current directors, that could become a problem. The activist who is after ADP is Pershing Square, the hedge fund run by billionaire Bill Ackman. The director in question is R. Glenn Hubbard, the dean of Columbia Business School — an organization to which Ackman's fund donates.

It's a classic conflict of interest, and it highlights the small world that many Wall Streeters and business school folks inhabit. Corporate governance experts say there's also a classic resolution: Hubbard should recuse himself from board decisions that involve Ackman's fund. 

It's unclear what Hubbard plans to do. He didn't respond to emails and voice messages seeking comment and ADP declined to comment. 

In a statement, Columbia told Business Insider that the "Business School is grateful to Pershing for its longtime support," and declined to comment further. Pershing Square declined to comment.

A testy-back-and-forth

Earlier this month, Ackman's Pershing Square disclosed an 8% stake in ADP, sparking a testy back-and-forth between the activist fund and the company which handles Americans' paychecks.

In an interview with CNBC last week, ADP CEO Carlos Rodriguez compared Ackman's request to extend the deadline for nominating board members to "a spoiled brat in school asking the teacher for an extension for their homework." Pershing Square has said that Rodriguez "unfairly characterized" their interactions to make the fund's efforts "appear unreasonable." On Thursday, Ackman said in a conference call that ADP had underperformed its competitors, and that the stock could double in five years. 

Pershing Square is seeking three board seats, including one for Ackman. ADP has said that its nominating/corporate governance committee will evaluate Ackman's nominees "as they would any other potential directors."

That's where Hubbard's conflict comes in. As chair of ADPs nominating and governance committee, Hubbard helps determine the slate of nominees for election to the board and to identify and recommend candidates, according to the company's charter.

Hubbard's resume includes board positions at financial firms KKR, BlackRock and MetLife, and he's been on ADP's board since 2004. His ties to Wall Street go further than that, and in the wake of the 2008 financial crisis, he was criticized for publishing research that endorsed the financial instruments that helped cause it and for his ties to financial firms. Hubbard told the Wall Street Journal in 2011 that Columbia had beefed up its disclosure requirements for faculty.

Pershing Square Challenge

Pershing Square has close ties to Columbia Business School. Since 2008, Ackman has hosted a student investment competition, called the Pershing Square Challenge, in which Columbia students compete for hundreds of thousands of dollars.

Last year, students won $150,000 donated by Pershing Square, which they could choose to keep or donate. In previous years, the money had to be directed toward Columbia, according to a Columbia press release in which Hubbard express his thanks to "Bill for creating this challenge."

Ackman has also been a keynote speaker at Columbia Business School events and has been interviewed in the school's student publications about his approach to investing.

The ties put Hubbard in a position that should be disclosed to the rest of the board and to investors, said Martijn Cremers, a professor of finance at the University of Notre Dame.

"It would be better if investors learn about such relationships from the board/firm rather than the media," he said.

Hubbard shouldn't vote on any business decision between ADP and Pershing Square, said Simone M. Sepe, a professor of law and finance at the University of Arizona.

"The problem is the relationship [Hubbard] has with the hedge fund as the dean of Columbia [Business School], which jeopardizes his independence," he said. "This is a very basic case." 

Conflicts of interests like the one between Hubbard and ADP are subtle, according to Sepe.

"One of the measures to assess the success of a dean of a business school is the amount of donations a dean is able to obtain," Sepe said. "Because the hedge fund is contributing to the business school, that’s a subtle form of conflict of interest and the market should be aware of that."

Situations involving conflicts like this are not unexpected, not the least for a dean of a prominent business school, according to Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

"It puts him in a funny position," Elson told Business Insider. "It doesn't happen that infrequently. The finance community is not a big world ... The busier the street you happen to live on, the more likely you’ll have a conflict with folks that you’re connected with."

"Glenn headed the study group on board conduct and he has tremendous knowledge in this area," said Elson, who has researched the subject of board behavior with Hubbard. 

Board governance conflicts have occurred in the past, meanwhile.

In the mid-2000s, a campaign involving activist Carl Icahn and Time Warner led to questions about a board member's fealty. Time Warner's board included Bob Clark, a former dean of Harvard Law School who also served on the board of Lazard, which was advising Icahn.

And in the early 2000s, a judge found that a litigation committee that Oracle had set up to investigate its CEO and other staffers was rife with conflicts. The committee was staffed by Stanford professors, and the CEO had previously donated millions to the university, according to a 2003 Wall Street Journal report which chronicled the case.

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Billionaire investor Carl Icahn is no longer advising President Trump.

Icahn announced the move on Twitter late Friday afternoon, saying, "Today, with President Trump’s blessing, I ceased to act as special advisor to the President on issues relating to regulatory reform."

Icahn tied the decision to the July appointment of Neomi Rao as Administrator of the Office of Information and Regulatory Affairs.

Icahn, a Wall Street investor, had previously drawn criticism when it was announced that he would be advising the president on regulatory issues.

As administrator of the Office of Information and Regulatory Affairs, Rao would head the agency that oversees "government data collections and determines whether agencies have sufficiently addressed problems during rule-making. In the end, the administrator accepts regulations or sends them back to be reworked, a decision that can expedite rules or effectively neutralize them by imposing extensive delays,"The New York Times reported earlier this year.

Icahn posted a full statement on his website, which he said on Twitter was a copy of the letter he had delivered to the president:

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A new hedge fund has raised over $100 million and plans to use troves of data from other managers to select its investments. 

Epsilon Asset Management plans to scrape decades of regulatory documents to analyze positions of other active managers and turn these into investment strategies for institutional clients, cofounder Faryan Amir-Ghassemi told Business Insider. 

“We want to use very large data sets to understand the behaviors of what active managers do and how that correlates to future performance,” he said. “We analyze about $3 trillion in assets across 10,000 securities and a few thousand managers, and then derive from that which securities to invest in.”

Epsilon’s flagship “activist strategy” will be advised by a consortium of experts, the company says, including Richard Elden of Grosvenor Capital and Frank Meyer, cofounder of Citadel Investments. William Cline, CEO of Clovis Capital Management, provided an undisclosed amount of seed funding for the firm. 

Amir-Ghassemi, who is 32, and his partners — Adam Lavin and Michael Perlow — first met while working for Novus Capital, a corporate advisory firm. The trio were using data and analysis to help companies develop investment strategies. Clients wanted the team to handle their investments outright, says Amir-Ghassemi, but they couldn't because of conflict-of-interest rules.

So the team left their jobs earlier this year to found Epsilon. With their new venture, they hope to bridge the divide between active and passive investment strategies.

Active investors have come under fire in recent years for their high fees, but passive investors often struggle to beat benchmark indices, like the S&P 500. Amir-Ghassemi says his firm can deliver the returns of a hand-picked portfolio, with the lower fees and transparency of passive investing. He declined to specify the fees and the exact amount of capital raised.

“We think institutional investors will see the need for this because they’re having a hard time with hedge funds’ high fees, low transparency, and poor performance,” he said. “We have lower fees and better optics. If you own a managed account with us, you see every security you own."

The fourth, yet-to-be-named partner is currently the chief operating officer of a “multi-billion-dollar hedge fund,” Amir-Ghassemi said.

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• Equity hedge funds are off to their best start to a year since 2009, but they're still trailing the S&P 500.
• In a market that's been largely devoid of price swings, hedge funds have been piling into the same proven stocks.

The performance of stock hedge funds this year isn't exactly providing a ringing endorsement for the industry.

The average fund is up 7% in 2017, the best seven-month start to a year since 2009, when the market hit its post-financial crisis bottom and embarked upon the ongoing bull market, according to Goldman Sachs. And while that return looks good on paper, it's still trailing the benchmark S&P 500, which has climbed 12% over the period.

The lagging performance begs the question — why should investors keep forking over big fees to hedge fund managers when they can get superior performance by simply buying cheaper S&P 500 index funds?

To make matters even more dicey, hedge funds are increasingly piling into the same stocks, creating a crowded situation that seems harmless when the market is rising, but poses the threat of outsized losses should stocks roll over. The average hedge fund carries 68% of its long portfolio in its top 10 positions, just below a record level of density reached in early 2016, Goldman says.

It must be noted, however, that the strategy of continuing to pile into the same stocks is working right now. A Goldman index of the stocks most frequently found in the top 10 of hedge fund holdings has surged 19%, dwarfing the S&P 500's return of 12%.

The problem is, that's only one piece of the puzzle. It's the rest of those portfolios that's causing them to trail the benchmark.

With all of that said, it's only fair to point out that hedge funds haven't exactly been dealt the easiest set of conditions. For much of the past several months, volatility in the stock market has been locked near record lows, depriving money managers of the types of price swings that create opportunity. As an extension of that, the return difference between the best- and worst-performing stocks — a measure called dispersion — is below average for most sectors.

Looking beyond stock hedge funds, the picture is even more bleak. A universe of all hedge funds has risen just 4% so far in 2017, while those specifically focused on macro investment have actually lost money, falling 1%.

This struggle to turn a profit has hit some of the industry's biggest players. Two Sigma, one of the world's fastest-growing firms, saw its Risk Premia strategy return less than 0.1% over the first six months of the year. Meanwhile, the flagship fund for $10.5 billion Maverick Capital made no money in the first half of 2017.

However, with global markets increasingly on edge amid growing geopolitical tensions, better opportunities could open up for hedge funds, and soon. The stock market in particular has looked rattled of late, with the CBOE Volatility Index — or VIX — spiking roughly 40% over the past week, signaling investor fear.

A more volatile market is what hedge funds have craved all year, and it looks like they'll soon get a chance to prove their worth.

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Over the weekend, The Wall Street Journal published a story that highlighted declining assets under management for "bond king" Jeffrey Gundlach's DoubleLine Total Return Bond Fund.

After holding as much as $61.7 billion in assets last September, the fund saw outflows in each of the next nine months and saw that number fall 13% to $53.6 billion as of July 31, according to The Journal. That happened during a time when competing funds took in net inflows of 7.2%, the report said.

The Journal attributed the flagging interest to the fund's slowing outperformance relative to peers. While the Total Return Bond Fund beat 90% of its competition over the previous three- and five-year stretches, it's outpacing them by just 59% in 2017, according to data from Morningstar.

Gundlach was less than thrilled with the story, and he used his Twitter account to voice his displeasure. Here's what he had to say about it hours after publication:

Gundlach also took issue with the anecdotal evidence The Journal used to support the theme that investors are fleeing his biggest fund. What most drew his ire was the mention of a retired orthodontist in Tucson, Arizona, who's pulled $250,000 from the bond fund over the past 18 months, citing a lack of extra return.

The story also specifically cited Castle Financial & Retirement Planning Associates as a disenchanted former investor. Not to mention René Bruer, the co-chief executive at Smith Bruer Advisors who reportedly pulled all of his money from the Total Return Bond Fund in 2015 amid concerns of overreliance on Gundlach.

This isn't the first time Gundlach has responded sharply and publicly to reports made by the media. He's had a combative online history with various news outlets since launching his Twitter account this spring, when he took aim at journalists he says misquoted his comments at an investment conference.

It's also not the first time he's had The Journal in his crosshairs. Gundlach got wind of the story in the weeks leading up to its publication, and he was already trying to discredit it before it was released. These four tweets are from last week:

While Gundlach's response to the Journal story doesn't change the data-driven findings included within, it does show that the so-called bond king isn't going to take negative reports lying down.

After all, his outspoken style and strong conviction are part of his appeal to some. And now only time will tell whether he has the last laugh.

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Bridgewater Associates founder and co-CIO Ray Dalio thinks that democracy is being threatened.

In a LinkedIn post published Monday, Dalio said that democracies are healthy when the principles "that bind people are stronger than those that divide them." In turn, "democracies are threatened when the principles that divide people are more strongly held than those that bind them and when divided people are more inclined to fight than work to resolve their differences."

Critically, we've now hit a point where the latter seems to be true, Dalio said.

"Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation," he said. 

Dalio wrote that "it seems to me that we are now economically and socially divided and burdened in ways that are broadly analogous to 1937," and that "politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes," but in a way that is similar to that same year.

The note cites inequality and political divisions, and follows the deadly violence in Charlottesville, Virginia, the weekend before last, and protests in Boston over the weekend. In January, the Economist Intelligence Unit deemed the United States a "flawed democracy," stating that the rise of American populism resulted from extremely low levels of trust in government.

Bridgewater is the world's largest hedge fund, with about $160 billion in assets. While three of Bridgewater's four funds have struggled this year, Dalio has increased his public profile ahead of the release of his first book, "Principles: Life and Work."

Dalio was the lead author of a 61-page Bridgewater research paper released publicly in March that explored global populist movements of the 20th century and compared them to current movements, including the ascendency of President Donald Trump.

The language of the post on Monday reflects the thesis of "Principles: Life and Work," the first of two planned books, the second focused on his economic theories. Dalio runs his life and his business according to the principles that he develops based on his experiences so that they may serve him well in the future.

He applies this view to everything in life, including his concern that while he doesn't expect there to be an economic crisis on the horizon, he fears that increased strife could be leading to government inefficiency and other conflicts.

"I believe that this is a time when it is especially important for us a) to be explicit about what our principles are in order to be clear about what we agree and disagree on, b) to practice the art of thoughtful disagreement, and c) to respect our ways of getting past our disagreements so we can start rowing in the same direction," he wrote.

You can read Dalio's full post on LinkedIn.

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The week is off to a bad start for Bill Ackman.

Herbalife shares were up about 8% Monday morning following news that it had talks to go private.

The surge is a blow to Bill Ackman's Pershing Square Capital, the activist fund that famously went short on the supplements company five years ago while accusing it of operating as a pyramid scheme. Pershing Square's bet has largely gone the wrong way since it was put on.

Meanwhile, the human resources company ADP rejected Ackman's board nominations. Pershing Square took an 8% stake in the company earlier this summer and had been seeking three board seats, including one for Ackman.

ADP "determined that none of the Pershing Square nominees bring additive skills or experience to ADP's Board,"the company said Monday.

"Unlike Mr. Ackman's nominees, ADP's directors have a deep understanding and appreciation of the current state of ADP's business and its clients," John P. Jones, Non-Executive Chairman of the Board, said in the statement.

ADP had been gaining up until July 31, a few days after Bloomberg News reported that Ackman had taken a stake in the company. The stock has been falling since.

“The fact that the Board believes that the company’s largest owner with an 8.3% stake does not deserve even one Board seat speaks to their insularity and lack of shareholder perspective,” Ackman said in a statement Monday afternoon. "By contrast, the cumulative ownership of the Board including the company’s CEO is less than 0.09% of shares outstanding.”

Pershing Square added: "We look forward to the annual meeting where shareholders will be given the opportunity to elect Pershing Square’s independent directors who bring a shareholder orientation, fresh perspectives, and relevant expertise to accelerate the necessary change required for ADP to achieve its full potential."

Pershing Square Holdings, a publicly traded vehicle which is a proxy for Pershing's private fund, is down 1.7% this year through August 15, meanwhile.

SEE ALSO: Herbalife held talks to go private

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