As President Donald Trump struggles to pass legislation of any kind, investors are losing patience with the area of the stock market that was supposed to benefit most from his pro-business agenda.

The group in question is small-cap companies. And to fully understand their reversal of fortune, think back to the weeks following the presidential election — a time when Trump's proposed policies were still viewed as imminently achievable and potentially lucrative for domestic-focused corporations.

The Russell 2000 index of small-cap stocks surged 14% from November 8 through year-end, roughly triple the return of the benchmark S&P 500. But that was the end of the road for the group's postelection rally. Small caps have traded almost flat in 2017 as the S&P 500 has climbed 8.5%, their prospects dimmed by a lack of progress from Trump.

This divergence can be at least partially traced to a surprisingly weak US dollar, which has traded lower relative to peers amid, you guessed it, deflated expectations for pro-business measures. While a weaker currency makes exports more profitable for large multinational companies, it hurts their more domestic-focused counterparts.

And if large speculative traders are to be believed, the worst is yet to come for small caps. Hedge funds are their most bearish on the Russell 2000 since November 2009, according to data compiled by the Commodity Futures Trading Commission.

While small caps are certainly having a rough time, all areas of the stock market linked to Trump's proposed policies are coming under pressure. A portfolio of companies expected to benefit most from those unfulfilled measures sits close to its lowest level of the year after peaking about a month ago, according to data from Strategas Research Partners.

"It seems clear that domestic and international investors alike are starting to doubt the president's ability to deliver on his economic package," Jason Trennert, the chief investment strategist at Strategas, wrote in a client note. "We think these fears are overblown, but with more weeks like the last one the skepticism will only grow."

SEE ALSO: The explosive stock that's dividing Wall Street

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• $3.4 billion hedge fund Tourbillon Capital has been losing money in its flagship fund.
• "It highlights the challenges of remaining disciplined in a consensus and ETF driven persistent bull market," the fund's founder, Jason Karp, wrote to clients.
• The fund's latest client letter indirectly raises a fundamental question about the industry's future: What is the role of a hedge-fund manager?
• Tourbillon still sees a future for active managers, and lesser-known stocks could provide opportunities.

Tourbillon Capital, which manages $3.4 billion, has been losing money in its flagship fund as the bull market rages on.

The New York firm, which focuses on stocks and is run by Jason Karp, has written in quarters past about why the firm is struggling. The firm's most recent client letter, for the second quarter of this year, was reviewed by Business Insider, and the themes are much the same.

In particular, it states that quantitative and passive investing have changed the market. Quants use algorithms to make investment decisions and often follow short-term moves. Passive funds track market indexes. Both are challenging active managers, the human-backed stock pickers that have traditionally dominated Wall Street.

Reading between the lines, the letter raises a question about the future of the industry. Should hedge-fund managers invest in stocks they don't believe in because passive and quant funds are likely to pile in? Or should they remain disciplined, even if that means losing money in the short term?

"We prefer the pain of discipline (adhering to our process and remaining low-net) over the pain of regret (chasing what’s working and running all-time high exposures) but, alas, hindsight is 20/20, and the counterfactual of the other histories that could have happened never transpired," Karp said in the letter.

'No one wants excuses'

"At a time when no one wants excuses, it would be far easier and more convenient if we could convey to you, our partners, that we had a breakdown in decision-making or a position or two that cost us disproportionately," Karp wrote.

The reality is more nuanced, according to Karp, who cited two interrelated causes. First, its longs and shorts have been on the "opposite side of this tectonic shift of capital from active to passive." In addition, the fund has been reducing its exposure to popular tech, media, and telecommunications stocks that have been driving the market higher. Karp points out that many of the top-performing funds this year have focused on tech.

"It is easy to understand why the broad TMT space is so desirable," he wrote. "Nearly 40% of the S&P’s return this year can be attributed to a sector that represents only 20% of the index’s capitalization. The penalty for not owning what is 'working' is meaningful for active managers, and passive strategies only exacerbate the problem."

By Tourbillon's estimate, the Goldman Sachs VIP index, which measures the most important stocks to hedge funds, about 80% weighted to TMT-oriented names. By comparison, it was about 10% TMT weighted in 2015, and is now well above the S&P’s 20% weighting to tech, Karp wrote.

Tourbillon's performance

Tourbillon's Long Alpha fund is up about 13% through July, while its TGMF long-short fund is down about 2% over the same period, a person familiar with the numbers told Business Insider. By comparison, the S&P 500 delivered 10.4% over the same period. Last year, TGMF dropped -9.2%, according to investor documents previously reviewed by Business Insider, compared to a 9.5% gain in the S&P 500.

Karp points out other ways the rise of quants and passive investing have hurt his firm's strategy:

• "We saw that our largest longs have been underrepresented in passive strategies, due to lack of analyst coverage, lack of dividends or complex ownership structures, whereas our shorts have been well represented in passive, and just like being short companies with a meaningful buyback, we have seen marked effects on prices from these supply/demand imbalances."

• "Despite being right on fundamentals YTD, our top longs have gotten cheaper while our top shorts have become more expensive. This has been a difficult headwind to overcome, and our research (which we can show on-site to those interested) robustly supports the conclusion that this is primarily a function of our active/passive tilt in our largest positions."

How active management could win out

Karp said that there was scant data to show what happens to stocks on the "right side of this tidal wave of passive inflows" once the money stops flowing in. However, he said that large-cap stocks that benefit from the most ETF inflows "see material underperformance in the following year compared to those that have been hurt from outflows.

"This suggests, for patient investors, that mean reversion still applies on a broader scale," he added.

Karp also believes that as money pours in to the hottest stocks, lesser-known stocks provide opportunities. He picked out two stocks, Halcon Resources and NRG Energy, which both sold assets and then saw their stock prices appreciate rapidly. From the letter:

"If the public markets (or whatever blind, passive allocators and machines) cause the stock prices to diverge considerably enough from their true value, we would expect to see many more situations like Halcon and NRG. This rise of passive unequivocally creates opportunity for those who do deep work and understand these businesses better than what the stock prices suggest."

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• Tourbillon Capital is a New York hedge fund that manages $3.4 billion.
• The fund told clients its concerns over popular stocks such as Amazon, Facebook and Google.
• Tourbillon also hinted at a potential sell-off for tech, media and telecommunications stocks.

A $3.4 billion hedge fund is poking holes in conventional thinking over tech behemoths Amazon, Google and Facebook – and hinting at a potential sell off in the sector.

Tourbillon Capital, a New York-based hedge fund, raised concerns over investment theses on the companies in its second-quarter client letter, which was reviewed by Business Insider. Broadly, the market is pricing in indefensible valuations for the tech, media and telecommunications sector, according to the fund.

"Today, we see less and less differentiation on future fundamental performance, fewer defensible valuations, and a market that is lulled into a sense of complacency based on narratives," founder Jason Karp wrote in the letter. "That has historically been a recipe for permanent loss of capital."

Karp reflected on another investor's analysis about how unlikely it is for Amazon to consistently grow revenues at a 15% revenue compound annual growth rate. From the letter (emphasis added):

"Michael Mauboussin highlighted the importance of the “outside view” when reflecting on a recent cover of The Economist, which then describes how analysts expect Amazon to have a 15% revenue CAGR for the next 10 years. An outside view would ask, “How often has something like this happened in the past?” His team’s internal research shows that since 1950, ZERO companies, once they reach a certain level of inflation-adjusted revenues, have successfully grown revenues at that rate for that period of time. While we are not saying Amazon will fail to achieve the market’s expectations, we agree with Mauboussin that investors should appreciate how much of an outlier they are betting on."

Karp also raised concerns about Facebook and Google, and how revenue growth projections are impossible to achieve. Karp said that the companies' share of the US advertising market stood at about 28% combined last year. However, current rates of revenue growth for the companies imply that the two would comprise 120.5% of the total advertising market in five years time. 

"We think taking the outside view in this way is worthwhile in highlighting flaws in the growth projections that many investors in these companies are not even thinking about today," Karp said. 

Meanwhile, Karp also raised concerns about the rising valuations of the tech, media and telecommunications sector.

"Between the crowding, the coiled spring created by aberrant low volatility, the factor-driven return profile, the valuations of the stocks and related factors, and extreme implicit fundamental assumptions underpinning the narrative of consensus TMT stocks, we have the elements in place that have defined many of the post-recession sell-offs," he wrote.

The fund plans to "remain selective" in the sector and position itself to "play offense if and when the vast majority of the market will be in a position of defense," he added.

Tourbillon's Long Alpha fund is up about 13% through July of this year, while its TGMF long-short fund is down about 2% over the same period, a person familiar with the numbers told Business Insider. By comparison, the S&P 500 delivered 10.4% over the same period. Last year, TGMF dropped -9.2%, according to investor documents previously reviewed by Business Insider, compared to a 9.5% gain in the S&P 500.

SEE ALSO: A $3.4 billion hedge fund's letter raises a fundamental question about the future of the industry

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Brent prices reached a 12-week high on Friday, while WTI Crude prices—although surging on the latest drop in the U.S. rig count—were not touching week-highs, suppressed by rising U.S. crude output.

In a sign that investors are more optimistic on a rise in Brent prices, data show that hedge fund managers lowered their net long position on WTI by 2 percent to 274,441 futures and options in the week that ended on August 15, according to data by the U.S. Commodity Futures Trading Commission quoted by Bloomberg.

Long positions dropped by 2.2 percent, while short positions declined by 2.7 percent, according to the data.

On the other hand, ICE Futures Europe data show that the net long position on Brent doubled in the six weeks ended August 8, Bloomberg reports.

The discount at which the WTI trades to Brent reached its highest since September 2015.

What’s more, the Brent futures curve has now flipped into backwardation for the first time in years, suggesting that the oil market is tightening and going toward re-balancing.

The WTI futures curve is still in a state of contango—the opposite of backwardation.

WTI prices got a boost on Friday from the Baker Hughes report showing that the number of active oil and gas rigs in the United States fell last week by 3 rigs as drillers proceed more cautiously. Combined, the total oil and gas rig count in the U.S. now stands at 946 rigs, up 455 rigs from the same time last year.

However, despite the rig count drop, U.S. crude output continues to grow, with production averaging 9.502 million barrels per day for the week ended August 11, according to the Energy Information Administration (EIA), which now expects US production to reach an average of 9.9 million barrels per day in 2018.

Early on Monday, oil prices were steady, taking a breather from the Friday rally. At 8:50 am EST, WTI Crude was at US$48.36, while Brent was at US$52.41. Just before noon, however, crude prices started to fall the rally prompted traders to take profits.

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Hedge fund billionaire Bill Ackman's short position in Herbalife is looking awfully shaky.

First and foremost, the company's surging stock — up 11% over two days after a report that it held talks to go private — has cost the Ackman-led Pershing Square Capital Management roughly $115 million on a mark-to-market basis, according to data compiled by the financial-analytics provider S3 Partners.

And Ackman could be in for more pain because of Herbalife's decision to execute a so-called modified Dutch auction, through which the company plans to buy back $600 million in shares at $60 to $68 a pop. Beyond that, all shareholders who sell back their stock will get an additional cash payment if Herbalife is acquired at a higher price than the auction range in the next two years.

The buyback of 8.8 million to 10 million shares could "actually squeeze Ackman out of some of his shorts," S3 says. He first started accumulating his position five years ago while accusing Herbalife of operating as a pyramid scheme. S3 estimates that if the Dutch auction is fully tendered, Ackman could face 3 million to 5 million share-loan recalls. After all, he makes up roughly 75% of the company's short interest.

But it doesn't end there. Once the number of Herbalife shares available to be loaned plummets following the auction, the cost to borrow the company's stock will "increase dramatically" to 10% to 40% from about 2%, according to S3.

So to what extent will that hurt Ackman's wallet? He now pays about $63,000 a day in financing costs, but that could skyrocket to $300,000 to $1.2 million a day once the auction is complete, S3 says.

SEE ALSO: Herbalife held talks to go private, and its stock is jumping

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Jet Theriac, a former portfolio manager at Hutchin Hill Capital, is starting a new hedge fund in San Francisco.

Theriac plans to launch the fund, Lanternback Capital, with between $100 million and $600 million in January 2018. The fund plans to run an energy, industrials and utilities stock-focused investment strategy.

The fund is starting to take shape, with Morgan Stanley doing prime brokerage and capital introductions, and another partner joining from a multi-billion tech hedge fund.

Theriac left Hutchin Hill earlier this year, where he oversaw a long-short equity team investing in energy and utilities, Business Insider previously reported. Theriac previously worked as a portfolio manager at Balyasny Asset Management from 2012 through 2015, according to his LinkedIn page.

SEE ALSO: 'A recipe for permanent loss of capital': A $3.4 billion hedge fund is lashing out at tech stock valuations

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A longtime portfolio manager at Izzy Englander's $35 billion hedge fund Millennium is setting off on her own.

Sara Nainzadeh is in the early stages of prepping a new hedge fund called Centenus Global Management with the backing of Millennium, according to people familiar with the matter.

The new New York-based firm will run a separately managed account for Millennium in addition to a commingled fund. Centenus is Latin for one hundred soldiers and is an homage to Millennium, which means one thousand years. 

Nainzadeh has worked at Millennium for the past 13 years and has been a fundamental equities portfolio manager since 2007, managing a multisector portfolio which includes transport, utilities, consumer, energy, and industrials.

Other staffers who are said to be joining the new fund include:

• Yasmine Nainzadeh, her sister, as consumer sector head
• Greg Reiss as utilities head
• Michael Hayes as energy sector head
• and Warren Sckolnick as chief operating officer and chief compliance officer.

The first three worked at Millennium, according to Bloomberg terminal profiles. Sckolnick previously worked at Magnetar and Seven Locks Capital, according to a LinkedIn page.

Centenus is set to launch either late this year or early next. The prime brokers include Goldman Sachs, UBS and Morgan Stanley.

Millennium manages $34.9 billion, according to its website.

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Hedge fund billionaire Bill Ackman's short position in Herbalife is looking awfully shaky.

First and foremost, the company's surging stock — up 11% over two days after a report that it held talks to go private — has cost the Ackman-led Pershing Square Capital Management roughly $115 million on a mark-to-market basis, according to data compiled by the financial-analytics provider S3 Partners.

And Ackman could be in for more pain because of Herbalife's decision to execute a so-called modified Dutch auction, through which the company plans to buy back $600 million in shares at $60 to $68 a pop. Beyond that, all shareholders who sell back their stock will get an additional cash payment if Herbalife is acquired at a higher price than the auction range in the next two years.

The buyback of 8.8 million to 10 million shares could "actually squeeze Ackman out of some of his shorts," S3 says. He first started accumulating his position five years ago while accusing Herbalife of operating as a pyramid scheme. S3 estimates that if the Dutch auction is fully tendered, Ackman could face 3 million to 5 million share-loan recalls. After all, he makes up roughly 75% of the company's short interest.

But it doesn't end there. Once the number of Herbalife shares available to be loaned plummets following the auction, the cost to borrow the company's stock will "increase dramatically" to 10% to 40% from about 2%, according to S3.

So to what extent will that hurt Ackman's wallet? He now pays about $63,000 a day in financing costs, but that could skyrocket to $300,000 to $1.2 million a day once the auction is complete, S3 says.

SEE ALSO: Herbalife held talks to go private, and its stock is jumping

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Battle lines have been drawn between hedge funds and their mutual fund counterparts.

Their battlefield? The financial sector.

Large-cap mutual fund portfolios carry a 141-basis-point overweight position in financial stocks, relative to their benchmark, making it the group's second-most bullish bet, according to data compiled by Goldman Sachs. At the same time, hedge funds have the industry as their most bearish position, with a 438-basis-point underweighting relative to the Russell 3000 Index.

This divergence in outlook gets even more pronounced when you drill down into the banks, long the most influential segment of the financial sector. Banks are the most underweight group out of 71 sectors for hedge funds, according to Goldman data. That stands in stark contrast to mutual funds, for which banks make up the third-most overweight group.

That mutual funds are relatively isolated in their preference for bank stocks isn't particularly surprising, given the group's recent history of bucking consensus. While many investors have thrown in the towel on the chances of President Donald Trump enacting any sort of bank-friendly major tax or deregulatory policy, mutual funds are staying strong in their conviction.

Nonetheless, if you dig deeper into the positioning war between mutual funds versus hedge funds, there is some semblance of consensus at the single-stock level. Most notably, JPMorgan and Citigroup are among the most popular holdings for both groups of investors.

The two types of funds also agree on tech stocks, with mutual and hedge funds holding matching 26% overweight positions, making that the most bullish sector for both groups.

To compare the two types of funds, Goldman Sachs analyzed the holdings of 803 hedge funds with $1.9 trillion of gross equity positions as well as 543 mutual funds with $2 trillion of assets under management.

SEE ALSO: An influential group of investors refuses to give up hope that Trump will get something done

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NOW WATCH: There are cracks forming under the surface of the stock market

A US senator is calling on the FBI to investigate billionaire investor Carl Icahn.

Senator Tammy Duckworth (D-IL) is calling on the investigations agency to look into whether Icahn violated federal anti-corruption law by attempting to use his role as an adviser to President Trump as a way to enrich himself.

The billionaire investor resigned from the informal unpaid position earlier this month, citing the appointment of Neomi Rao as Administrator of the Office of Information and Regulatory Affairs — the helm of Trump's deregulatory agenda. 

Icahn's resignation, in the wake of resignations from business leaders following Trump's comments on Charlottesville, came hours before The New Yorker dropped a lengthy story on his efforts to change a policy that hurt a company he is invested in. The New Yorker reported that Icahn could have been in "legal jeopardy."

Per Duckworth's statement: "Icahn had been using his government position to try to dramatically change the Renewable Fuel Standard program in a way that would substantially benefit CVR Energy, an oil refinery Icahn simultaneously controls an 82% stake in and serves as Chairman of the Board of Directors of."

Icahn could not immediately be reached for comment.

You can read Duckworth's full letter to FBI Director Christopher Wray below:

The Honorable Christopher Wray

Director, Federal Bureau of Investigation

FBI Headquarters

935 Pennsylvania Avenue, NW

Washington DC, 20535-0001

Dear Director Wray:

I am writing to request that the Federal Bureau of Investigation (FBI), in carrying out the FBI’s priority of combating major white-collar crime and public corruption at all levels, initiate a criminal investigation into the activities of Carl Icahn and his potential violations of Federal law and fraudulent activity tied to the Federal Renewable Fuel Standard (RFS) program.

Based on extensive, in-depth public reporting and publicly available statements and documents (such as Icahn Enterprise’s March 1, 2017 filing with the U.S. Securities and Exchange Commission that noted, “Mr. Icahn is currently serving as a special advisor to President Donald J. Trump on issues relating to regulatory reform”), it appears Mr. Icahn potentially violated the principal criminal conflict of interest statute, Section 208 of Title 18 of the United States Code, which prohibits officers or employees of the Executive Branch from participating personally and substantially in a particular government matter that will affect their own financial interests.

Mr. Icahn appears to have abused his role as a special advisor to the President of the United States on issues relating to regulatory reform by participating personally and substantially, through recommendation and the rendering of advice, on a government matter that directly affects his own financial interests. Specifically, Mr. Icahn’s efforts advising and recommending that President Trump direct the U.S. Environmental Protection Agency to move the point of obligation under the RFS program constituted his personal and substantial involvement in a particular government matter in which Mr. Icahn had a direct financial interest as the Chairman of the Board of Directors of CVR Energy (Mr. Icahn also controls 82 percent of CVR Energy).

As a refiner, CVR Energy is an obligated party under the Federal RFS program and must comply with the law by making sure a certain amount of renewable fuel is blended into their product or purchasing renewable identification numbers (RINs) credits, the “currency” of the RFS program that may be purchased to comply with the program in lieu of blending renewable fuels into their products. 

A recent report published in The New Yorker indicates that dating back to February 2017, Mr. Icahn may have either acted in his role as a special advisor to President Trump to negotiate directly with Bob Dinneen, the President and CEO of the Renewable Fuels Association, over the terms of a forthcoming executive action that would move the point of obligation under the RFS program; or fraudulently used his Presidentially-appointed position and special advisor title to falsely represent himself as empowered to negotiate on behalf of the Trump Administration in a scheme to trick industry representatives into agreeing to a change in a Federally-funded program that would bring Mr. Icahn significant financial benefits. 

The article describes in detail Mr. Icahn’s negotiations with industry over the contents of the forthcoming executive action and his subsequent work, at the direction of President Trump, to coordinate with staff from the White House National Economic Council on potentially moving the point of obligation under the RFS Program. It appears that Mr. Icahn, under the supervision of President Trump, would brief the President on the substance of his calls with industry and it was President Trump who personally directed his special advisor on regulatory reform to coordinate with his White House staff in crafting a future action related to the RFS program that would bring Mr. Icahn significant personal financial benefits. It also is clear that Mr. Dinneen was well aware of Mr. Icahn’s title and viewed Mr. Icahn as a Trump Administration official:

“When I called Dinneen, he told me that the only Trump Administration official he had been speaking with was Icahn. “I’m old-school,” Dinneen said. “If I get a call from a special adviser to the President, I’m going to take it.” Dinneen explained that although Icahn never said explicitly that he was speaking on behalf of the President, he did say that he had discussed the point of obligation with Trump, and that he was confident that a change in policy was coming soon. Normally, Dinneen pointed out, any negotiation between the government and private industry would take place with “an army of people” assembled on opposite sides of a conference table: a phalanx of lawyers, technical specialists, and other advisers. This was different. Then again, he noted, with a dry chuckle, “This whole town is different now.” Now he was cutting deals, mano a mano, with Icahn: a friend of Trump, the owner of a refiner, and a special adviser to the President. If this was the new reality, Dinneen figured, he needed to find a way to work with it. To do otherwise would be malpractice, he said, adding, “Icahn had a title I couldn’t ignore. 

Dinneen insisted to me that he and Icahn never struck a conclusive deal; they simply came to an agreement that he would propose to his board that the association end its opposition to shifting the point of obligation. But, after a phone call with Dinneen on February 23rd, Icahn spoke with the President and relayed the substance of this agreement. Icahn, who had been out walking his dog, talked to Trump from the lobby of his apartment building. Bloomberg News later reported that, according to Icahn, “Trump seemed receptive.” Trump instructed Icahn to telephone Gary Cohn, his senior adviser on economic issues. Cohn handed the matter to an aide on the National Economic Council, a former oil lobbyist named Mike Catanzaro, who spent an hour going through the details with Icahn. When, four days later, Bloomberg News broke the story that an executive order was imminent, corn and gasoline prices went berserk [emphasis added].”[1] 

However, subsequent statements, including a quote from the Deputy White House Counsel describing Mr. Icahn as “…simply a private citizen whose opinion the President respects and whom the President speaks with from time to time,” raise questions over whether Mr. Icahn was actually acting in his role as an appointed special advisor under the supervision of the President, or instead making materially false or fraudulent statements or representations in an effort to trick the Renewable Fuels Association into believing he was operating as a Trump Administration official.[2] 

Conflicting statements and accounts of this event warrant further FBI investigation to determine whether this action violated Section 208 of Title 18 of the United States Code, or constituted fraud by a private citizen who falsely posed as a special advisor to the President to negotiate a change in how a Federal program is implemented to realize direct personal financial benefits.

Mr. Icahn’s role as a special adviser to President Trump and his persistent efforts to aid CVR Energy by convincing the Trump Administration to move the point of obligation under the RFS program were well-known and widely acknowledged by Members of Congress, the biofuel industry, good government advocates and reporters who published stories detailing Mr. Icahn’s efforts to provide President Trump with advice and recommendations aimed at dramatically modifying a Federally-funded program to benefit Mr. Icahn’s personal financial interests. For example, an A1 story published by The New York Times in March 2017 noted: 

“Since Carl Icahn, the billionaire investor, was named by President Trump as a special adviser on regulatory matters, he has been busy working behind the scenes to try to revamp an obscure Environmental Protection Agency rule that governs the way corn-based ethanol is mixed into gasoline nationwide.

It is a campaign that fits into the charge Mr. Trump gave Mr. Icahn, to help the nation “break free of excessive regulation.” But there is an additional detail that is raising eyebrows in Washington: Mr. Icahn is a majority investor in CVR Energy, an oil refiner based in Sugar Land, Tex., that would have saved $205.9 million last year had the regulatory fix he is pushing been in place.

Mr. Icahn, known internationally for his pugnacious and persistent approach to activist investing, has brought that same technique to his new role. He quizzed Scott Pruitt, a former Oklahoma attorney general, about the ethanol rule when Mr. Icahn helped interview Mr. Pruitt for the E.P.A. job. Mr. Icahn later reached out to Gary D. Cohn, Mr. Trump’s top economic adviser, to raise the issue. Mr. Icahn said he even had a telephone conversation in February with Mr. Trump himself. 

The blitz has already generated at least one clear outcome: Since Mr. Trump was elected president with Mr. Icahn’s very vocal support and nearly $200,000 in political contributions to Republican causes — the stock price of CVR Energy has soared. By late December, it had doubled. It is still up 50 percent from the pre-election level, generating a windfall, at least on paper, of $455 million as of Friday.

The merging of private business interest with government affairs — aspects of which have previously been reported by Bloomberg, but which The New York Times has found further evidence of — has generated protests from ethics experts in Washington, as well as certain Senate Democrats. They consider Mr. Icahn’s dual roles perhaps the most troubling conflict of interest to emerge so far in the new administration [emphasis added].”[3] 

Our Nation relies on the FBI to combat major white collar crime and public corruption that undermines public trust in government. It would set a dangerous precedent for the FBI to turn a blind eye to suspicious activity that was so flagrant, President George W. Bush’s former chief ethics lawyer told The New Yorker, “He’s walking right into possible criminal charges” in reference to Mr. Icahn’s potential violation of Section 208 of Title 18 of the United States Code.[4]

As the former head of the U.S. Department of Justice’s Criminal Division, you witnessed firsthand the FBI’s critical role in combating public corruption. I am confident that you will understand my grave concern that, if the FBI fails to thoroughly investigate Mr. Icahn’s potential violations of criminal conflict of interest statutes, our Nation could experience a significant increase in future public corruption, as wealthy individuals are empowered to take advantage of a new “Icahn loophole” to serve as unpaid officers or employees of the Executive Branch of the United States Government while working to modify Federal programs and policies in a manner that directly benefits their own personal financial interests. 

Thank you in advance for consideration of my urgent request and I look forward to receiving your response.

                             Sincerely,

     Tammy Duckworth                                  

     United States Senator       

CC:      Mr. Raymond Hulser, Chief of the Public Integrity Section, U.S. Department of Justice

The Honorable Eric T. Schneiderman, New York State Attorney General

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ShoreBridge Capital Partners, which is gauging interest in a potential new hedge fund run by billionaire Steve Cohen, is telling potential investors to expect a trove of marketing materials in the coming weeks, according to a Bloomberg News report.

That trove "will include due diligence documents, track records and other information investors need to decide whether they will pony up cash for the new firm, Stamford Harbor Capital."

Cohen's new fund, expected for early next year, comes after months of flat performance at his family office, Point72 Asset Management. People familiar with the matter say that Cohen has recently put up better numbers; Bloomberg put those numbers at about 5% this year.

Recent performance has troubled Cohen, people familiar with his thinking have told Business Insider. Cohen is unsure whether the firm can put up as strong of returns as SAC, which was known to return about 30% annualized, according to these people.

Cohen had previously been barred from managing outside capital until the start of 2018 after SAC pleaded guilty to securities fraud in 2013. Cohen wasn't charged with wrongdoing.

Jonathan Gasthalter, a spokesman for Stamford Harbor, declined to comment.

Read the full Bloomberg report here >>

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NOW WATCH: There are cracks forming under the surface of the stock market

BOSTON/LONDON, Sept 6 (Reuters) - Billionaire investor William Ackman has decided to exit his large stake in Nomad Foods, selling out of one of his handful of investments at a time he is waging a proxy fight to push for change at another portfolio company.

Shares of Nomad, which makes Birds Eye fish fingers and Iglo vegetables, fell more than 4 percent on Wednesday after the company and Ackman's Pershing Square Capital Management, the frozen foods company's largest shareholder, said in a joint statement they were starting a public offering for the hedge fund's stake of more than 33 million shares. The stake would be worth $497 million at Tuesday's closing price of $14.92 a share.

They noted that the offering is subject to market conditions, and there can be no assurance as to its size or of whether or when it will be completed.

Ackman first invested in Nomad two years ago, through a so-called special purpose acquisition company. The investment in Nomad was a bright spot for Ackman's Pershing Square, which is posting losses for the third consecutive year.

Nomad shares on Wednesday were down 4.2 percent to $14.29, still up sharply from the $10.50 Ackman paid in 2015. In the hedge fund's interim financial report for the first six months of 2017, Ackman said it contributed 1.6 percent to the portfolio.

Nomad will purchase some of the shares Ackman is selling. The company said in a filing it plans to repurchase $100 million worth of shares.

A spokesman for Pershing Square declined to give any reason for Ackman's decision to sell now. The move may have been hinted at several weeks ago when Brian Welch, a Pershing Square analyst, left the Nomad board to focus his attention on the hedge fund's new big investment in Automatic Data Processing . Ackman is seeking to win three board seats at ADP and is pushing that company to eliminate inefficiencies.

Britain-based Nomad Foods was formed in 2014 as a vehicle to consolidate Europe's slow-growth 25 billion euro frozen food market. Its anchor deal, Iglo, closed in June 2015 and the follow-on acquisition of Findus Group's European business closed in November 2015.

Its chief executive told Reuters this year that the company was in a good position to do more deals.

After selling out of Nomad, the New York-based hedge fund will own nine long positions. It oversees $9.8 billion.

A spokeswoman for Nomad declined further comment beyond the joint statement. (Reporting by Svea Herbst-Bayliss and Martinne Geller; Editing by David Gregorio)

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A portfolio manager has rejoined $42 billion D. E. Shaw, in a role he had previously held.

Patrick Saunders rejoined D. E. Shaw as a healthcare portfolio manager on the firm's long-short stock strategy. 

“Pat started his career and really developed his skill sets at the Firm, and we mutually agreed that this was an opportune time to rejoin the team at a time of strategic growth, with an extremely high caliber, collaborative team,” Edwin Jager, managing director and Head of Long Short Equities for the D. E. Shaw group, said in a statement.

Saunders had worked at D. E. Shaw until March 2015, when he left for Folger Hill Asset Management, per his LinkedIn page.

D. E. Shaw managed $26 billion at the start of the year in hedge fund assets, according to the HFI Billion Dollar Club ranking. It manages $42 billion firmwide.

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• A portfolio manager has left Folger Hill, a fund that has struggled since it launched two years ago.
• Folger Hill was started by billionaire investor Steve Cohen's former chief operating officer, Sol Kumin, and Todd Rapp, previously of Highfields Capital.
• The portfolio manager who left, Patrick Saunders, rejoined D. E. Shaw in a role he held before Folger Hill. Two analysts and a technologist also recently left Folger Hill's US offices.
• Folger Hill has made several hires, mostly in Asia, meanwhile. 

A hedge fund started by Steve Cohen's former chief operating officer has seen a shakeup in staffing.

Patrick Saunders, healthcare portfolio manager for Folger Hill Asset Management, rejoined $42 billion D.E. Shaw on Tuesday in a role he previously held, Business Insider earlier reported.

Saunders is one of the latest staffers to leave Folger Hill. At least 15 US-based staffers have left the startup over recent months following performance concerns and a dwindling asset base, according to Business Insider reporting.

Other recent Folger Hill departures, which have not been previously reported, include industrials analyst Alex Vecchio, who left in July and had worked for Ryan Novak, the industrials portfolio manager who is now at Man GLG, a division of British giant Man Group. Another analyst, Andrew Coleman, and Danny Heuser, a technologist, also have left.

Meanwhile, Folger Hill has made several hires over recent weeks:

• Chris Morse – analyst in tech in Boston from Piper Jaffray & Co. 
• Colin Egan – a Boston research associate in media and telecoms, who previously worked at Eaton Vance 
• Ruth Yong – Compliance Officer and Office Manager for Singapore office, formerly with Asset Management One Singapore
• Yavanna Lau – operations in Hong Kong 
• Yohsuke Kobayashi – analyst in Hong Kong, formerly at Nomura Asset Management
  
• Shinya Yamada – analyst in Hong Kong, former analyst at Credit Suisse Securities Japan
• Josee Wong – human resources in Asia, former head of Human Capital Asia at Standard Advisory Asia Limited 

Folger Hill Asset Management gained 3.7% after fees in the first half of this year in its flagship US fund, documents previously reviewed by Business Insider showed. Longer term, the fund lost 17.1% after fees from its launch in March 2015 through June this year, according to investor documents previously reviewed by Business Insider. 

Folger Hill launched two years ago and was founded by Sol Kumin, Steve Cohen's former chief operating officer at SAC Capital, and Todd Rapp, previously chief risk officer at Highfields Capital.

With global expansion plans, Folger Hill attracted the backing of big-name Wall Street groups like Leucadia National Corp., which encompasses the investment bank Jefferies Group, and Schonfeld Strategic Advisors, which backed the hedge fund's Asia unit.

After assets tumbled last year, Kumin started a search to raise $300 million to $400 million with a lockup of several years. The search is ongoing, people familiar with the situation said.

Last year, assets dropped to a low of about $600 million from a peak of $1 billion earlier in 2016.

SEE ALSO: A portfolio manager at Izzy Englander's $35 billion hedge fund is setting off on her own

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Bridgewater Associates’ three main hedge funds made money in August — but only one of them is positive for the year. While firm founder Ray Dalio is not saying what has worked and not worked this year for the macro firm, he has nevertheless raised his public profile considerably in recent months and is increasing it even more this month.

Bridgewater, the world’s largest hedge fund firm, posted profits last month in its Pure Alpha strategy. For example, Pure Alpha II, also known as Pure Alpha 18 percent, rose about 0.35 percent in August, trimming its loss for the year to 2.43 percent. Pure Alpha I, also known as Pure Alpha 12 percent, returned about 0.25 percent last month, cutting its loss for the year to 1.34 percent. All Weather, the hedge fund firm’s risk parity strategy, gained about 2.5 percent in August and is now up about 8.5 percent for the year.

Dalio and the company did not comment for this story, and the firm generally likes to keep a very low profile. That said, Dalio these days seems to be discovering his inner Bill Ackman.

On September 19, Dalio, who has received a lot of attention over the past few years for his firm’s philosophy of “radical transparency” and its handbook of principles based on the idea, is releasing his book — appropriately titled Principles — in which he shares the ideals behind his and Bridgewater’s success. On Tuesday, he will be speaking at the Delivering Alpha conference, which is co-sponsored by Institutional Investor and CNBC.

Dalio has also been conducting on-the-record interviews, and on Wednesday his public relations firm circulated his recent Ted Talk , where he talks about his principles, how the firm uses algorithms to make decisions under its idea meritocracy system, and why Dalio believes it has enabled his funds to post profits in 23 of the past 26 years.

The 68-year-old Queens, New York native also talks about discovering his love for trading the markets at 12, when he tripled his money on Northeast Airlines with money he earned caddying. At the time he thought it was easy.

However, Dalio learned otherwise in the late 1970s and early 1980s, when he bet on what he thought was a looming debt crisis: He thought American banks were lending a lot more to emerging countries than they could pay back. He even testified to Congress about it and appeared on the then-legendary television show Wall Street Week with Louis Rukeyser. “While the debt crisis happened, the stock market went up,” Dalio recalled during his Ted Talk. He lost so much money for clients he was forced to borrow $4,000 from his father to pay his family’s bills.

“It was one of the most painful experiences,” Dalio concedes, but it turned out to be one of his best experiences. He says it changed his attitude toward decision making. He said rather than thinking he’s right, he changed his thinking to learn how he is right.

That’s when he set out to create an idea meritocracy, whereby the best ideas win out. And in order to do that, Dalio stressed he needed radical truthfulness and radical transparency. He encouraged people to say what they believed in, taping all conversations and letting everyone see them.

“That’s how we run our investment business,” Dalio adds.

Decisions are based on algorithms that take people’s believability into consideration based on their historical thought and idea patterns.

“We do it because it eliminates what I believe is one of the greatest tragedies of mankind — people arrogantly, naively holding opinions that are wrong and acting on them and not putting them out there to stress-test them,” he elaborates. “This elevates us above our own opinions. Collective decision making is so much better than individual decision making if done well. This is the secret sauce behind our success.”

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Billionaire hedge fund manager Ray Dalio said it would be "terrible" if chief economic adviser Gary Cohn left the Trump administration.

"I think it would be terrible if Gary left," Dalio told an audience of Wall Street money managers at the Delivering Alpha conference on Tuesday, September 12. "It would be bad for the market."

Dalio is the founder of $160 billion Bridgewater Associates, the world's largest hedge fund firm.

If Cohn left, Dalio added, it would stall economic progress and would represent a challenge in putting together an administration

Dalio also said that Cohn is a capable of being Fed chairman. Reports have suggested that Cohn might now be out of the running for the position. 

"Gary Cohn is a very capable man who also has as his greatest strength of being able to know who else to speak to," he said.

Dalio described Cohn as someone who is open-minded, with an "ability to draw on the best thinking."

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Julian Robertson, billionaire investor and founder of Tiger Management, said Tuesday that stock market valuations were high by historical standards and that the Federal Reserve’s policies were to blame for an emerging bubble.

"I think we need interest rates to appreciate, to go up, because I think we are creating a bubble,” the 85-year-old said at CNBC's Delivering Alpha conference in New York.

"The market, as a whole, is quite high on a historic basis," Robertson added. "And I think that's due to the fact that interest rates are so low that there's no real competition for the money other than art and real estate."

The Federal Reserve has kept its fed funds rate extremely low since the onset of the Great Recession, lifting it four times since December 2015 to a range of 1.00% to 1.25% in June. This decade-long period of historically low rates has led to a bubble, according to Robertson. 

“It's the Federal Reserve's fault, and the Federal Reserves all over the world,” he told CNBC’s Kelly Evans. “I mean, in Germany, in order to buy a bond, until recently, you actually had to pay interest, and that's certainly going to discourage a lot of people from doing so."

Robertson developed a reputation on Wall Street for predicting the 1990s tech bubble, when he skirted significant losses by avoiding so-called fly-by-night stocks. Today, Tiger’s largest holdings include biotech company Celgene, Facebook, and Alibaba, according to Bloomberg.

“When rates do start to go up and the bonds become more attractive to investors, it will affect the margins,” he said.

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Ray Dalio is without doubt a member of the master class of the world’s investors. He runs Bridgewater Associates, one of the most successful and the largest hedge funds in the world.

Similarly, like many of the Investment Masters, Ray believes in seeking the truth by testing investment ideas, learning from mistakes and remaining humble. This was never more evident than in his experience in predicting the Debt Crisis in the early 1980’s. Whilst his prediction was uncannily accurate, Ray also predicted that the stock market would fall at the same time. The reality was something different, however, and when the market actually rose instead, Ray lost so much of his own and client’s capital that he was forced to let go all of his staff, and had to borrow $4,000 from his father to simply pay his household bills. It’s fair to say that Ray felt the pain of his mistake deeply. Ray stated that the pain of this error allowed him to change his attitude towards mistakes, and to see them as puzzles that needed to be solved instead. It also allowed him to start asking himself what he would do differently in the future to avoid the pain.

“I believe that anyone who has made money in trading has had to experience horrendous pain at some point. Trading is like working with electricity; you can get an electric shock.  With the pork belly trade and other trades, I felt the electric shock and the fear that comes with it. That led to my attitude: let me show you what I think, and please knock the hell out of it”  — Ray Dalio

“I met a number of great people and learned that none of them were born great. They all made lots of mistakes and had lots of weaknesses – and that great people become great by looking at their mistakes and weaknesses and figuring out how to get around them.” — Ray Dalio

Other Investment Masters have also learnt the same lesson.

“I lost my stakes a couple of times, which taught me risk control and risk management. Losing those stakes in my early 20s gave me a healthy dose of fear and respect for Mr. Market and hardwired me for some great money management tools.”  — Paul Tudor-Jones

“My dad was a retail pharmacist and after I started attending law school he said “well you have to learn how to be an investor”. He and I traded tiny amounts of tech stocks and mining stocks together. So I became very interested in markets and trading. In the period of time from 1967-1974 he and I found just about every possible way conceivable to lose money. So when I started Elliot in 1977 I was determined to engage in a trading strategy that made money all the time. So for the first 10 years of Elliot’s existence the primary strategy was convertible bond hedging”  — Paul Singer

“I went into this tech stock with 100% short position, and all the money I saved up because I thought I had this one locked down. We had fully positioned ourselves, myself and all my customers and clients I was advising, and then a technology writer dubbed the company the ‘Son of Intel’.  The stock went promptly from about $16 to $40. I got margin called all the way up until I was completely wiped out. I lost all of my money. I was apoplectic. I thought the world was going to end. I remember that like it was yesterday. That was the greatest thing that ever happened to me – losing all of my money on something where I knew I was right. From an investing perspective, getting completely wiped out and thinking it was the end of the world, and thinking I was an abject failure, and this investing thing wasn’t for me. Looking back at it, it couldn’t have happened at a better time in my life. You want that to happen as early in your career as it can and you want it to be the most devastating blow that could possibly hit you, to teach you, to bring humility into your investing and teach you that you should never set yourself up for the knockout punch. It teaches you never to put 100% into anything. It teaches you a lot about sizing, it teaches you a lot about life, no matter how much you think you have your arms around a situation, you never do”  — Kyle Bass

It was the recognition of the need to learn from mistakes that led to the development of Ray’s Principles.

“You have to learn from mistakes to keep getting better. And it’s through learning from those mistakes that you learn what reality is and how to deal with it, which is called Principles“

Interestingly, Ray is about to release a new book entitled ‘Principles‘. This will be an absolute must-read and I have already pre-ordered it. Ray released the first document titled ‘Principles‘ on the Bridgewater Associates website back in 2011. The original ‘Principles‘ focuses on Ray’s most fundamental truths about life and in addition, his beliefs and ideals regarding people management. Over the years I’ve often referred back to the original text, and while Ray has updated it in the new book, the original document remains a favourite of mine.

Bridgewater Associates investment style differs from many of the Investment Masters in so much as they invest across a broad spectrum of asset classes and regions, both long and short, and seek approximately 100 different return streams that are roughly uncorrelated to each other. While there isn’t a lot of commentary on investing per se in the original ‘Principles’ document, it does include the psychological insights and approach to learning that parallel with other great investors and give Bridgewater their edge.

This is evident in the company’s employment philosophies. On the Bridgewater Associates website’s career page, they ask potential employees to ask themselves a number of questions before applying to work there. These include:

“Do you want to: Discover your strengths and weaknesses? Work to get better fast? Put aside ego barriers to learning? And, demand others to be truthful and open, and are you prepared to to do the same?”

In conjunction with the release of the new book, Ray has given a very insightful Ted Talk where he discusses the processes he developed to successfully navigate the markets. Ray describes himself as a hyper-realist; he’s a broad thinker who meditates and recognizes there are many lessons to be learnt from nature and history. It was by studying history that provided Ray with the insights to anticipate the Global Financial Crisis.

It’s no surprise Ray features prominently throughout the tutorials included in the Investment Masters Class. Here’s a taste of some of the Principles which are behind Ray’s success..

“I learned that failure is by and large due to not accepting and successfully dealing with the
realities of life, and that achieving success is simply a matter of accepting and successfully
dealing with all my realities.”

“I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad—like mistakes and personal weaknesses—is good, because I can then deal with these things so that they don’t stand in my way.”

“I learned that there is nothing to fear from truth. While some truths can be scary—for example, finding out that you have a deadly disease—knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning.”

SEE ALSO: 6 life lessons from Warren Buffett

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Dirk Jeschke, a former portfolio manager at Paul Tudor Jones' hedge fund firm, is prepping a hedge fund in London for early next year.

Jeschke, 32, is planning a macro fund that will, among other things, emphasize medium- to long-term systematic macro strategies. He plans to launch the fund in the first or second quarter of next year.

Jeschke was a portfolio manager at Greenwich, Conn. based Tudor Investment Corporation from 2015 through May of this year, focusing on a multi-asset class macro strategy.

Before that, he worked in PIMCO's G-10 rates and FX team, as well as its largest macro hedge fund. He also worked at Morgan Stanley's quantitative and derivative trading strategies team in Hong Kong.

"My fund will do two things differently: emphasize medium- to long-term systematic macro strategies as well as balance and diversity among those strategies," Jeschke said in an email to Business Insider.

He added:

"The main requirement for each core strategy is that it has a sound economic rationale going forward and a long history of strong risk-adjusted returns over a full business cycle. Those core strategies generate return streams from a diversified exposure to asset classes, investment styles, trends and market flows. Due to the diversity of the return streams, I believe I can bring them together in a portfolio that balances their ups and downs and that is robust with respect to short-term volatility, liquidity shocks and business cycle turns."

Another Tudor staffer, Dario Villani, global head of portfolio strategy and risk, is also said to be preparing a new venture, Business Insider earlier reported.

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Hedge fund giant Citadel has hired three staffers in its build out a fresh investment unit.

The group is headed by Eric Felder, who was hired from Magnetar earlier this year. The team, which invests across various asset classes, is set to grow to 20 to 25 investment professionals, and was called Fundamental Strategies when it was announced earlier this year.

Citadel has hired the following to the new team:

• Michael Doniger started earlier this month as director of research. He will lead the equities component of the unit. He previously consulted for Anandar Capital, was co-CIO at Green Owl Capital, was a partner at Corvex Management, and a portfolio manager at SAC Capital's CR Intrinsic unit, per a LinkedIn profile.
• Neel Gupta started this month as a portfolio manager focused on equities. Gupta was previously a portfolio manager focusing on event driven equities at Pine River Capital, according to a LinkedIn page, and also worked at HBK Capital and Goldman Sachs.
• Jeff Psaki, who previously worked under Felder at Magnetar, is expected to join later this year leading the credit component of the strategy, according to people familiar with the matter. Psaki most recently worked at Magnetar as a portfolio manager and head of credit, within the firm's fundamental strategies unit. He earlier worked at Goldman Sachs and Barclays.

Citadel's new unit focuses on opportunistic investment ideas across the capital structure. The group will feed into Citadel's two main funds, Kensington and Wellington. Citadel manages $27 billion firmwide.

Citadel earlier this year closed down one of its stock picking units, Ravelin Capital, which was based in San Francisco.

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