Notes from Delivering Alpha 2013, Part IV

My coverage of CNBC and Institutional Investor Magazine’s third annual Delivering Alpha Conference will come in four parts today.

Below, my notes from the two evening panels, enjoy! – JB

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Panel – Asset Bubbles, moderated by Kelly Evans

• Michael Novogratz, Principal and Director, Fortress Investment Group
• Michael Sacks, Chief Executive Officer, Grosvenor Capital Management
• Steve Kuhn, Partner and Head of Fixed Income Trading, Pine River Capital Management
• David Villa, Chief Investment Officer and Chairman, Wisconsin Investment Board

Steve Kuhn of Pine River on China – “Investing in bubbles is a hard way to make money.”

David Villa who runs money for the state of WI – We monitor triple C debt to see what the price of risk is. It’s a tiny piece of the bond market but it tells us when risk is cheap or expensive. He thinks a credit “hiccup” or a train wreck coming in the next thirty six months, depending on how quickly defaults come on. He sees himself as running an insurance company. He’s going neutral on credit now, taking risk off. “But we know that being early is indistinguishable from being wrong.

Michael Sacks of Grosvenor – The key question for institutional investment people is “How do you structure your relationships with asset managers to avoid investing in asset bubbles?”  You get stuck in bubbles by being policy-constrained, long-only (the case for hedge funds).

Mike Novogratz of Fortress – talks about the hedge fund bubble in New York City from 2007. We’ve seen that wash out, he says, and the hedge fund biz has rebuilt itself more intelligently. “The Fed is not worried about the stock market at all, it is worried about the bond market. They continue to think equities are very fairly valued, if not outright cheap.”

Sacks: Leverage is an essential component of bubbles, it is what exacerbates the price increase and the fall. This comes back, he says, to structuring relationships and compensation correctly. This structural focus can keep managers from chasing bubbles, allows managers to reduce risk early rather than playing for the last of a bubble.

Novogratz: “We’re supposed to be trend followers until things get silly and then we get off.” When  is that? “I know it when I see it.”

Kuhn: “I don’t believe there is a hedge fund bubble. The peak was in 2007, the two biggest hedge funds in the world were Fannie and Freddie, they were running a trillion dollars each and leveraging 99 times.” Thinks this is the golden age of “relative value” hedge funds.

Sacks – “Hedge funds may create asset bubbles, but they are not in and of themselves bubbles” Sacks says “risk parity strategies” could mean more risk than some expect.

David Villa – Disagrees with the notion that one poor month for risk parity (June) is a worthwhile timeframe to be making a judgment on. “If we looked at hedge funds during September 2008 and based our assessment on that, there would be no hedge fund industry.” Agrees that it is dangerous to put leverage on bonds with negative real yields.

Novogratz on insta-billionaires – The mechanism by which a Mark Zuckerberg can go from 25-year-old kid to worth $20 billion didn’t exist twenty years ago. The .001% are not causing bubbles, but they are symptomatic of them. US consumer is still shell-shocked and longer-term investors are also not very confident. We need something to create real confidence – innovation, major change that comes out of nowhere. Otherwise, we could be stuck in a 2% growth world for a long time.

Sacks sees a bubble in venture-backed tech startups. Too many companies getting funded.

Villa – we don’t see democratization in terms of regular people getting caught up in the stock markets yet. The signs of a bubble are not apparent yet.

Kuhn – We see a bubble in Chinese real estate but it is already bursting.

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Last panel – Alpha Agitator: Carl Icahn, moderated by Scott Wapner

Carl Icahn, Chairman, Icahn Enterprises

On Dell: “I’ve been through a lot of these fights, but I’ve never seen anything like this.”

Icahn is shouting out board guys by name. “It’s really a travesty.” Icahn has a CEO candidate in mind. “I’ve done this five or six times, finding the right guy for companies.”

Wapner: Why do you really want Dell? Are you just trying to get Dell to bump his offer? Carl: “I don’t buy great businesses, I don’t pay retail. I buy businesses when they’re not liked.”

Icahn has no idea if Michael Dell will raise his bid “and to be honest I don’t care, I want to own this company. The most money we’ve ever made is when we’ve controlled these companies. I can make a lot more owning this and I’d like to own it. I’m thrilled to own this company.”

Icahn thinks this could go to a proxy fight, he thinks he can win one. “The board is a bigger problem than Michael Dell.”

Icahn on Chanos’s track record (they disagree on Dell’s future): “Look at some of the stocks Chanos has shorted. They’ve gone up. I think I have a much better record than Chanos in all modesty.”

Oh sh*t.

“What Chanos doesn’t understand is that these companies can be turned around.”

Scott alludes to Icahn’s busy schedule, late-career renaissance – “What else am I gonna do? My wife watches me like a hawk.” Crowd goes wild.

If Icahn meets a guy he doesn’t like, he says “I want to go after this guy’s company.” ANother big laugh.

Great TWA anecdote, Icahn and the CEO faced off in front of the judge. Judge says “Mr. Icahn, if you take over the company what are you going to do with this CEO over here?” Icahn says he’d fire him immediately. Judge rules: “I fine Mr. Icahn credible” bangs down the gavel. Great story, you had to be here.

Scott: Your “permanent capital” enables you to do whatever you want, you have staying power that few others have. Carl says yes, because boards can tie you up for years. But this is good for us, it’s really hard for others to do.

On what CEOs do when Carl Icahn calls – “The first thing they do is cancel a few weeks of golf. They they say, ‘Good to have you as a shareholder, Mr. Icahn.”

On Netflix: Gives his son credit for keeping him in the Netflix trade (his son co-manages one of his funds). He hasn’t sold a share of Netflix because the kid “threatened to leave.” He likes Reed Hastings (Netflix CEO), “when a guy makes me a billion dollars in a year, you don’t punch him in the mouth.”

On Herbalife: “I’m still in it, in fact we’ve brought more.” It’s already the daughter of all short squeezes. I like Bill Ackman now, I turned my thinking. Any guy who makes me a quarter of a billion dollars, I like.”

Icahn consulted a legal expert who just focuses on multi-level marketing. He looked at Ackman’s report on Herbalife and said it was a pile of ****. Icahn went in and bought. “Stupid for Ackman to take such a big short position and then go into a room full of people to say ‘Look how smart I am for shorting this.'”

Scott: Ackman said he would be there (here at the conference in person) but I’m in Canada at a board meeting (Canadian Pacific). “I have a railroad to run.”  Carl says “Well with him running a railroad, I wouldn’t want to be on it.”

Carl says he’s going to start using Twitter to talk about his stocks!!! Follow: @Carl_C_Icahn

His best deal was with the refinery business, when everyone said in the 80’s that they were terrible businesses.

“I hold companies for 15, 20 years.”

Riotous applause at the end of his discussion.

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I hope you’ve enjoyed my notes from the conference. The rest is below:

Part I

Part II

Part III

Good night!