Cornell Endowment Manager James Walsh Is…How Do I Put This Nicely…Incompetent!

From a recent article “Cornell Cuts Back On Hedge Funds”:

[March 12, 2009] Hedge funds have helped make the members of the Ivy League among the wealthiest institutions in the world. But in the wake of tremendous losses last year, one of the Ancient Eight is turning its back on the asset class. Cornell University plans to cut its hedge fund investments by a quarter, chief investment officer James Walsh told Bloomberg News. The move comes as Cornell seeks to reduce its endowment costs by 15%. Cornell’s endowment, which currently allocates about 15% of its assets to hedge funds, lost 27% in the second half of last year. While Cornell still boats one of the 20 largest endowments in the U.S., with almost $4 billion, the huge losses have forced the Ithaca, N.Y., school to postpone construction projects, seek staff cuts, and increase both tuition and enrollment. “We are de-emphasizing the hedge funds and more emphasizing the long-only managers,” Walsh told Bloomberg. He said that, given their returns, Cornell can no longer justify paying high hedge fund fees. Walsh said that Cornell will increase its allocation to cash, distressed investments and corporate bonds. He would not say from which hedge funds Cornell was redeeming its investments.

You just know he most likely had NO trend following investments. Too smart for that I guess. The hedge funds they did have? Probably leveraged long only nonsense that blew up. In all seriousness do the good people at Cornell even realize how incompetent their guy James Walsh is? Long only is his new strategy? Walsh sounds like a guy who has just lost his life savings at the craps tables, has $5000 left, and is betting it all. Attention: Earth to people at Cornell — wake the f*** up!

16 thoughts on “Cornell Endowment Manager James Walsh Is…How Do I Put This Nicely…Incompetent!

  1. agree in general, but (and just wondering aloud here, and am not invloved in these particular markets so if im way off factually, let me know)distressed loans and corporate bonds have been moving up right? so isnt he still following a general trend upward in loan syndication and trading, and high yields in the corporate debt space? While it is silly to only focus on one side of the market, he is following trends on that side of the market. seems like he is still following trends, but just investing money on the long side of them. if you have access to any market, isnt there always going to be somethings moving up or down/trending on either side of the market, so what if he is only focused on bullish trends? if he has the access, and the upside is there? Obviously he is giving up money in certain markets on the short side, but besides that, seems like he is still following trends in terms of market selection….

  2. Tobash, there will be no real upside trend, inflation in US will eat all the profits. Market is cyclical and must be respected that way, it’s like you go bet on shorting the market as long term investment strategy. The coin has not have only one side, it flips sides and more than often the number of heads and tails wont be in your favor.

  3. interesting, but a couple questions (and again, asking out of general ignorance about the markets in question, not to cause a stir) but:
    1: couldn’t you say the inflation thing about all markets, given the current atmosphere? why would inflation eat away at profits in the loan/bond trading world markets more than say profits from shorting world equities? Also, isn’t this assuming/predicting run away inflation? (or again is this inflation focused predominantly on these two markets?)
    2: because he is going long only, doesn’t mean that it is also long term/forever, right? You are correct, I certainly would not short the equity market forever, but if i was running a short only fund, i may short equities for awhile then shift to shorting whatever else was trending down, once the equity markets trend broke, directional selection(l/s) isnt time horizon selection or market selection (there may be two sides to the coin, but how many coins are there?) and loan/bond trades dont go on forever, any more than others. If the trend in distressed loans/corporate bonds are up, why not ride the train? again, it would be best if he was also shorting the pleathora of tanking markets but isnt any trend a good one as long as you can profit from it?

  4. all I’m saying is the two markets he’s moving in are seemingly strong ones, so it seems like he is still following trends, but selectively investing only on one side

  5. Trend following is not long only. Long only by its very nature is anti-trend following as you refuse to consider anything except long!

  6. He is not a trend follower. He is a scared and confused investor who just sank his endowment by already being long only! Now he announces he is back to long only. There is nothing he is saying that is remotely top level trading smart.

  7. yeah, i mean i agree that obviously he isnt a trend follower, i was just saying that if you looked at what he was moving into, at least those are upside trending markets. in the end i suppose i’m overthinking/dicing semantics for him–but hey, i have a kinder heart than you guys 😉 (esp. when it aint my money!)

  8. inflation in US will eat all the profits

    I’ve never really bought into the inflation argument. The best indicator of anything is the market itself. You can calculate what the market is estimating future inflation to be by comparing the yield on the 10-yr T-bond to the yield of the 10-yr TIP (Treasury Inflation Protected Securities). Right now that spread is a little less than 1%. This means that the market is estimating inflation to be about 1%/yr for the next 10yrs.

    10yr T-bond yield

    10yr TIP yield

  9. Long trading is cheap, there is not so many paperwork and transactional costs. In trend following you flip the switch often but not too often, there are examples of traders that mix both day trading & classical trend following like legendary Mark Cook. Most important part of trading is risk & money management and most long traders lack all of it. Donchian has set of rules that adapt to market and has simple setups about what to do when market goes up or down, Dennis with his turtles added adjustment index for currency that is default for that market. For example you have gold that almost tripled it’s value towards the dollar in last 8 years, if you had gold ounce as your defaul currency anchor you would see that you are loosing money on DJ index instead of gaining it because dollar got depreciated but index kept rising and i kept rising because of that same inflationary tendency of dollar. The most important thing is not equity, commodity or forex.. the most important thing is liquidity, that is transferring value from “losers” to “winners” & when “winners” become “losers” transfer value to new “winners” etc. etc.

  10. Great Article in Fortune about the largest “hedge fund” Pure Alpha, which is not a trend follower than it is more of an Ed Thorp model looking at arbitrage opportunities (i.e – mispriced assets) but the one part of the article that stood out was the statement that his research shows that 70% of hedge funds are positively correlated to the S&P 500. 70%!

    Here is a link.

  11. What about the 500 mil bond issue to float cash to the university to cover it’s “structural deficit”? What exactly is this structural deficit and by whose signature authority was it created? The problem is not just Walsh in Cornell’s admin. What will this cost the university to issue the bonds, annually, and over the term of the bonds? This is real money taken from campus programs for the long term. Time to look more closely at Cornell’s management.

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