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"Hedge fund manager." The words might conjure up an image of a gray-haired man in a tailored suit, standing in a room full of dark wood, making billions of dollars by boldly gambling with other billionaires' money. But add to that Howard Wang, a 29-year-old in sweatpants, sitting at a desk next to his bed, scrolling through hundreds of ticker symbols on a spreadsheet.
"Every single one is a position that we hold," he says. "For example, Apple. And Amazon."
The spreadsheet represents millions of dollars in stocks, bonds, commodities, futures and currencies from every corner of the world, invested according to algorithms created and calibrated by Wang and his partner Robert Wu — both alums of the high-flying Bridgewater hedge fund — and run out of Wang's apartment.
"That is literally the hedge fund," says Wang of the positions on his computer screen.
"Hedge fund is like the nickname," says Steve Nadel, a lawyer at Seward & Kissel who helps set up hedge funds. "I think you could just as easily call it a 'private investor fund' in that it's privately offered and you don't advertise to bring in investors."
Hedge funds are no longer distinguished by a "hedging" strategy, but by their legal and regulatory status. They employ one of two exemptions to minimize oversight and regulation in exchange for being open to only the wealthiest individual or institutional investors.
Traditionally, hedge-fund managers have also shared a method of charging those investors: A management fee of two cents of every dollar invested, and a performance fee of 20 cents of every dollar gained.
But that's changed since the financial crisis.
"You go back to pre-2008, about every hedge fund had a management fee around 2 percent," says Nadel. "Right now the rate is around 1.7 percent."
Wang's fund, Convoy Investments, is going even lower, to 1.25 percent and discounts for early investors.
"And no performance fees," Wang says.
Does it pay the rent?
"Yeah," he says. "I mean, of course, it depends on how much money we're managing. Right now, it does not pay the rent. For the last few years, I've been basically working out of my own savings."
This thrifty approach is meant to appeal to investors fed up not just with hedge funds' high fees, but the lackluster returns many have been getting in exchange.
"When speaking about returns, one word that I've heard a lot is, you know, mediocre," says Melissa Santaniello, founder of the Alignment of Interests Association, a group of several hundred hedge fund investors. Last year, her group put out a kind of aspirational "Hedge Fund Investing Principles." Among the suggestions were ways of making fees drop in years when returns are lousy. "It's just aligning their interests. It's just making it a bit more fair," she says.
Last year, while individual hedge funds performed well, the average hedge fund made just one or two percent; simply investing in the S&P 500 would have returned 11.4 percent. California's massive pension fund, CalPERS, cuts its hedge fund investments entirely, citing high costs among other factors. And more hedge funds have simply shut down than any year since 2009.
The drumbeat of news adds to an argument advanced by Simon Lack, author of The Hedge Fund Mirage, that the industry has gotten too big to reliably deliver on its promises. In the 1990s, he says hedge funds as a class were a good investment, but as the industry has ballooned to nearly $3 trillion, the number of potential profit-making opportunities hasn't kept up.
"Below $1 trillion in assets hedge funds were able to generate reasonably good returns, and as they went above a trillion dollars, that turned out to be too much money for the available opportunity set," says Lack.
Since 2002, Lack finds that a standard, boring portfolio of cheap index funds, made up of 60 percent stocks and 40 percent bonds, beat hedge funds not just over the 13-year period, but every single year. That's before, during and after the financial crisis, in good stock market years as well as the bad years when hedge funds are thought to be a particularly valuable form of portfolio diversification.
"It really sort of undercuts the whole rationale for having hedge funds in the portfolio," says Lack. "I mean, if they're always going to underperform — always — what's the point?"
But for Howard Wang, bad news for hedge funds is reinforcement to his pitch. In a Skype call with a potential investor in Louisiana, he sounds less like a hedge-fund manager than an index fund rep, as he repeats a number of seemingly self-deprecating claims: He will not be a genius manager who beats the market day to day. He will not be making predictions about the future. Instead, his strategy is mostly passive, mostly automated, and mostly transparent.
"I'm basically just the guy who's going out and executing on this strategy for you," he says.
It's a modest pitch, but it works with this investor. He agrees to invest $500,000, putting Wang's fund at around $18 million. It's a small fund, and the discounted fees that he and his partner earns are made smaller still by auditors, lawyers and taxes.
"It may come out to be maybe 40k per person that we can take home, 30k," Wang says.
Not exactly what you think of as a "hedge-fund manager" salary.
"Right, right," he agrees. "But we're OK with that."
He says it's worth it to run a hedge fund of his own, and to run it a little bit differently.
This week, Wisconsin joined two dozen other states with laws saying workers can't be forced to join labor unions to keep a job. But as more states moved to weaken unions, the unions are fighting back.
Thomas Jackson is not the first city official to leave his post in the wake of a Department of Justice report that accused the local police and justice system of racial bias.
Robin O'Neil owns a four-bedroom home in what looks like a little piece of suburban paradise: the Chapel Lake subdivision in DeKalb County, east of Atlanta. The large yellow house has a generous lawn, a patio and even a little sunroom. But O'Neil, who works in real estate, says her home is worth less than when she bought it in 1997. Still, she has faith that her neighborhood, and her home, will bounce back.
The recession and the housing crash hit Atlanta hard, but since 2012 recovery has seemed imminent. Is it?
Dan Immergluck, a professor of city and regional planning at Georgia Tech, decided to investigate how and whether greater Atlanta housing was recovering. He used home price estimates from Zillow and compared three-bedroom houses in every zip code in the metro region. Home prices in zip codes Immergluck calls "the favored half" had rebounded to where they were at the market's peak. In other zip codes, homes are still worth only about half of what they were in 2001.
Immergluck found that one of the primary differences between neighborhoods that have recovered fully and those that have recovered only partially is their racial demographics. Majority-African-American and Hispanic zip codes are recovering more slowly than majority-white zip codes with similar housing stock.
Immergluck says the nature of the housing crash might explain the uneven recovery. In the years before the housing bubble burst, minorities were more likely to have had subprime loans and were more likely to have lost their houses. In some neighborhoods, the result was large swaths of homes lost to foreclosure, depressing the value of houses around them.
Others see more endemic and worrying factors. Dorothy Brown, a professor at Emory University's School of Law, cites studies which show that, even before the housing crash, homes in predominantly African-American neighborhoods were likely to be valued at lower prices than similar homes in majority-white neighborhoods. Brown's advice to those seeking to buy homes is not beware, but be smart. Make sure, she advises, that you don't expect your net worth to come solely from your home.
The Logan Act prevents "unauthorized citizens" from meddling in foreign affairs. There's a petition to charge the 47 senators who signed the letter, but no one has ever been prosecuted under the law.
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The White House has been looking at problems with local law enforcement. Not only did the Justice Department issue its report on Ferguson, Missouri, but a presidential task force on 21st Century Policing issued a report in March.
In addition to the social costs, police misconduct costs money. One watchdog group found that Chicago paid out more than half a billion dollars over a 10-year period. How does the tab get so high?
Start with laywers: Scandalously bad policing is Jon Loevy’s bread-and-butter. He runs a for-profit law firm in Chicago, with 25 attorneys, built on big wins in police misconduct cases.
"We like to say it’s a non-depletable good — injustice," he says. "You know, there’s a million cases out there where people have their rights violated, or wrongfully convicted, or falsely arrested."
What’s tough is winning those cases, which can take years and lots of upfront investment.
"This is not for the faint of heart," says Loevy. "Because you don’t get paid unless you win."
So, having lawyers who are willing and able to take those cases on — and win them — is one variable.
Another is how a city responds to lawsuits. For years, the city of Chicago had a not-quite-official “no-settlements” policy, which is a strategy that may scare away some potential plaintiffs. However, it also means defending cases that are clear losers.
That gets expensive, says Lou Reiter, a law-enforcement consultant and former deputy chief of the Los Angeles police department. Juries will award more in damages than lawyers would settle for. "Then, the attorney gets reasonable fees on top of that," says Reiter. "And many times that’s much more than the actual jury verdict."
He consulted with the plaintiff's attorneys on an infamous Chicago case, in which an off-duty cop beat up a bartender in front of a security camera. The video went viral, and the city refused to settle. The jury awarded the woman $850,000, and the court gave her attorneys more than twice that amount.
Reiter thinks the city could have saved itself a lot of money. "Initially, they probably could have settled that for maybe two, three hundred thousand dollars," he says.
Legal fees, including payments to the city's own outside counsel, amounted to about a quarter of the city's $521 million police-misconduct tab, as tallied by the Better Government Association.
The city of Chicago didn’t comment for this story, but plaintiffs’ lawyers say Chicago’s policy has shifted since Rahm Emanuel became mayor in 2011.
"They've really moved to nip some of these cases in the bud," says Andrew Schroeder, a reporter for the BGA. "If they identify a case where they were clearly in the wrong, they are trying to settle that early on, before it results in an expensive judgment."
Chicago is not alone in facing these expenses. The Ramparts police scandal alone cost Los Angeles an estimated $125 million.
Demand for palm oil is destroying the habitat of endangered Sumatran orangutans. One group is working to rescue, rehabilitate and reintroduce these often-orphaned primates back into the wild.
Borrowing, sampling, covering and other appropriation are commonplace among musicians, but an LA jury ruled Monday that Robin Thicke and Pharrell Williams took things too far with their monster hit "Blurred Lines." The court ruled the pair's track was a little too inspired by Marvin Gaye's "Got to Give it Up," and awarded Gaye's family about $7.4 million for copyright infringement.
The verdict could put artists more on notice when appropriating other tracks, says George Washington University Law Professor Robert Brauneis, who helps us unpack the complexities of the case.
Listen to the full conversation in the audio player above.
This sea monster swam Earth's seas about 480 million years ago, and was the biggest creature of its day, scientists say.
Sitton's reporting from the front lines of the civil rights movement earned him the ire of southern officials and attention from the Department of Justice.