PercyWalker.com

Percy Forced to Retire From Blogging

2007-10-30T18:46:35Z

You've likely heard by now that the SEC, IRS and UFC have each launched an investigation of me. You may have even seen some of the scurrilous attacks against me.

On the advice of counsel, I am ceasing blogging immediately. I've been doing this for exactly one year, so it seems like the right time to focus my efforts elsewhere. I'll probably spend some time scrubbing my entries of possibly inculpatory content, but that's all the blog writing my attorneys will allow for the foreseeable future. If you know of anything incriminating in any of my posts, please let me know!

Anyway, thanks for reading!

PercyWalker.com Readers Help Bring Discount Airline Hub to Greensboro

2007-10-24T16:45:56Z

I'm pleased to see that Skybus, the new U.S. airline modeled after the super successful European ultradiscount carrier Ryanair, will open a base of operations here in Greensboro. All of my employees who don't need to use of one of our private jets will be required to use it.

So, how did you, the readers of Percywalker.com, help bring Skybus to Greensboro? I don't want to overly downplay my own contacts with the investors in the company and the hard work of our local officials, but Julian Robertson's Tiger Management is one of the early investors in Skybus and contributed one of its own employees to serve as Chief Financial Officer of the airline. (Details here and here.) As you'll recall, the North Carolina native and UNC grad was voted by you as the greatest hedge fund manager of all times, which elicited this comment from Julie:

Percy - you have made my boss, Julian Robertson's day.

I like to think that this move by Skybus is a small token of Mr. Robertson's appreciation for his support in Greensboro. Keep up the good work!

Percy Calls for New Patron Saint of Travelers

2007-10-22T22:30:36Z

I don't often write about religion, but as a good Christian (i.e., Catholic), I've long been bothered by the popularity of St. Christopher and his status as the patron saint of travelers. To this day, many Catholics carry around images of St. Christopher for protection on journeys even though his name was dropped from the liturgical calendar in 1969 and isn't associated with any decent hotels.

With the demotion of St. Christopher, there is no good reason to continue to carry around his image while traveling. We should instead be carrying around images of St. Regis and staying at the hotels named for him in one of the fourteen cities where they can be found, at least until Mandarin Oriental has been canonized.

I'll be presenting to Pope Benedict the case for elevation of St. Regis to patron saint of travelers. I encourage you to set up an audience or brunch with your archbishop and do the same.

Another good idea for protection while traveling: hold stock in Starwood, the parent of St. Regis hotels. I currently do!

Julian Robertson on the Economy, Politics, the Environment and Underaged Drinking

2007-10-22T22:34:03Z

Native North Carolinian and PercyWalker.com's " Greatest Hedge Fund Manager of All Time" had a lot of interesting things to say in an interview broadcast on CNBC yesterday. The thing that received the most play, and no doubt contributed to the big decline yesterday, was his view on the economy:

"I think we are going to have a doozy of a recession," Robertson told CNBC's Erin Burnett. "I think the credit situation is worse than anybody realizes, and...I think we're getting little inklings of that. I don't think any of the normal indicators you would look at in the economy are really very strong. As a matter of fact, they are weak, and not really getting any better."

Also of interest (but you have to watch the interview at CNBC.com to hear it because I can't find a transcript):

On the taxation of carried interest: Mr. Robertson believes that carry should not receive capital gains treatment. Ouch! In light of Mr. Robertson's view, I'm rethinking my own position on this issue.
On Mitt Romney: "Smartest guy I've ever seen." I agree! Mr. Robertson is also sorry that Romney is "trapped into appealing to the ultra-conservative wing of the Republican party." Double agree!
On the environment: Robertson is very concerned about global warming. Thinks we should have a cap-and trade system. Doesn't think corn ethanol is positive for the environment. Thinks nuclear is a positive and has invested money into ways to deals with nuclear waste. Thought Al Gore's movie was great but wished he hadn't put in the stuff about his loss in Florida.
On underaged drinking: He's "working with the former president of Middlebury College to have licensed drinking for 18 year-olds." Interesting! I'm for it.

Selfish Altruism

2007-10-20T14:01:47Z

Whenever I give money to charity the press always plays up the what's-in-it-for-Percy angle. I can understand, then, the frustration John Paulson must feel when, upon his hedge fund management firm donating $15 million to support groups giving legal representation to families facing foreclosure and financial ruin because of abusive subprime mortgages, the press focused on the fact that Paulson's firm stood to benefit from changes to the bankruptcy code being sought by the groups receiving the money. Here's Bloomberg:

Paulson & Co., the hedge fund that profited from bets on rising foreclosures this year, will donate $15 million to consumer groups backing bankruptcy legislation that would further reduce the value of subprime loans.

The two non-profit organizations, the Center for Responsible Lending and the National Association of Consumer Advocates, said today that they would use the money to establish an institute that provides funding for legal assistance to homeowners fighting foreclosure. Kathleen Day, a spokeswoman for the Center for Responsible Lending, said none of the money from Paulson & Co. would be used for lobbying.

Day's group has pressed Congress to pass legislation allowing judges in bankruptcy cases to forgive mortgage debt that exceeds the value of a home. The change would further devalue securities based on home loans to borrowers with poor credit. Bets on rising subprime-mortgage defaults helped New York-based Paulson & Co. more than double its assets this year, to $21 billion.

"Losses would be realized much faster and they'd be larger," said Kyle Bass, managing partner of Hayman Advisors LP, a Dallas-based hedge fund that gained 149 percent this year making similar bets. "It would good for people who are positioned the exact same way I'm positioned."

Who cares about the whys and wherefores behind the donation? The important thing is that the money is being used to help people. It's no different than my support of groups working to curtail greenhouse gas emissions while building my uranium positions.

By the way, the Center for Responsible Lending is based in Durham, North Carolina and is headed by Greensboro native and 2005 Tar Heel of the Year, Martin Eakes. They do good work!

Stopping the Idiocrats

2007-10-13T03:46:49Z

My good friend Carl Icahn reiterated his view yesterday that someday soon all companies will be run by morons. Left unsaid in his speech (or at least the press account of it) is that there is still hope. Say what you will about activist hedge fund managers and buyout kings, nobody can dispute that we are, to our core, meritocrats. So long as we are roaming the capital markets, the slow and weak, no matter how affable they may be, are at risk of being slaughtered and replaced with someone better, faster, stronger. Which gets me to the point I think Icahn was trying to make: increasing taxes or regulations on alternative asset managers will kill off the predators that are essential to keeping the moron population in the C-level suites and boardrooms under control.

Anyway, that's what I think Icahn was saying in the unsaid part of the speech. Here's Portfolio's take:

Many college kids seek refuge in their fraternities or clubs (when Icahn tells it, "sorority" is conspicuously omitted) for a friendly face. Without fail, the president of the club, who never seems to open a book, is there to cheer them up. He's a nice and friendly guy, the kind of guy you want around to make you feel better with a beer or a game of pool.

Not surprisingly, that guy goes into business. He's never the smartest guy in the room, but he's likable and he's a survivor. He moves up the corporate ladder, without a single original idea that might make his boss feel threatened by his potential.

Eventually, he gets to be the #2 guy at the company. He's a little dumber than the C.E.O., but the board likes him, so he eventually gets to be C.E.O.

Of course, he assigns a #2 who is a little dumber than he is. "And eventually, we're going to have all morons running our companies," Icahn concluded. "We might not be that far off from that right now."

And that, according to Icahn, is how your incompetent boss got the corner office.

Previously.

Histrionic Personality Disorder Part III

2007-10-12T18:34:14Z

My friends at Gawker today published correspondence from a guy who sounds a little braggy.

After you read the correspondence, spend some time at his website. Here's a taste:

I used my 98th percentile score on the SAT & ACT to acquire a Mensa membership then combined that with my 97th percentile G.P.A. to go on to a five star collegiate program.

I was educated at the University of Pennsylvania, an Ivy League institution founded in 1740 by Benjamin Franklin - the oldest university in the nation. I was social chairman of my fraternity, published the humor magazine and took classes at the Wharton School of Business (perennially ranked #1 in the world).

I have worked & consulted for several Fortune 500 companies, including Time Warner, USA Today, GTE, Sprint, Pitney Bowes & Limited Brands. I have saved 2 of these companies almost $1 million dollars combined. I was the financial analyst during the $680 million dollar initial public offering of Intimate Brands (includes Victoria's Secret and Bath & Body Works) and also created a $22 million budget from scratch for them.

My take on all this: I don't have a problem with anyone laying out their credentials on a website. My problem is the excessive pride taken in unremarkable credentials. First, the designation "Ivy League" should be limited to Princeton, Harvard, Yale and MIT. Second, unless you scored 1600 (or 2400 under today's rules) on the SAT and graduated valedictorian, you really shouldn't be making any references to SAT scores or GPA. Even then, you shouldn't be making reference to SAT scores or high school GPA unless it's on a college admission application. Third, saying you saved two companies "almost $1 million combined" makes me think you quit working for them and allowed them to save the year's salary they would have paid before realizing you needed to be fired.

Previously: Histrionic Personality Disorder Part I, Part II.

Carried Interest Taxation P.R. Stunts Depress Percy

2007-10-11T18:19:24Z

Percy is the world's foremost authority on the proper tax treatment of carried interest. He believes that carried interest should be taxed the same as the gains or income from which it is derived. Click here for all of his carried interest posts.

I went into a tailspin after watching Congressman Eric Cantor's (R-Va) interactive film, "Carried Interest Tax Adventure." My wife became so alarmed about my mental state that she ordered my staff to wipe off the tips of the poison-tipped bone spears I use for wild boar hunting and World of Warcraft reenactments. Here's a glimpse at the awfulness of the "film":

I'm glad Congressman Cantor is an ally in the struggle against efforts to impose discriminatory taxes on alternative asset managers, but public relations efforts that look like they were created by Eastern European porn merchants, or 5th-graders, are going to do us more harm than good.

On the plus side, my mood was lightened somewhat by the most recent stunt of the Service Employees International Union. Here's what they did yesterday:

One of the nation's largest labor unions, the Service Employees International Union, yet again took aim at the Washington-based private equity firm [Carlyle Group] on Wednesday, indulging in some street theater to protest buyout firms' low tax rate. This time, they carted over wheelbarrows of cash, "straight from the Internal Revenue Service."

We can always count on the jesters at the SEIU to divert attention away from our own public relations failings. Their unrelenting douchenozzlery will drive more people into our camp than any p.r. stunt we could dream up for ourselves. Previously.

Washington Post Needs to Wake Up and Smell the Bloomberg

2007-10-10T05:07:03Z

Front page news from today's Washington Post:

Senate Majority Leader Harry M. Reid (D-Nev.) has told private-equity firms in recent weeks that a tax-hike proposal they have spent millions of dollars to defeat will not get through the Senate this year, according to executives and lobbyists.

According to executives and lobbyists? I guess it's beneath the Sleuthy McSleuths at the WP to quote from Reid directly. Here's Bloomberg, breaking the same news three months ago:

Senate Majority Leader Harry Reid said lawmakers won't take up legislation this year that would increase taxes on some managers of hedge funds, buyout firms and real-estate partnerships and may consider it in 2008.

Greensboro: Anarchism Capital of the World

2007-10-09T19:38:00Z

I'm pleased to see a fellow Greensboro anarchist written up on the powerful Freakonomics blog today. Liz Seymour is a 58 year-old Smith College graduate who, like me, is an anarchist and lives in an anarchist collective. The only difference between Liz's band of anarchists and my own is that we are anarcho-capitalists. Her group doesn't seem to appreciate capitalism so much. Here's Stephen J. Dubner recounting a trip to Greensboro:

It was a very interesting few days, to say the least. I went dumpster diving for food with mom and daughter; hung out as they cooked up dinner for their Food Not Bombs charity; interviewed the roaming cast of characters that came through Liz's home, most of them young and punky and pissed off at someone or other. All of them tried to live as far off the grid of capitalism as they could. Sometimes this meant shoplifting or bartering or hitchhiking. A few of them participated in medical trials down in Research Triangle Park that paid a lot of money for a few days of swallowing pills and powders that they were assured wouldn't do them much damage.

My anarchist collective consists of 400 people, all of whom live and work on my estate in Greensboro. We argue for a society based in voluntary trade of private property and services in order to maximize individual liberty and prosperity. We reject the state on the grounds that states are aggressive entities which steal property (through taxation and expropriation), initiate aggression, are a compulsory monopoly on the use of defensive and/or punitive force, use their coercive powers to benefit some businesses and individuals at the expense of others, create monopolies, and restrict trade. Our view is that you can't have freedom without free market capitalism.

We're still working on bringing our anti-capitalist anarchist brethren and sistren around to our way of thinking.

Darwin and Rand Walker and their friend Octavio, the head gardner's son, all live on the Percy Walker Anarchist Collective in Greensboro, North Carolina.

Percy on the Importance of Grooming

2007-10-04T20:25:57Z

Economists at Elon University -- just a few miles down the road from Greensboro -- have confirmed what I have long known: returns on one's investment in grooming are quite substantial, particularly if you're a man. From Bloomberg:

"Extra time spent grooming has a positive and significant effect on both men's and women's earnings, but the effect is considerably larger for men," [Elon economists Jayoti Das and Stephen DeLoach] said in a paper called "Mirror, Mirror on the Wall: The Effect of Time Spent Grooming on Wages." "For men, every extra 10 minutes daily grooming increases their weekly wages by 6 percent. However, women would have to nearly quadruple their daily grooming time to receive that much in additional wages."

This is welcome news for all of us: people who aren't naturally attractive are incentivized to improve upon their appearance -- whether it be via enhanced personal hygiene, exercise or surgical procedure -- and the rest of us will enjoy having better people to look at.

Economists Das (left) and DeLoach look good enough to be making a decent wage.

One mistake I found in the paper: "Perhaps the recent 'metrosexual' phenomenon is a rational response to market forces."

Barron's Best 50 Hedge Funds

2007-10-02T10:33:25Z

The October 1, 2007 edition of Barron's contains its inaugural list of Best 50 Hedge Funds. The rankings are based on average returns to investors over the last three years. Funds smaller than $250 million and sector- or country-focused funds were not considered in compiling the list.

If you're wondering why some of your favorite big hedge funds aren't on the list, here's why:

A couple of the industry's top funds -- quant-trading powerhouse Renaissance Technologies' Renaissance Medallion Fund and ESL Investments' flagship ESL Partners -- each would have likely merited a spot. Both boasted returns of at least 35% annually for the three years through 2006. But we weren't able to obtain dependable year-to-date figures for either of them.

Two other pace-setters -- SAC Capital and Appaloosa Management -- offer funds that sources said would make our list, but we simply weren't able to obtain reliable figures.
Percy Walker, whose omni-strategy fund would have placed first on our list, told us to go skullfuck ourselves when we asked him for confirmation of performance infomation we received from one of his investors.

You can find the top 50 list here (paid subscription required). The top 25 are below.

Fund Name	3-year cumulative average return (through June 30, 2007)
1. RAB Special Situations	47.69%
2. The Children's Investment Fund	44.27%
3. Highland CDO Opportunity	43.98%
4. BTR Global Opportunity, Class D	43.42%
5. SR Phoenicia	43.10%
6. Atticus European	40.76%
7. Gradient Europe Fund A	39.18%
8. Polar Capital Paragon Absolute Return	38.00%
9. Paulson Enhanced Partners	37.97%
10. Firebird Global	37.18%
11. Passport Offshore-Global Strategy	36.28%
12. Tiger Asia Overseas	34.26%
13. Millennium Global High Yield	34.19%
14. Pershing Square	34.15%
15. Libra Fund	34.11%
16. Third Point Ultra	33.86%
17. JK Navigator	33.28%
18. Sprott Opportunities	33.21%
19. Horseman Global-Class A	32.80%
20. Riverside Wisdom World	32.61%
21. The Blenheim Fund	31.70%
22. Tontine Overseas	31.14%
23. Zweig-DiMenna Int'l	30.04%
24. Bay Harbour Partners	30.04%
25. Prism Partners	29.47%

Quotes That Might Have Come From Percy

2007-09-28T20:18:51Z

"[Our hedge fund] has the top-rated performance for all hedge funds in the universe."

"...If God comes down and miraculously fixes everything that is going to drive us into a deep recession, we probably still would not lose money on [our commercial mortgaged-backed securities index shorts]..."

Go to FT Alphaville for the actual quoter.

Duke University: The Harvard of Acronym Maker-Uppers

2007-09-27T17:16:19Z

An announcement from Duke University's Office of News and Communications:

Philanthropist David H. Murdock has given Duke a $35 million gift to support a massive biomedical research project at the North Carolina Research Campus (NCRC) in Kannapolis, university president Richard H. Brodhead and Chancellor for Health Affairs Dr. Victor J. Dzau announced Monday.

The name of the research project? Measurement to Understand the Reclassification of Disease of Cabarrus and Kannapolis, or M.U.R.D.O.C.K. Said President Brodhead, "We were stuck on the letter "C" until we realized that the City of Kannapolis is in Cabarrus County. Boy, were we relieved!"

Percy Switches to Live Bait

2007-09-27T15:51:53Z

Because I like a challenge, I refuse to increase the pound test line I use when big game fishing. This has resulted in a loss of a few million dollars worth of lures -- four, to be exact. I thought I'd go ahead and switch to live bait and give away my remaining lures to local blogger/anglers.

Enjoy, Gerald and Eric.

The million dollar lure: crafted in just over 3 pounds of glimmering gold and platinum, then encrusted with 100 carats of diamonds and rubies (4,753 stones to be exact).

Percy Asks to be Referred to as a Decabillionaire

2007-09-25T20:38:19Z

American billionaires are now more common than the sound of hand clapping in a Spoon song, and the latest Forbes list of the 400 richest Americans doesn't even include billionaires with less than $1.3 billion. With my net worth now above $10 billion (see net worth calculator on the sidebar), I will now distinguish myself from other billionaire Americans by referring to myself as a decabillionaire. I ask that you do the same.

How do I calculate my net worth? The same way I calculate the net asset value of my fund:

any security that is listed or quoted on any securities exchange or similar electronic system and regularly traded thereon is valued at its last traded price;
any security that is not listed or quoted on any securities exchange or similar electronic system or is not regularly traded is valued at its fair market value as determined by me in good faith and having regard to objective third party market data, dealer quotations, the price at which any recent transaction in the security may have been effected, the size of the holding and such other factors as I may deem relevant;
investments, other than securities, that are dealt in or traded through a clearing firm or an exchange or through a financial institution will be valued by reference to the most recent official settlement price quoted by that clearing house, exchange or financial institution; and
investments, other than securities, including over-the-counter derivatives contracts, which are not dealt in or traded through a clearing firm or an exchange or through a financial institution will be valued on the basis of objective third party market data.

Of course, if I determine that the use of any of the above doesn't accurately reflect fair market value, I can use a different valuation methodology so long as I think it does a better job of reflecting fair market value.

A couple of other interesting tidbits from the latest Forbes list: nearly half of the 45 new additions made their fortunes from hedge funds and private equity funds, and two new members -- Brothers Frank and Lorenzo Fertitta -- made the list due to the success of Ultimate Fighting Championship.

Percy Gets a Headache From a Carried Interest Ally

2007-09-21T16:35:31Z

UPDATED BELOW

Percy is the world's foremost authority on the proper tax treatment of carried interest. He believes that carried interest should be taxed the same as the gains or income from which it is derived. Click here for all of his carried interest posts.

I am grateful for Congressman Pat Tiberi's skepticism over the wisdom of increasing taxes on the carried interest of fund managers. I must, however, express my disapproval over the arguments he musters to justify his skepticism. I'm particularly alarmed by gaseous sentimentality like this (from yesterday's Newark (Ohio) Advocate):

The carried interest tax proposal is complicated. It could have wide-ranging effects, not just to the people in air-conditioned, steel-and-metal skyscrapers, but to a hard-working mom looking forward to her retirement, to the little boy who hopes one day his neighborhood will be safe enough for his parents to let him ride his bike to the playground, or to the researcher who might be on the verge of discovering a new cancer treatment.

Please, let's leave the gaseous sentimentality to the private equity haters. We need to stay focused: finance entrepreneurs, like all other types of entrepreneurs, take equity of little value on the front end. Through a combination of hard work and capital at risk, the value of our equity may increase in value. Why should we pay taxes on those increases at higher rates than other entrepreneurs?

UPDATE: After posting this blog entry, I found Congressman John Linder expressing a similar view. From today's Bloomberg:

"The principal sin in politics is overreaching," said Representative John Linder, a Georgia Republican who serves on the tax-writing House Ways and Means Committee and is undecided on the issue. "When they start talking about women and children, they're overreaching."

Percy Calls For Film Festival Submissions

2007-09-20T21:10:49Z

I encourage my readers to attend Greensboro's annual tech users' conference, ConvergeSouth, to be held on October 19 and 20. This year's conference includes a film festival. As I've pointed out before, hedge funds these days are throwing money at filmmakers. If you want your film to be seen by a big-time hedge fund manager, you need to put it on a DVD and get it in the mail by September 25. The festival is looking for short film, vlog, music video, animation and citizen journalism submissions. Go here for film submission details. Go here to register to attend.

Andy Coon, the festival's producer, provides more information in his weekly vlog:

ConvergeSouth Film Festival: Vlog Week 6

Add to My Profile | More Videos

The Richest Convicted, Acquitted and Pardoned Americans Over the Last 25 Years

2007-09-19T20:08:49Z

Forbes identifies the people on the Forbes list of the 400 richest Americans over the last 25 years who have been convicted, acquitted or pardoned of crimes. Listed alphabetically, here they are:

Ivan Boesky (insider trading) (convicted)
T. Cullen Davis (murder, attempted murder) (acquitted)
John E. DuPont (murder) (convicted)
Bernard Ebbers (fraud) (convicted)
Pincus Green (tax evasion and fraud) (pardoned by Clinton before trial)
Armand Hammer (illegal political contribution) (convicted)
Leona Helmsley (tax evasion) (convicted)
Nelson B. Hunt (market manipulation) (convicted)
William B. Hunt (market manipulation) (convicted)
Meyer Lansky (tax evasion) (acquitted)
Michael Milken (insider trading) (convicted)
Victor Posner (tax fraud) (convicted)
Marc Rich (tax evasion and fraud) (pardoned by Clinton before trial)
Leonardo P. Rizzuto (tax evasion) (pled guilty)
Martha Stewart (obstruction of justice) (convicted)
Alfred Taubman (price fixing) (convicted)
Percy Walker (mayhem; unsanctioned ultimate warrior fight) (pled guilty)

NYU Roundtable on Carried Interest Tax

2007-09-19T13:55:57Z

Percy is the world's foremost authority on the proper tax treatment of carried interest. He believes that carried interest should be taxed the same as the gains or income from which it is derived. Click here for all of his carried interest posts.

Once again, Professor Victor Fleischer, who I have challenged to a debate on the proper tax treatment of carried interest, has convinced the organizers of a carried interest tax discussion not to invite me to participate. NYU School of Law's Tax Law Review and Law Review didn't invite me to its roundtable discussion "Does Atlas Shrug? Taxing the Rich and the Carried Interest Debate," which was held yesterday afternoon.

NYU law professor, Daniel Shaviro, provides a helpful report. As usual, the only person in attendance making any sense is a non-academic:

[Jon] Talisman[, partner, Capitol Tax Partners and former assistant secretary of the treasury for tax policy] gave the example: A and B both put cash in a partnership that develops shopping centers. Case 1, they participate equally, doing lots of work, and get a 50% return each, which unambiguously gets CG [capital gains] treatment under current law. Why should this change because A does a bit more work than B and thus gets 60-40. For that matter, why is A here different than if he did his own thing completely, blending a lot of labor income in developing the shopping centers with his own cash, and getting CG treatment for the whole thing. So what's the deal with disproportion being fatal to the CG result?

Exactly! What's the deal?!? I used almost precisely this example months ago. The deal is this: people want to impose a penalty on the sweat equity on alternative asset managers, but NO OTHER HUMAN BEINGS.

Venture Capitalists Give Other Private Equity Firms the Shiv

2007-09-19T11:34:46Z

The National Venture Capital Association is telling Congress to raise taxes on all private equity firms that aren't venture capital firms. How else to read this press release (emphasis added below)?

"We are pleased that many members of Congress understand that their goals of economic growth and U.S. competitiveness are perfectly aligned with those of venture capitalists. Congress wants innovation and job growth; VCs build companies and bring breakthrough technologies to the U.S. market. However, changing the tax treatment for carried interest discourages the very type of investment Congress has been trying to encourage for so long. The good news is that it is entirely possible to work in tandem to continue achieving these economic objectives while promoting tax fairness,” said Mark Heesen, president, National Venture Capital Association. As the NVCA Board has communicated to Congress, there are distinct characteristics of venture capital that no other industry can claim: Venture capital creates industries and builds communities. The venture industry is a significant contributor to innovation in industries such as alternative energy, biotechnology, and semiconductors.

* * * * *

“The venture capital industry isn’t in the ‘buy it and flip it’ business. We invest for the long haul, helping to create exciting new industries and companies that revitalize communities. That’s how the industry has been able to foster and support ‘the next big thing’ for the last 30 years,” said Heesen.

Pictured: The Shiv Percy used while doing time at Pelican Bay.

Here's more from Bloomberg's Donmoyer and Fitzgerald:

Venture-capital firms are drawing a "bright line" between themselves and buyout firms such as Blackstone Group LP in an effort to dodge a proposed tax increase in Congress.

Board members of the National Venture Capital Association said they are leveraging 33 years of relationships on Capitol Hill to press lawmakers to exclude their industry if private- equity firms and other partnerships are subjected to higher taxes under proposed legislation.

"This is apples and oranges all being lumped together," said Ted Schlein, a partner at Kleiner Perkins Caulfield and Byers, a Menlo Park, California firm that along with Sequoia Capital Ltd. paid $25 million in 1999 to buy 20 percent of Google Inc. "You've got to look at these slices separately."

This is depressing. My Omni-Strategy Fund provides funding to a fair number of start-up ventures, but it is basically chump change in the grand scheme of things. If you're going to stick it to other private equity firms, then good luck with your exits, VCs!

Percy Helps You Understand the Subprime Mess

2007-09-19T11:23:13Z

I stole this from FT Alphaville (you may have to go there to be able to read it), who stole it from Pictet & Cie, the Swiss private bank:

Percy Defends Greensboro Lawyer

2007-09-19T10:23:01Z

My hometown newspaper, the News & Record, had a page-one story this past Sunday about a local attorney who has -- so far -- successfully avoided paying over $2300 in parking tickets on the grounds that the City of Greensboro waited too long to sue him. This wasn't the first time the attorney had been sued for unpaid parking tickets. An earlier suit for almost $2000 in tickets was settled for $1600. Some local bloggers and blog commenters say that the attorney, Kevin Morse, kind of looks like an asshole.

Kevin Morse has been the subject of page-one stories before. On November 1, 2006, the Wall Street Journal ran a piece on Mr. Morse. It seems that he owns the U.S. rights to a British invention called AWOL -- an acronym for "alcohol without liquid." How does it work? Say you have a Macallan 50-year-old, but you don't like the liquidyness of it and don't want to ingest all of the carbohydrates involved in drinking it. With the AWOL contraption you can vaporize it and inhale it. AWOL is "designed to allow people to enjoy the effects of alcohol mixed with oxygen. It promotes a sense of well being and a mild euphoria."

Inhale the high class entrepreneurial spirit of Kevin Morse as he tries to convince you to become an AWOL dealer/sales rep (emphasis in original):

Business Opportunity? Yes! Quite possibly the best opportunity this century!

By visiting this page, you have communicated to us that you are serious about an OPPORTUNITY that can possibly change the quality of your life.

Congratulations for taking the first step!

It only takes a few minutes of your time to check out, for yourself, something that we believe to be one of the MOST PROMISING OPPORTUNITIES in the world today.

IT'S THE PERFECT JOB!
Work from home
Set your own hours
You're in control

You can work whenever you'd like; morning - noon - night

YOU OWN THE BUSINESS! YOU MAKE THE RULES! YOU SET YOUR OWN SALES GOALS!

All you do is purchase a minimum of 10 machines at a wholesale price and resell at retail price.

You can sell anywhere that we do not already have dealers.

Do you control the quality of your life? It's time for things to change!

Become an independent sales rep for AWOL.

Ask Percy: Form 13F

2007-09-17T18:03:34Z

Q. Percy, I haven't been able to locate any of your Form 13F filings with the SEC. What's the deal?
-- David, Hamilton Lakes, Greensboro

A. David, the reason you can't find my 13F filings is quite simple: I don't file them.

Form 13F is a form that investment managers who, like me, have investment discretion over at least $100 million in exchange-traded or NASDAQ-quoted stocks, equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities are required by U.S. law to fill out and file with the SEC. The form calls for disclosure of holdings of the types of securities mentioned above and must be filed quarterly. The filings are then made available online for review by anyone with internet access.

Like my friend Phillip Goldstein of Full Value Advisors, LLC, I have long maintained that the 13F filing requirements force the disclosure of trade secrets in violation of the Fifth Amendment of the U.S. Constitution, which bars the taking of property without compensation or due process of law. Unlike Phil, I haven't filed a request for exemption from filing requirements with the SEC. Instead, I'm waiting for the SEC to come after me. If they do, I'll raise violation of my 5th Amendment rights as a defense. I see no reason to spend money on lawyers before then.

Thanks for the question!

Percy Identifies the Finance Blogs From Which He Most Frequently Pilfers Ideas for His Posts

2007-09-15T00:03:23Z

I'm gentlemanly enought to admit that my blog entries are sometimes derived from the work of others; I'm just not gentlemanly enough to admit it every time I post an entry.

Now listed on my sidebar are the fifteen finance blogs that I read most frequently. I hope that by listing your blog on my sidebar for a period of time, I'll be forgiven for passing off some of your ideas as my own, should I choose to do so. As they say, "Imitation is the sincerest form of having your balls tongued."

Londoners Mock Manhattan-Americans

2007-09-14T02:08:21Z

My friends at FT Alphaville are amused that the highest purchase price ever paid for an apartment in New York (at least as of 2005) is a mere $45 million, while the price for a penthouse apartment in London goes for as much as $170 million. I confess to being perplexed by this state of affairs, but, then again, I've never understood the Brit love of whigga culture, Brit use of the word "cunt" as a term of affection and Brit exclamations of "Brilliant!" when a simple "Okay" would do.

Mark Cuban Throws His Hat into the Octagon

2007-09-13T15:25:36Z

Good luck to Mark Cuban and his new mixed martial arts fighting organization, HDNet Fights. This development should be good for the fighters and, notwithstanding my friendships with the Fertitta brothers and Dana White of the Ultimate Fighting Championship, I welcome it. I've always considered myself a fighter first.

Another likely bonus: the end of ridiculous fake billionaire Calvin Ayre's Bodog Fights.

More on Cuban and MMA from Sherdog.

"Standard Deviation Event" is not in Percy's Vocabulary

2007-09-13T10:49:26Z

You'll never hear me complaining about x-sigma events. Also foreign to me: "reversion to mean," "random walks," "efficient markets" and "Kevin Smith is a good director."

I agree 100% with Michael Cembalest, Chief Investment Officer of JP Morgan Private Bank (as quoted by Marc Andreesson):

Advice to portfolio managers around the globe: please stop referring to "7-standard deviation events" when describing performance.

Whether it's the decline in home prices in real terms, a sudden widening of credit spreads, the impact of too much leverage on previously uncorrelated hedge fund strategies, a sudden shift in liquidity, a selloff in riskier emerging market stocks and bonds despite no change in fundamentals, unexpected outflows from fund investors, problems with credit derivatives or declines in bank credit lines, this has all happened before.

The smartest managers had prepared for volatility.

The good ones will learn from what's happened and make adjustments.

Those that spend too much time explaining why it wasn't likely in the first place fall into the bottom category.

Nassim Nicholas Taleb: "Percy knows where all the black swans live."

Previously: the PWNAGE System.

Percy Installs Security System to Protect Wife's Assets

2007-09-13T03:04:45Z

I already spend a lot of money on security, but sometimes you need that extra peace of mind that only a security cobra snake will provide.

Photo: a Cobra guards Zoe Walker's shoe.

I have a cobra guarding each of my wife's belly rings, tongue rings, eyebrow rings, toe rings, stilettos and firearms. You can never be too safe!

Pictured: Zoe Sienna Walker, wife of Percy Walker

Mutual Fund Manager Calls Hedge Fund Investors Stupid, Percy Responds

2007-09-12T21:13:28Z

Anyone with a bad word for hedge funds these days can have it published no matter how little they know of the subject. The latest bad word comes from Arne Alsin, a mutual fund manager who seems to know nothing whatsoever about the the behavior of hedge fund investors. Portions of his column from yesterday's Financial Times are reproduced in italics below. My comments follow.

Arne Alsin

"If people carefully considered the structural deficiencies before investing, most would never invest. Hedge funds are not designed to serve the best interests of investors. They are designed to serve the best interests of hedge fund operators."

A mutual fund manager might not realize this, but the typical hedge fund investor doesn't go to his financial advisor at the Edwards Jones office down by the Steak and Shake to figure out where to put his money. Pension funds, endowments, foundations, funds of funds and, yes, even wealthy individuals do a fair amount of due diligence when investing in hedge funds. This due diligence checklist sets out the kind of going-over a non-elite hedge fund manager can expect to receive.

Photo: Hedge fund investor prepares for due diligence probe.

As for hedge funds being designed to serve the best interests of operators rather than investors, I can only say that we still haven't figured out how to convince investors to pay performance fees in down years!

"What are the attributes that should make investors wary?

First, lack of transparency: hedge fund investors are at a significant information disadvantage compared with investors in other instruments. For example, the owner of a brokerage account can go online and see exactly what he or she owns and how much it is worth at any hour of the day, on any day of the year."

This is silly. People don't go to flight training school before flying as passengers on airplanes, and investors in KFC aren't entitled to the Colonel's secret recipe. Hedge fund managers are pilots and their investment program is their special sauce on the Big Mac.

For the sake of all investors in a fund, managers shouldn't provide positional details to any investors. They're called trade secrets. If they seep into the market, a fund's performance suffers. Unlike the typical mutual fund investor, the typical hedge fund investor has the means and ability to act on its funds' strategies in ways that dampen returns. Personally, I insist on positional opaqueness from my managers.

Photo: Percy's Investment Strategy, kept in a safe until Percy's death or permanent disability.

Many hedge fund investors nevertheless insist on receiving positional and leverage information and many, many managers are willing to provide it to them, even daily. So, Mr. Alsin is wrong in more than one way.

"It is a mistake, for example, to be impressed by a hedge fund that claims to have generated returns of more than 40 per cent annually for three consecutive years. An informed judgment cannot be made solely based on a nominal rate of return. Does the fund use a lot of leverage? Are there illiquid or hard-to-value holdings? Does the fund set aside holdings in side pockets? Does it invest in speculative securities? Is there exposure to derivative contracts?"

If you have a chance to invest in a fund that has generated returns of 40 per cent annually for three consecutive years, you are an idiot not to invest in it. Also, there are things called offering memorandums, limited partnership agreements and side letters that discuss and provide limits on leverage, valuations, side pocketing and the types of securities in which a fund invests. Investors read and rely on them. Not living up to them is actionable. Also, see that due diligence check list linked above. Due diligence is something hedge fund investors actually do.

Does Alsin know anything at all about investing in hedge funds?

"Further, hedge funds have a misaligned incentive structure. The typical hedge fund charges at least a 1 per cent annual management fee plus 20 per cent of profits. This fee arrangement is aligned nicely to a hedge fund manager's objective of getting rich. It is not aligned with investor goals such as long-term wealth accumulation or funding retirement."

In the real world, hedge fund managers have a significant amount of their net worth tied up in their funds. Investors insist upon it. An investor will lose less of its overall net worth in a blowup than the typical fund manager.

Blow-ups also tend to lead to lawsuits against fund managers.

"Last, hedge funds lack accountability. Because the industry is unregulated, any and all information promulgated by the funds should be viewed with caution. Without regulatory scrutiny and disclosure on how returns are generated, investors have a right to be sceptical."

The market has regulated many hedge fund managers into providing the information that Mr. Alsin claims isn't provided. There are also regulations that prevent the vast majority of people from investing in hedge funds in the first place, not to mention the ridiculous requirement that managers with more than $100 million in publicly traded equity provide quarterly disclosure of their positions. Hedge funds are overregulated.

The Super-Rich Have Larger Brains than the Rich

2007-09-10T02:27:17Z

The widening gap between rich and super-rich discussed on ONN:

In The Know: Are America's Rich Falling Behind The Super-Rich?

Hedge Fund Performance and SAT Scores

2007-09-13T20:46:16Z

Ever wondered why I highlight my academic pedigree -- Princeton undergrad, Yale law, Harvard business school -- on the sidebar? Wonder no more: A recent academic working paper finds that "managers from higher-SAT undergraduate institutes tend to have higher raw and risk-adjusted returns." More from today's New York Times.

Percy Rates the Tax Lawyers from Yesterday's Carried Interest Tax Congressional Hearings

2007-09-07T16:26:12Z

I was able to watch the third panel of the " Hearing on Fair and Equitable Tax Policy for America's Working Families." This panel focused on the carried interest tax debate and consisted of tax lawyers (mostly academics). Here's my rating of the performances on a scale of 1 to 10.

Percy's Rating

Witness

Jack S. Levin, Partner, Kirkland & Ellis LLP, Chicago, Illinois

Peter R. Orszag, Director, Congressional Budget Office

C. Eugene Steuerle, Ph.D., Co-Director, Urban-Brookings Tax Policy Center, and Former Deputy Assistant Secretary of the Treasury for Tax Analysis, Reagan Administration

Darryll K. Jones, Professor of Law, Stetson University College of Law, Gulfport, Florida

Mark P. Gergen, Professor of Law, The University of Texas School of Law, Austin, Texas

Victor Fleischer, Associate Professor of Law, University of Illinois College of Law, Champaign, Illinois

Mr. Levin also teaches at Harvard Law School and University of Chicago Law School, is the author of a 1,400 page treatise on structuring venture capital and private equity transactions and co-author of a 4,400 page treatise on mergers and acquisitions. His reputation is greater than the product of (a) the sum of the reputations of the other panelists and (b) 6. I believe this is the reason he was the only person on the panel defending the current tax treatment of carried interest.

Live Blogging the Carried Interest Tax Hearings

2007-09-06T15:58:05Z

Dan Primack of PE Hub is live blogging the House and Senate hearings today. Go there to get the take from a pro-tax increase enthusiast. For live blogging from someone who, like me, is opposed to the creation of a discriminatory tax on the sweat equity of alternative asset managers BUT NO OTHER HUMAN BEINGS, go to Congressman Tom Reynolds' From Wall Street to Main Street.

For all of Percy's posts on carried interest, click on the carried interest category on the sidebar.

Bull Durham Blues Festival

2007-09-06T15:19:12Z

I'm heading over to Durham for the 20th Annual Bull Durham Blues Festival, which begins tonight. Acts over the next three days include Buddy Guy, Guy Davis, Booket T and the MG's, Percy Sledge and, of course, my family band:

LI'L MALCOLM WALKER & THE ZYDECO HOUSE ROCKERS - personify two closely related terms: family and tradition. The five-man band centers on guitarist Percy Walker and his two sons. Inspired by Zydeco legends the band's steady focus on tradition sets them apart from newest wave of "pop zydeco" bands.

See you there!

Cox and Balls and Steinbrueck

2007-09-06T13:40:44Z

German Finance Minister Peer Steinbrueck seems to think that the recent turmoil in the credit markets has made U.S. and U.K. officials more open to German dreams of increased hedge fund regulation. Let's hope that SEC Chairman, Chris Cox, and Economic Secretary to the Treasury, Kitty Ussher, dash those dreams.

For more on Cox and Ussher's attitudes towards hedge fund regulation, watch the following video from the folks at Minyanville. (Please note that Ed Balls was Economic Secretary to the Treasury at the time the video was made. Just substitute Ussher for Balls and this great video will be just as relevant today as it was a few months ago.)

Success Linked to Death of Mother-in-Law

2007-09-05T16:00:26Z

From the front page of today's Wall Street Journal:

Magic Johnson, Robert Johnson Join Percy's Team

2007-09-05T13:15:23Z

I'm pleased to announce that Earvin "Magic" Johnson and Robert L. Johnson join me in opposing tax hikes on alternative asset managers:

A group called the Access to Capital Coalition is expected to announce Wednesday that it also opposes raising the tax rate on carried interest, which comprises most of private equity fund managers' earnings, according to The Wall Street Journal. Big names like Earvin "Magic" Johnson, the former basketball star and entrepreneur, and Robert L. Johnson, the founder of BET who now runs RLJ Companies, will argue that the proposal would hurt investments in neglected areas.

For all of Percy's posts on carried interest, click on the carried interest category on the sidebar.

Percy to Debate Proper Tax Treatment of Carried Interest at ConvergeSouth

2007-09-04T18:13:56Z

I launched this blog about a week after attending last year's ConvergeSouth, the annual tech users' conference in Greensboro, North Carolina. I'll be attending again this year and hope to see more high net worth bloggers, financial bloggers and alternative asset managers in attendance. Register here.

To help generate interest among this historically underrepresented group of ConvergeSouth attendees, I've decided to debate a proponent of the carried interest tax bill the weekend of the conference. For those unfamiliar with the bill, it is designed to create a special tax penalty on the sweat equity of alternative asset managers, BUT NO OTHER HUMAN BEING. The debate will be webcast live.

I hereby publicly challenge Victor Fleischer, University of Illinois College of Law professor, blogger and proponent of tax hikes for alternative asset managers, to debate me on the merits of the tax bill.

To accommodate the many interested in witnessing this debate, I've arranged for it to be held at Percy Walker Auditorium on Friday, October 19, immediately after the ConvergeSouth barbecue. The auditorium is within walking distance of the barbecue venue.

Wish me luck!

Percy Walker Auditorium, Greensboro, NC

To read all of Percy's posts on the proper tax treatment of carried interest, click on the "carried interest" category on the sidebar.

Oligarchy Ain't Just a Nightclub in Greensboro

2007-09-04T15:21:54Z

The City of Longmont, Colorado honors Percy's preferred form of government by naming some of its urban sanctuaries after it. From Longmont's official government website:

The Oligarchy Greenway is developed along part of the Oligarchy Ditch, which runs through Longmont from the west at McIntosh Lake to Union Reservoir in the east and then south. The Oligarchy Ditch takes its name from the way most ditch companies were structured; "Oligarchy" means "government by the few." It is one of the earliest ditches built for Longmont's farmers and is considered an historic site. To date, the Greenway exists from Airport Road to Hover Street, a section through Garden Acres Park, and again from Mountain View Avenue to Rothrock Dell Park. It boasts an eight-foot wide concrete path and landscaping along the flowing ditch.

On a related note, Greensboro's billionaires-and-models nightclub, Oligarchy, will open to centimillionaires (tomorrow's billionaires!) during the month of September. Contact Armando at least fours hours before arrival to give him enough time to wrangle up some models.

North Carolina Lifts Ultimate Fighting Ban, Percy Celebrates

2007-09-03T14:34:10Z

North Carolina Governor Mike Easley signed a bill late last week reversing the 1995 ban on mixed martial arts fighting in this state. You can read the text of the new law here. I'm glad finally to be able to compete in my home state and to headquarter my female MMA fighting league here.

In other MMA news from this weekend, the New York Times reports on the popularity of Ultimate Fighting Championship:

[T]he Ultimate Fighting Championship . . . in just a few years has emerged from almost complete disrepute to become perhaps the fastest-growing spectator sport in America. Even as boxing seems to implode in slow motion, millions across the country are becoming fans of the U.F.C.'s jigsawlike submission holds and lightning kicks and its athletic, even sometimes balletic, practitioners. The league's popularity has made it the top pay-per-view television attraction in the country, and its basic-cable offerings have become a major draw, especially among young men.

The New York Times was also on hand for the successful defense of my UFC hedge fund division title this weekend:

Percy Walker, bottom, lulls Finbar Taggit with his possum defense. Photo by Isaac Brekken for The New York Times.

Money Never Sleeps Preview

2007-08-31T19:04:53Z

The inspiration for the re-birth of Gordon Gekko as a London-based hedge fund manager, Finbar Taggit, gives us a sneak preview of some Gekko lines in the upcoming sequel to Wall Street, Money Never Sleeps:

"Regulation is for rookies"
"There is only one g in hedge"
"Johnny Depp is to pirates what Gordon Gekko is to market manipulation"
"Fundamentals are for buffoons called Warren. "
"Remember the 3 L's. Lie, Lock and Lever. Tell them their dreams will come true, lock them in, and borrow as much as you can to maximise your performance bonus."
"Only the guilty give away what they earn."
"If you are going to lose money, lose it big. Investors cannot sue you if you have blown up completely."
"Make your investors smile. Rolexes and whores are great comforters when their investments are down
"You can never have a big enough yacht"
"Spending other peoples money is a science. Never paying it back is an art."
"Covered shorts are for wimps"
"Big balls are for dandies"
"Power is being able to make the markets move."
"Owning people is the route to success."
"Wimps are for the Investment Banks. Trading with a fat balance sheet behind you is like running naked down a street at night."
"Getting in is easy. Getting out is where I come in."

From FiNTAG.

Parodists Attack Percy

2007-09-04T14:05:07Z

The Service Employees International Union (SEIU), North America's largest janitors union, continues to spend its members' dues on efforts to build resentment against private equity firms. Already known for its anti-private equity blogs Behind the Buyouts, Behind the Buyouts: KKR and I Hate Percy Walker, the SEIU two days ago sponsored a parodic protest.

A group of protesters, some with costumes and snarky stage names, gathered Wednesday on the swank Main Street of Southampton, N.Y., not far from the summer home of one of the private equity industry's leaders, Henry Kravis of Kohlberg Kravis Roberts. Slinging slogans like "protect the emerging plutocracy" and cheerfully greeting passersby with "have a wonderful wealthy day," these activists -- tongues firmly planted in cheeks -- demanded more tax relief for private equity fund managers.
Their real objective, of course, was exactly the opposite.

Wednesday's protest was organized by the Service Employees International Union, which represents nearly two million workers, and the Working Families Project of New York.

It was hardly a mass uprising: The eight or so participants were outnumbered by media covering the event. But the performance marked a new level of showmanship (and sarcasm) in the escalating debate over a bill to raise taxes on "carried interest," a major source of buyout fund managers' profits.

NYT photo: "Rob Dapore" and " Ivy League Legacy," 25% of the protesters in Southampton on Wednesday, August 29.

And to think that it was only May 30 that Allan Murray wrote of Andrew Stern, President of the SEIU:

His effort to blaze a new trail appears to be modeled less on labor leaders of the past than on a civil-rights leader: Jesse Jackson. Their common tactic: Attack first, then engage -- with a hand out for the ultimate payoff.

For some on the receiving end, this feels like a shakedown, though none of the private-equity leaders I spoke with will say so on the record. But Mr. Stern is unapologetic. Indeed, he blames business for encouraging labor to behave badly. "They've trained us wrongly," he says. "We tend to get ignored or caricatured, and sent to the human-resources department when we call. The CEO says, 'Will someone take care of these guys?' Not until we do something they find 'unfair' will they talk to us."

"It's like your children," he adds. "If they behave and get no reaction, then they'll cry."

This is as good a time as any to announce my $2 billion investment in iRobot Corporation.

Percy To Buy World's Largest Diamond

2007-08-30T12:24:09Z

I was on my island in the Seychelles when I received word that the largest diamond in the world had been unearthed in the northwest province of South Africa.

Walker Island, Seychelles

I knew instantly what my wife was getting for her 24th birthday.

My gemologist and I flew to Johannesburg to conduct tests on this 7,000 carat gemstone. Wish us luck!

Hedge Fund Manager Attacked at Spin Class

2007-08-30T04:09:05Z

UPDATED BELOW

Open season on hedge fund managers continues and, frankly, I'm sick of it. Meet Stu Sugarman, the latest victim of hedge fund manager abuse:

Stu was attacked for exuberance while spinning, which included shouts of "you go, girl."

I'll be the first to admit that shouts of "you go, girl" by an adult male trying to psych himself up are difficult for all but the most subdued of us to tolerate, but is it worthy of a beating? How many times have you felt like punching someone after hearing a shout of "you go, girl"? If you're like me, the answer is "billions." Have you ever actually punched someone? No, of course not. The only reason why Stu was attacked is because society has deemed it ok to attack hedge fund managers, and that's not right.

The New York Post has reports from Saturday and today.

UPDATE 8/29: NYT cites evidence that Stu is actually an investment banker, which would explain the "you go, girl" chants. I'm relieved that he is not a hedgie, but still concerned that he was attacked because he was thought to be a hedgie.

Dumbest Hedge Fund Article Ever Written

2007-08-27T13:55:26Z

Portfolio magazine, the new Condé Nast publication that brought us the Tom Wolfe hedge fund hit piece that I, in so many words, called "crap" and Daniel Gross, in one word, called "terrible," tells hedge fund managers what to do to save their funds after a big loss.

Marvel at the obviousness, vagueness of Portfolio's advice, reprinted in italics below.

1. Call Your Lawyer
Not sure when to start getting concerned? Here's a measure: If the losses cross the 10-percent mark in just a few days, get your attorney on the phone.

Percy: Attorneys are like the Harvey Keitel character from Pulp Fiction. You may feel uncomfortable while they bark orders, but you'll be glad the brain matter was cleaned out of your upholstery before your fund gets crushed in a giant compacter.

2. Reconsider Your Math
If your mathematical investment models are no longer working, stop using them. Amaranth Advisors, which in a few weeks said good-bye to nearly two thirds of its $9.2 billion assets, was successful as a diversified multi-strategy hedge fund, but ran into trouble when it focused (and kept focusing) too much on a natural-gas play that didn't pan out. Give your strategies a rest if everything is going wrong.

Percy: Additional helpful advice: stop losing money, don't make bad trades.

3. Don't Give Money Back to the Investors
When you set up a hedge fund, ideally it provides for people to get their money back only at specified times and with 30 days written notice. Don't make exceptions. Making sure your investors are locked in for a predetermined period of time is key to running your fund: You're making bets assuming you'll have the money to make good on the contract. If the investors' money can evaporate at a moment's notice, you won't be able to.

Percy: Also, make sure your lock-ups are long enough and redemption suspension and gating provisions loose enough before any investor wants to redeem. If investors redeem, you won't have money to manage. Same is true if you voluntarily give it back to them.

4. Quietly Get Liquid
Sell everything you can that isn't essential to your company's business. However, be very discreet when looking for a buyer. Don't approach 10 people. Approach just one whom you think will keep quiet. It's essential that this news not get out. For one thing, if lenders hear that you're in trouble, they'll jack up their rates. But the most important reason to keep selling secretive brings us to the next point...

Percy: Another no-no: Telling your investors or prime broker that you're having lunch with Ken Griffin.

5. Use the Liquidity to Cover Margins
If there is a default under any of your securities contracts--for example, the inability to meet a margin call--then other parties with whom you have contracts to buy or sell may claim their contracts have been breached. (In the complex world of hedge funds, everything is connected.) If other parties claim their contracts are invalid, they will seek to break those which are profitable for you and enforce the ones which are profitable for them.

Percy: If you're not using your liquidity to honor investor redemptions, use it to honor margin calls!

6. Correct Any Circulating Misinformation
Your P.R. counsel, says Michael Sitrick, chairman and chief executive officer of Sitrick & Company, needs to be vigilant about ensuring that any inaccuracies out there are corrected immediately. If you nip something before it gets picked up by the wire services, you should be okay. However, once incorrect information is fully disseminated, it's harder to get the right story out.

Percy: Unknown inaccuracies are better than known inaccuracies. Unknown accuracies are sometimes better than known accuracies, though.

7. Play Down the Situation
If you are calm, others will be too.

Percy: Lay off the coffee, meth.

Percy Enters News & Record Cartoon Caption Contest: August 24, 2007

2007-08-27T01:19:11Z

As you can see below, I've set the bar pretty high in my return to competitive cartoon captioning.

"You need to see your asstrologist immediately."

You can find all of my previous captioning efforts in the News and Record category on the sidebar.

Percy Announces Return to Competitive Cartoon Captioning

2007-08-24T05:13:04Z

After a four month hiatus, I've decided to recommence competing in my hometown paper's weekly cartoon caption contest. Check back next week to see how I did.

Look on my previous entries, ye mighty, and despair!

"Whoa! I haven't seen a horse take out a queen like that since the death of Catherine the Great."

"He said it was for rust prevention, but then I found his stash of Playbot magazines"

"And then he went all Uri Geller and started talking about bending me with the power of his mind. Creepy."

"Meaty bones for me, veggie biscuits for the bitch."

"'Justifiable clownicide' is a redundancy."

"I like mine hot and black, like my heifers."
"When I go, Bob, I hope you'll do the honors."
"Whoever said cannibalism is wrong obviously never had one of your burgers."

"Your proposal for reducing our pension costs is genius."

Percy Ranks Bill Gross Metaphors: September 2007

2007-08-23T11:51:28Z

Bill Gross calls for a massive bailout of U.S. homeowners in his September 2007 "Investment Outlook." He also cuts back on his use of metaphors from last month. This month's top 5 metaphors:

"And for those who would still have them eat some Wall Street cake as opposed to Midwest meat & potatoes . . . look at it this way: your stocks and risk-oriented levered investments will spring to life like the wild flowers in Death Valley after a flash flood."
"Waldo morphs and becomes a man with a thousand faces."
"70% of American households are homeowners, and now many of those that bought homes in 2005-2007 stand a good chance of resembling passengers on the Poseidon – upside down with negative equity."
"The food chain in this case is not one of predator feasting on prey, but a symbiotic credit extension, always for profit, but never without trust and belief that their money will be repaid upon contractual demand."
"They are wizards of complexity. I, however, having just turned 63, am a professor of simplicity."

Percy Finds His Bugatti Veyron

2007-08-22T12:34:50Z

I'm not the only one who is so distracted by the market turmoil that he didn't know his car was missing.

Bertrand Des Pallieres, founder of the SPQR Capital LLP hedge fund, said he was so focused on the swings in financial markets that he didn't notice his 80,000-pound ($160,000) sports car had been impounded by London authorities.

The 39-year-old, who quit Deutsche Bank AG in April to set up the fund, said in a telephone interview he amassed ``thousands of pounds'' in fines from unpaid congestion-charge fees and taxes. Authorities seized the blue Maserati Cambiocorsa in late May. Des Pallieres didn't realize it had been taken until this month.

I apparently parked my Bugatti Veyron 16.4 in front of a fire hydrant for handicapped people in the middle of Elm Street, and the traffic police had it towed away. I rarely drive myself, so I didn't even notice it was missing. Thanks to the people at the impound lot for calling before scrapping the car.

Percy Does Tequila Shots

2007-08-22T01:47:42Z

I just finished drinking a USD1.35 million (EUR1 million) bottle of tequila. My verdict: "Not bad!"

That said, I think that the company that sold me the bottle, Tequila Ley .925 S.A. de C.V., needs to cut back on the number of diamonds and amount of platinum used in making the bottles -- not to mention the 32 Mexican craftsmen that created the hand-blown glass -- to make its tequila affordable to the masses. But it's off to a good start!

More info. here.

Percy Still Not the Most Famous Hedge Fund Manager From North Carolina

2007-08-22T01:52:42Z

People assume that, as famous as I am, I must be the most famous hedge fund manager ever born and raised in North Carolina. But I'm not. As long as Julian Robertson still casts his long shadow on this earth I'll remain the second most famous hedge fund manager born and raised in North Carolina ( Louis Moore Bacon will remain the third most famous). That's ok by me. Mr. Robertson is the greatest hedge fund manager of all time. He certainly deserves to be the most famous hedge fund manager from the Tar Heel State.

Yesterday's profile of Mr. Robertson in Singapore's The Business Times reminded me of my second-most status. Here's the North Carolina part of the profile:

Mr Robertson was born to a notable family living in the small town of Salisbury in North Carolina. His father was a successful businessman in the textile industry and a savvy investor, while his mother was heavily involved in community work.

His father piqued the young Robertson's interest in investing at an early age, teaching him how to read and understand stock tables and other financial information. The boy would often sit on the living room floor and compare statements from different companies to see who got the most sales per dollar of investment.

After graduating from the University of North Carolina with a degree in business administration in 1955, Mr Robertson joined the US Navy and served on a munitions ship where he was in charge of the functionality of weapon systems.

For those of you who want to learn more about North Carolina's rich alternative asset management heritage, please read the whole thing.

Percy's August Investor Letter

2007-09-18T19:20:57Z

Finding the time to blog in these volatile times is difficult. Too much money to be made!

Here's our latest investor letter.

August 17, 2007

Dear Investor:

Much has happened since the end of July and we have taken a pause from the hectic activities of the past couple of weeks to write this letter to update all of our investors.

First of all, the fund is up approximately 117% for the month of August, through August 15. We are likely to be up more by the time you read this letter, perhaps as much as 183% MTD.

We have worked overtime to understand the causes of these gains and, to put it simply, the Percy Walker Neutral Asset Gatherer Evaluation (PWNAGE) system has worked as planned. In brief, our PWNAGE system predicted that several very large trading entities would liquidate massive market-neutral portfolios. Market-neutral funds attempting to make money by intercepting cash flows moving from securities of lesser value to those of higher value or that bet on fundamental factors or mean reversion of one type or another bet on market participants to make historically-precedented, value-oriented security selections. Investment flows that ignore security-specific value, such as broad liquidations to meet margin calls or redemption requests, cause losses to such funds. Our PWNAGE system tells us when this will happen.

Luckily for us, many hedge funds had more leverage than an Archimedean whore, while others were stocked with empty nutsacks as investors, ready to bail at the first signs of trouble. As predicted by our PWNAGE system, the combination of margin calls and investor redemption requests led to conditions not seen since the last pyrotechnic show at a Great White concert. We were there, Crassus-like, with our giant fire hoses, willing to put out the flames for those overcrowding the exits, but only if the price was right.

Anyway, congratulations on being invested in Percy Walker Omni Fund, L.P. Let us know if you have any questions.

Sincerely,

/s/

Percival X. Walker

P.S. Prediction: The Federal Open Market Committee will lower its target for the federal funds rate 50 basis points to 4-3/4 percent when it meets on September 18, 2007.

Hedge Fund Article From 1968 Looks Like A Million Others I've Read Lately

2007-08-15T14:46:25Z

From New York magazine (October 21, 1968, p. 22, middle column):

[Hedge fund managers] are deeply worried about attracting any further attention in Washington: the SEC is already taking a long, careful look at the hedge fund phenomenon. An even tougher problem is the fact that the Internal Revenue Service could change the provision in the tax laws that makes a hedge fund manager’s 20 percent fee taxable at capital gains rates.

I feel like I've read this paragraph a million times over the past year, but it was written almost 40 YEARS AGO!

I've explained many, many times why we need no additional regulation of hedge funds and no change in the tax treatment of carried interest, but this old article drives home the fact that light regulation of hedge funds and capital gains treatment of carried interest have been with us for many, many decades. Why tamper with something so time-tested?

Romney Worth No More than $247 Million

2007-08-14T17:49:34Z

I am as surprised as you are to learn that Mitt Romney, Percy-endorsed candidate for president, is worth no more than $247 million. That's more than all other candidates combined, but disappointing for a former alternative asset manager.

Still, I'm glad he destroyed the field in the Iowa straw poll this past weekend. The overwhelming vote of confidence from Iowa Republicans sends a clear message to Iowa Republican senator Charles Grassley that the people of his state won't tolerate efforts to raise the taxes of alternative asset managers.

I expect defeat for Grassley in 2010 if he continues to push for special tax penalties for those in the alternative asset management business.

Percy's Right of Publicity Violated

2007-08-09T20:00:39Z

Thanks to the many of you who have written to ask me about what I'm going to do in response to the print ad reproduced below (you can also find it here and on the page opposite the Table of Contents in the August 13, 2007 issue of The New Yorker). The text in the top left corner of the ad reads:

Hedge Fund Manager

Amateur Ultimate Fighter

Sienna's Ex-Boyfriend

Audéo Wearer

I agree with the many lawyers that have written to inform me that the ad is a clear misappropriation of my image for the purposes of selling hearing aids (now apparently called "personal communication assistants" or -- even better -- "PCAs"): after all, I'm the only person in the world who fits the description of "Hedge Fund Manager," "Amateur Ultimate Fighter," and "Sienna's Ex-Boyfriend."

I like the ad and am flattered that I'm being used to promote what appears to be a good product, but I'd prefer that my permission be sought and granted first. I'll have to sue for invasion of my right of publicity in order to protect against dilution of the Percy Walker brand and to deter future misappropriation of my image.

Percy Launches Hedge Fund Certification Service

2007-08-08T19:09:21Z

So, what is a "hedge fund"? The term is thrown around so loosely that few would dare question its application to any unregistered pool of money that permits investors to withdraw/redeem their interests. I'm one of the few who dares question such a promiscuous application. So, too, my blogging colleague Veryan Allen:

Out of 10,000 funds that claim to be hedge funds, how many actually are hedge funds? The best estimate I have is maybe 25% tops. But of those how many are skilled? Perhaps 500-1000 at most. In other words probably only 10% of products that say they are hedge funds actually are GOOD hedge funds. Skill is rare by definition. While some investors might be discouraged by the bad news of 1/10 odds of picking a skilled fund, the good news is that they CAN be isolated in advance.

Veryan may be too generous with his 25% and 10% estimates, but he is certainly right about this:

Investors should select real hedge funds NOT leveraged beta products that SAY they are hedge funds. The industry needs to rid itself of non hedge funds who can't measure, manage or hedge their risks and ride beta when proper managers aim for alpha.

We are in the midst of a market shakeup that is separating the beta surfers from the alpha miners, but why wait for a shakeup to figure these things out? What the market needs is a service that identifies true hedge funds BEFORE there is a shakeup.

I hereby announce the launch of the Percy Walker Hedge Fund Certification Service. From this day forth, no investor need wonder whether they have invested in a true hedge fund (at least as of the most recent month end). Any fund signed up for the service will have all of its positions reviewed by me at the end of each month. If the fund qualifies as a true hedge fund, its investors will receive the following certificate directly from me.

If the fund doesn't qualify as a true hedge fund, investors will receive this certificate:

Tell your hedge fund manager to sign up for this service today.

Cost: 0.0833% of AUM as of the beginning of each month, paid monthly in advance. Must sign up for a full year.