No Random Walking!

Hedge funds are where money is. According to an article in yesterday's USA Today, $363M is the average pay for the 26 top hedge fund managers last year, up from $251M in 2004. It's staggering! Outrageous!
The key reason seems to be the huge amount of asset the managers manage. They typically charge 2~5% management fee and take 20% (up to 40%) cut from profits. "A $10 billion fund would earn $200 million from the 2% management fee alone". If the very manager happened to bet on oil last year, it's no surprise that he/she could have gotten a pay check of more than $300M in total.
I wonder what the average pay and portfolio return for all hedge fund managers are. Do they get a return that is close to the whole market, i.e., the mediocre 4% return last year? Do the top managers consistently earn top pay every year? As I said in another blog, the hedge fund as an industry does not seem to outperform the market over the last decade. They do perform better in bad time because they are allowed to go shorting as a hedge against market downturn.
All things considered, there may be reason for slim hope that, someday, even I might earn $300M a year too, if I am given $10 billion to manage!
More on hedge funds:
Book Review: The Philosopher Kings Of Hedging

I've been accumulating Shanda Entertainment (SNDA) last week or so on its remarkable strength in the face of a sharp market sell-off. On Thursday, the company reported earnings that were far lower than last year (down 90%?), but revenue seems to have stabilized quarter over quarter. The market responded to the report very positively, raising the price over 10% the next day.
SNDA has been a near-disaster during last year when its price plummeted from a high of $45 to a low of $12s recently (see my analysis several months ago: Shanda: A Nice Case Study). I think that its business has somewhat stabilized and its free-to-play business model may actually be a workable one, meaning the company can survive even without a hit game. Its failure in venturing into IPTV business and scaling down its EZ Center (hardware) business may actually be positive for its stock price: the company will now stop throwing more money into something that may never work out and, instead, focus on what it does best: providing online game and entertainment contents to the ever-growing population of Chinese teenagers.
More importantly, I think it is now a value play. Its 19.6% position in SINA and net cash accounts for over $8 of its $13 stock price, making the market value of its own business only $5! Sounds a value play for me. The market's strong interest in China stocks lately and the positive technicals don't hurt either. The price may explode when the short positions (40% of the float) are covered on any positive news.
In the meantime, the analysts on the street are still very negative on the company after the release of the quarterly report:

J.P. Morgan maintained its underweight rating on the stock but cut its 06 price target to $11 from $12."1Q06 revenue was better than expected due to stabilizing online games revenue," said Dick Wei. But the analyst added that he believes "visibility on Shanda businesses remains low," given aging game portfolio, uncertainties in its new game portfolio and lack of initial tractions of EZ Center.

Bear Stearns reiterated its underperform rating and said it remains on the sidelines on Shanda stock.
[5/18/06] Analysts at Brean Murray reiterate their "sell" rating on Shanda Interactive (SNDA.NAS). The target price has been reduced from $10 to $8.
[5/24/06] Shaun Rein of China Market Research Group: Shanda Interactive and Importance of Guangxi.

They are right about SNDA's "low visibility" and it is also true that any negative news or market condition can send its price down again. But at today's relatively low price I will see how the analysts' records stand in the coming months. Besides, I wish the analysts had informed us Shanda's problem before its stock crashed from its high of $45, instead of now when everybody knows what's happened!

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Updates ...

[8/6/06]: SNDA's price now stands at 15.5. I think it may keep going up until August 15, the date of earning release. The reason: short-covering. To play safe, I should sell just before the earning release.