Howard Weil

So I’m heading down to the Howard Weil conference in New Orleans. I’m passing Laurel, MS right now. This will be the first time I am attending as a hedge fund manager rather than a stodgy old long only investor. Do I think there are any bargains in energy? Not really. The OSX just broke through 200 recently, still below its high of 240 but no bargain either, especially after one company after another misses guidance – with HAL and NBR being the latest. They certainly aren’t value stocks.

So why am I going then? Well aside from the sumptuous food and drink, I feel like I am getting a little out of touch with the market and what is going on. Now this might come as a shock since I do despise the sell side but they are good at providing information and getting clues as to professional investor psychology. This may be of limited use as most of the positions in my hedge fund are too small or esoteric to be covered by Wall Street.

Another first for me is that I don’t have any one on ones set up at the conference. These are meetings with management that are the true purpose of the conference, as the presentations are just holding pens for institutional investors in between meetings.

I also tried to no avail to set up a meeting with the Biloxi Marsh Land Company (BLMC). I emailed them several times and called once but was ignored. It’s too bad because the company continues to fascinate me. Aside from its acreage position in Louisiana, the company has several cryptic entries on its balance sheet, i.e. short term and long term investments that may be carried at historical cost.

They also have some relationship with the Lake Eugenie Land Company (LKEU), another pink sheet company that is even more obscure than BLMC if such a thing is possible. I can find nothing on the Lake Eugenie Land Company, not even a market cap.

Biloxi Marsh Land Company (BLMC)

This is a very interesting company. It trades on the pink sheets under the symbol BLMC. Biloxi Marsh Lands Corporation was founded during the 1930s to acquire and own approximately 90,000 acres of wetlands in St. Bernard Parish, Louisiana.

The land they own is not buildable since it is essentially marshland, but the value in the company is the minerals (natural gas) that lie under its land. It has formed a subsidiary to partner with some operators to start development of this mineral potential. The company has no debt on its books and paid out a nearly 10% dividend last year.

I am attending a conference in New Orleans next week and I have been trying to arrange a meeting with the President but so far they have been a little squirrely about the entire thing. Hopefully, some things will come through in the next few days and I will have a meeting with management and post what I learned.

What is a Hedge Fund?

So what is a Hedge Fund and why does everyone hate them? A Hedge Fund, in its simplest form, is just a limited partnership. A legal document drafted by an attorney sets up the legal structure into which accredited investors invest money. The media and the non investment world loves to use various terms to describe Hedge Funds. The definition in the American Heritage Dictionary is this:

"An investment company that uses high-risk techniques, such as borrowing money and selling short, in an effort to make extraordinary capital gains."

Well, actually no. In theory if you sell short along with going long equities, then you have less risk and there is no law that says you have to borrow money when you run a hedge fund.

So here is my definition of a "hedge fund." I will give the characteristics of a Hedge Fund and then an explanation of why I am including it. A Hedge Fund is a:

Lightly Regulated - Most Hedge Funds offerings are exempt from registration under the appropriate U.S. Securities Laws. I use the word "lightly" because some Hedge Funds do register as investment advisers

Private Pool of Capital - An obvious one that is simply descriptive. It is private because it is only available to accredited investors and not the general public.

Focused on Absolute Returns - I don't care who you are or what your strategy is, but you damn well better be up every year. I don't give a rats ass what "the market" does. If I want a closet indexer I'll go to a mutual fund company and invest in a fund with an R squared of .99 that holds 400 positions.

Performance Based Compensation - Hedge Fund Managers earn most of their compensation from a percentage of the excess gains above a hurdle rate, and subject to a high water mark. This percentage is usually 20% but can go as high as 50%.

So there it is then - a Hedge Fund is a lightly regulated, private pool of capital that is focused on achieving absolute positive returns in any market where the manager is compensated mostly on performance.