What Happens in Vegas for Hedge Funds

LAS VEGAS - The SALT hedge-fund conference, held over four days at the Bellagio resort, is a lot of things - it’s an ideas conference, a Wall Street bacchanal, a power-networking event.

It is also, with its vaunted lineup of speakers on stage in the hotel’s grand ballroom, a place to absorb the musings of senior Wall Street money managers and Washington politicos. Across Wednesday and Thursday, panelists weighed in on everything from the risks of situation in Syria to investment opportunities in the shipping industry.

A keynote speaker at the conference was John Paulson, the billionaire manager who has recently absorbed steep losses across a number of his strategies. Mr. Paulson urged investors to have a long-term horizon and stick with hedge funds even through rough patches. “Don’t focus on weekly or monthly returns,” he said.

Speakers at the SALT conference, unsurprisingly, did not focus on the mediocre investment performance of hedge funds. (Hedge fund averages have underperformed the broad stock market indexes over the past four
years.) The industry’s hefty fees were also, for the most part, a topic non grata. But in a panel on the evolution of hedge funds, Jane Buchan, chief executive of the Pacific Alternative Asset Management Company, expressed surprise that hedge-fund fees continue to rise. “I keep waiting for fees to go down, but they’re only going up,” she said.

There was much focus on fixed income-trading strategies, which have been among the hottest hedge fund sectors. A panel on the mortgage securities included Joshua Birnbaum, the former Goldman Sachs trader at the center of the bank’s hugely profitable and controversial negative bet on mortgages during the financial crisis. Mr. Birnbaum, now the chief investment officer of the hedge fund Tilden Park Capital Management, said that the market had gone through a fundamental change in how managers analyze mortgage-backed securities.

In the period after the financial crisis, Mr. Birnbaum said, investors were making money by blindly plowing money into deeply distressed mortgage securities.

“People were trading just on price and weren’t even running prepayment or default vectors,” he said.“Today the macro trade is not as good as it was, but on a micro level” - meaning selecting individual bonds - “there is a lot more to gain by things that you can analyze,” Mr. Birnbaum said.

On Thursday, a panel of stock pickers discussed their best ideas. Leon Cooperman, the chairman of Omega Advisors, plugged Monitise, a British electronic payments company. John Burbank, the chief investment officer of Passport Capital, said he liked Chinese Internet companies. Oscar Shafer, the chairman of Rivulet Capital, recommended Hertz, citing the consolidation in the rental-car company.

In a session on the global economic environment, Michael Novogratz, the president of Fortress Investment Group, said that Japan was the world’s most exciting place to invest, with the opportunity to make huge profits there. He also joked about the country’s revolving-door leadership.

“I moved to Japan in 1992,” said Mr. Novogratz, dressed in a snazzy white suit. “I think they have had 25 prime ministers since then, and they all look alike and act alike and it’s very difficult to tell one from the next.”He said that his outlook on the troubled Eurozone remained grim. “I am optimistic about many things but Europe is not one of them,” said Mr. Novogratz, who, in a sea of dark suits, won the unofficial SALT fashion award with a snazzy all-white ensemble a la the author Tom Wolfe.

On Wednesday night, attendees put concerns about Washington gridlock and Wall Street regulation aside at a Latin-themed poolside fiesta.

Guests feasted on chile-infused Kobe beef tacos while tossing back tequila shots pass around by skimpily clad waitresses. Showgirls danced on podiums. Men lined up at the cigar station, where a man was making freshly rolled Dominican stogies.

Yet the conference center was filled up at 8 a.m. the next morning for a rollicking session featuring the Republican operative Karl Rove and former congressman Barney Frank debating policy. The panel’s moderator asked whom they would like to see as the Federal Reserve’s next chairman.

“Milton Friedman,” Mr. Rove quickly responded. “But he’s dead.”