Hedge Fund Industry Predicts Fed Will Hold Off on Rate Increase Until December

September, 2015 –As the Federal Reserve gears up for its September policy meeting, members of The New York Hedge Fund Roundtable predict that the central bank’s Federal Open Market Committee will wait to raise interest rates until its next committee meeting in December.

The Fed’s upcoming meeting was part of a two pronged survey conducted by The New York Hedge Fund Roundtable, which also looked at the topic of philanthropy. Philanthropy was the topic of the Roundtable’s September event, where featured panelists Lee Cooperman, chairman and CEO of Omega Advisors; Whitney Tilson, founder and managing partner of Kase Capital Management; and Karen Bruton, founder of Hope Investments, each weighed in on their reasons for getting involved in philanthropy and what they each view as some of the biggest challenges facing the non-profit sector.

“Giving a hungry person a fish is charity. Teaching a hungry person to fish is philanthropy –and we need both,” Bruton told attendees at the Roundtable’s event. “I’m not looking to create dependency. I’m looking to create the independence that comes through capitalism.” Her sentiment was echoed by Cooperman, who said: “I’m very big on teaching people how to fish, not just giving fish.” He then went on to note that there are four general things people can do with money: spend it on themselves; give it to their children; give it to the government in the form of taxation; or invest it back into society. Tilson, who spoke of his parents’ meeting in the Peace Corp. and his appreciation for philanthropy at an early age, spoke about the $100 million donation Mark Zuckerberg donated to help turnaround Newark, New Jersey’s troubled school system, which he was involved with. “There is easy philanthropy and there is harder philanthropy,” Tilson said, adding that Zuckerberg took on a greater challenge than simply donating to a symphony or an art gallery.

Though the Roundtable’s latest survey examined two extremely different issues, there were some surprising similarities touched upon by both topics. “Just as members of the Fed are in a difficult position as they try to determine how the public will react to any rate hike and when it would be best to make a move, most non-profits continuously struggle to convince people of their need for financial support, yet to prove they are running their organizations as efficiently as possible,” said Timothy P. Selby, President of the New York Hedge Fund Roundtable.

New York Hedge Fund Roundtable members had the opportunity to weigh in on the Fed meeting and philanthropy at the Roundtable’s September meeting, as well as through an online electronic poll.

*Of the respondents to this survey, 25% were fund managers; 38% were service providers; 14% were risk management or trading; 7% were allocators; and 16% were “other.”

 

Following are some of the key findings of that survey:

Fed Expectations:

• When asked if they believe the Fed will raise interest rates at its meeting this week, 54% of respondents said they think the Fed will hold off until its December meeting; 26% believe there will be a rate hike, but that it will be the only increase for the foreseeable future; 14% think the Fed will hold off on a rate hike until at least early next year; and 6% think there will be a rate hike this month, followed by another rate hike in December.
• Asked to identify the biggest factor they believe would keep the Fed from raising rates this week, 48.5% of respondents said the fact that inflation has yet to truly hit the 2% target the Fed initially set as its trigger to begin raising rates; 43% chose China’s currency devaluation and the slowing of its economy; and 8.5% cited the decline in the price of oil.
• If this week’s Fed meeting does result in a rate rise, 47% of respondents predict the Fed will increase interest rates by 25 bps; 26% said only that any increase will have to be minimal, as the Fed will most likely raise rates in small increments over the coming year; 14% expect a raise of 12.5 bps; and 3% think an increase of 50 bps would not be unreasonable, given how long the Fed has already waited to raise rates.
• When asked where the best near-term investment opportunities will be if the Fed does raise interest rates, 47% of respondents think long positions in stocks in the banking sector are best positioned, as raising rates would finally allow banks to make money from loans; 23.5% think long positions in emerging markets stocks are most attractive since many of these countries hold significant debt in U.S. dollar denominations; 20.5% think shorting the stock of companies in the home improvement sector will be most attractive, as rising mortgage rates will likely lead to a slowing of new home construction, forcing people to instead focus on improving their existing homes; and 9% think investment in commodities futures will be most attractive since any news of a rate hike will send commodities prices up.

Philanthropy:

• When asked whether the non-profit world needs more regulation, or whether self-regulation of the industry has been effective, 83% of respondents said there needs to be greater transparency among non-profits regarding the ways they spend their money and how employees are compensated, while 17% of respondents said that self-regulation is an impossible goal for any industry.
• Asked what the biggest issue facing philanthropy today is, 48.5% of respondents said there is not enough visibility regarding the ways most non-profits are using the donations they receive; 20% said that philanthropy has taken a backseat as people continue struggling to come back from the recession; 14% think most people assume the needs of most non-profits are being met by the deep pockets of visible donors such as Warren Buffett and Bill Gates; another 14% think there is difficulty getting people to make repeat donations; and 3.5% think bad press surrounding donations, such as the $100 million Mark Zuckerberg donated to the Newark school system, has tarnished non-profits’ use of philanthropic donations.
• 54% of respondents believe that the charities they give to are using their donations wisely; 40% have no clue, as they think there is very little coverage of the ways non-profits spend their donations in the mainstream media; and 6% said they don’t think the charities they donate to are using their donations well.

September’s “bonus” question: Roundtable members were asked whether they believe Donald Trump has a chance of actually becoming president.

50% of respondents said they believe Trump could become president because of the fact that people are tired of politics as usual and they believe Trump has tapped into a nationwide anti-establishment sentiment; 20.5% said No, because there is no way the Republican party will make him their official candidate; 19% think Trump will break the pledge and eventually run as an Independent, making it highly unlikely he would ever win the race since most people still vote the party line; and 10.5% think Trump has only survived in the race this long because he raises issues people are concerned about, but that it is highly unlikely people would ever really vote for him to be president.

 

About The New York Hedge Fund Roundtable:

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers. Monthly events center around thought-provoking speakers and panels designed to keep members apprised of timely and important issues within the alternative investment industry. The Roundtable’s goal is to provide a forum for thought leadership, where industry professional have the opportunity to enhance their knowledge and skills and to network with other individuals committed to advancing the industry with the highest ethical standards. For additional information about the Roundtable, visit: http://www.nyhfr.org