War of the Celeb Investors: Cathie Wood vs. Michael Burry

Short seller Michael Burry has a pretty decent track record spotting unseen market problems and betting against them before they happen. But is he right about Cathie Wood, the renowned asset manager who has made a big name riding the Big Tech momentum wave?

Burry just took out bearish bets, in the form of put contracts valued at almost $31 million, against Wood’s uncharacteristically lagging flagship exchange-traded fund (ETF), ARK Innovation, a regulatory filing shows.

While Burry has not publicly commented on Wood, he has criticized her momentum mindset. In June, he warned that everyday investors could be heading for “the mother of all crashes” by buying cryptocurrencies and meme stocks—the very things Wood champions. Wood is a relentless promoter and has fired back at Burry. In a Twitter post, she said he doesn’t understand the forces that are igniting “explosive growth and investment opportunities” in tech innovation.

This is the battle of recent-vintage Wall Street legends who were unheralded finance veterans before they made very prescient investments. Burry, 50, won fame for foreseeing the 2008 financial crisis, which was prompted by an epic housing bust. As depicted in the Michael Lewis book The Big Short and the 2015 movie it inspired (Christian Bale played Burry), the hedge fund operator wagered against the sub-prime mortgage market through shorting credit default swaps on these loans.

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He started out as a doctor then switched careers to follow his hobby, investing, and launched a hedge fund in 2000, winning a solid if little-known rep as a short seller. The 2008 sub-prime call that made his name stemmed from his relentless devotion to research. Lately, his hedge fund firm Scion Asset Management has focused on positive positions in water, gold, and farmland. But he still shorts stocks. In addition to the Wood ETF, he has a negative position on Tesla, one of Wood’s favorite companies.

Wood, 65, held top financial services jobs, including as CIO for AllianceBernstein, before she opened her own firm, Ark Invest, in 2014. The company has attracted billions of investment dollars owing to a spectacular record in recent years. She did well through backing what she sees as disruptively innovative companies, such as Robinhood Markets, Teladoc Health, and, yes, Tesla.

Last year, her ARK Innovation scored a 153% return, blowing away the S&P 500 (18.4%), according to research house Morningstar. Over five years, the ETF has handily bested the broad-market benchmark, 42% to 17.4% annually. Thus far this year, however, the magic has faded: ARK Innovation is down 6.3%, while the S&P 500 is up 18.4%. A number of her stocks have suffered with the inflationary rise, always a headwind for tech stocks. Such Wood-blessed names as audio streaming service Spotify and Zoom Video Communications have dipped, off 34% and 4%, respectively, this year after big 2020 runups. Tesla, down 9% year to date, has gotten especially pounded this week amid stories of crashes involving its self-driving cars.

Wood, though, in numerous TV appearances, has kept insisting that these downdrafts are temporary. In fact, she just bought $39 million worth of stock in Palantir, the data analytics company, after a boffo earnings report.

Regarding Burry’s prescience, all Wood will concede (in her tweet) is that he made “a great call” about mortgages, once upon a time.

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Tags: ARK Innovation, Cathie Wood, Cryptocurrency, meme stocks, Michael Burry, Scion Asset Management, short sellers

Several of the largest public pension funds in the US and the world have reported record-breaking returns for the past fiscal year. And while robust stock markets are often credited for the 20%-plus returns, private equity is consistently the top-performing asset class within many of the portfolios.

For example, the $469 billion California Public Employees’ Retirement System (CalPERS) reported a preliminary 21.3% net return on investments for the 12-month period ending June 30. The robust performance was led by the portfolio’s private equity investments, which outpaced its public equity investments by 43.8% to 36.3%.

And the $308.6 billion California State Teachers’ Retirement System (CalSTRS) reported a record 27.2% net return on investments for fiscal year 2020–2021 thanks to private equity investment returns of 51.9%, which outpaced its public equity investments by more than 10 percentage points.

The $67.9 billion portfolio for the Maryland State Retirement and Pension System (MSRPS), which also recently reported a record fiscal year return of 26.7%, was also led by its private equity investments. The asset class earned 51.85% for MSRPS during the year, compared with its public equity investments, which returned 44.54%.

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And for the Public Employees’ Retirement System of Mississippi, not only was private equity the top performing asset class during the most recent year, with a return of 58.87%, but it’s also the pension fund’s top performing asset class over the past three, five and 10 years, returning 24%, 21.72%, and 16.61%, respectively, on an annualized basis.

The asset class has also been boosting returns for pension funds outside the US, as $50 billion Swedish pension fund AP1’s 11% investment return for the first half of 2021 was led by the 22.8% return produced by its private equity assets, while its domestic and developed market equities returned 19.6% and 13.5%, respectively. And the Ontario Municipal Employees Retirement System’s private equity investments surged 15.8% during the first half of 2021 after losing 8.4% last year, according to Bloomberg.

The asset class has been boosted by approximately $580 billion in new deals during the first six months of 2021, which sets the industry on pace for its first-ever trillion-dollar year. That’s almost three times what firms reported during the first half of 2020, and it marks a 53% increase over the second half of last year, according to EY, which said the “high-water mark” for private equity deals was during 2006–2007, when private equity firms collectively reported more than $750 billion in deals.