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Inside Moderna: The Covid Vaccine Front-Runner With No Track Record and an Unsparing CEO

| August 5, 2020 | 0 Comments

At the year’s start, few outside the world of biotech had heard of a Boston-area company with a New Age name and unproven approach to drugmaking. Most in the industry who did know Moderna Inc. MRNA -3.39% doubted its prospects. Investors barely had interest in the company, which had yet to produce a medicine.

Moderna and its staffers were dealing with other pressures. For nine years, chief executive officer Stéphane Bancel nurtured a high-stress environment at the Cambridge, Mass., company, characterized by high expectations, sharp critiques of workers and heavy employee turnover, according to current and former staffers. Mr. Bancel’s admonitions of some underlings in group meetings motivated some to do better, and others to leave.

Today, Moderna represents one of the world’s best shots at stemming a historic pandemic. It’s a front-runner in the hunt for a coronavirus vaccine, vying against industry heavyweights with proven track records. The question is whether Moderna’s vanguard science and tough management style is the right recipe for a vaccine breakthrough.

This summer, the U.S. government plans to fund and conduct decisive studies of three experimental coronavirus vaccines. Moderna’s will be first, starting later this month. Its lead status in the vaccine hunt is the reason the company’s shares have soared more than 200% this year.

“I think the world is going to change tremendously,” says Mr. Bancel, referring to the company’s coronavirus vaccine as well as the experimental drugmaking technology being used to develop it.

A 47-year-old native of France, Mr. Bancel says Moderna’s vaccine could be available for emergency use in health-care workers as soon as the fall with a full rollout next year. Eventually, he adds, the company could produce dozens of drugs and vaccines “for diseases for which there is no solution.”

The bold promises of Mr. Bancel and his colleagues have long struck some in the pharmaceutical industry and on Wall Street as hubris. No company using the same experimental approach has managed to pull off a successful drug. Moderna has more than 20 experimental drugs and vaccines for cancer, infectious diseases and other conditions in development, but none are close to being commercially available to patients.

“It’s always been a battleground company,” says Brad Loncar, head of Loncar Investments and creator of an exchange-traded fund that holds Moderna shares. “For some reason people get emotional about it.”

Skepticism has dogged Moderna since its creation in 2010. Noubar Afeyan, a Beirut-born biochemical engineer who runs Cambridge, Mass., venture-capital firm Flagship Pioneering, wanted to form a company that would turn a patient’s own cellular machinery into a personal medicine factory.

The tool for this effort is a piece of genetic code known as messenger RNA, or mRNA. Normally, this code carries the instructions from a person’s own DNA telling cells what to do. Moderna aimed to synthesize mRNA with instructions for attacking a disease or pathogen, and then give it to patients.

Mr. Afeyan wooed Mr. Bancel, an engineer by training who was a manufacturing executive at drug giant Eli Lilly & Co. and then led diagnostics company bioMerieux. “I saw in him a level of intensity, curiosity and impatience,” Mr. Afeyan recalls.

Mr. Bancel greeted the interest with doubts. “I looked at the science and said, ‘It’s impossible,’ ” he recalls. He took the job in 2011, though, after becoming convinced the approach could work and that Moderna might eventually be able to develop hundreds of medicines.

The startup began with just $2 million, which made it hard for Mr. Bancel to persuade top scientists to join the fledgling company.

Some nights, he came home from work frustrated. “This will never work,” Mr. Bancel recalls telling his wife one night.

The industry largely agreed. A key question was whether Mr. Bancel and his colleagues could get the mRNA, an unstable molecule, into human cells (once it was there the process by which it creates disease-fighting proteins was less difficult). The company spent several years refining a solution to use microscopic capsules known as lipid nanoparticles to ferry the mRNA.

Nearly a dozen contract manufacturing companies turned down the opportunity to produce an early version of a Moderna flu vaccine. “Even if it works you will run out of money,” one told Mr. Bancel, who was forced to turn to a 20-person Portuguese drug manufacturer.

Moderna saw its work on the vaccine as a way to test its technology, and didn’t advance testing of the product because the flu strain it targets doesn’t circulate widely.

From the beginning, Mr. Bancel brought a level of intensity that made some staff uncomfortable, former employees say. Sometimes, in meetings of 15 to 20 people, Mr. Bancel singled out employees if he thought their progress on projects was lacking, such as not enrolling patients in clinical trials quickly enough, in ways some found demoralizing.

In a group meeting several years ago, he told one staffer, “You have no idea what you’re talking about. Have you given this any real thought?” according to a former employee who was present.

Resulting tension may be part of the reason many have left Moderna, current and former employees say.

“It is a demanding culture,” Mr. Bancel says. “It is not an unfair culture.” He says he made his share of mistakes, such as not being more upfront with new hires about how difficult the work would be. “I was trying not to kill the company,” he says.

Mr. Bancel says turnover has been lower than some other biotechs in recent years, though higher than large drug companies.

After joining the company in 2013 as president, Stephen Hoge, a former New York City physician-turned-management-consultant, emerged as a calming influence in the office, former employees say.

Dr. Hoge says he and Mr. Bancel “have always functioned as partners. We have different strengths, and we balance each other really well.”

Some credit Mr. Bancel with pushing the company forward amid early disappointments, and say he was hard on staffers because he sensed Moderna could achieve something big.

“What’s not tolerable is to do sloppy science,” says Marcello Damiani, Moderna’s chief digital and operational excellence officer, who has overseen the company’s adoption of artificial intelligence in its drug design. “Stéphane is very rigorous, and he’s very demanding at the same time.”

Mr. Bancel, a skilled salesman, sought funding from larger drug companies and investors. A turning point came in 2013, when he persuaded pharmaceutical giant AstraZeneca PLC to pay $240 million for the rights to drugs arising from Moderna’s research. Moderna later formed a partnership with Merck & Co. to develop vaccines for cancer and other things.

In February 2018, Moderna raised $500 million in new financing from Geneva-based Pictet Group, Arrowmark Partners, Viking Global Investors LP and other investors that aren’t known as health-care specialists.

Some who focus on biotech were unwilling to invest, partly because they felt the company didn’t publish much about its results and was less transparent about its progress on various drugs than some rivals.

Mr. Bancel says the company was open about sharing information with prospective investors and partners.

Moderna went public the first week of December in 2018, raising more than $600 million in the largest biotech IPO. But by the end of that year, shares had fallen 34%.

In recent years the company has focused on an experimental vaccine against cytomegalovirus, a virus that can damage organs and can be harmful to people with weakened immune systems and to babies whose mothers were infected during pregnancy. Moderna thinks it could generate as much as $5 billion in annual sales. The company also is developing vaccines against Zika and certain respiratory viruses.

At the start of 2020, Moderna wasn’t expecting to have a product on the market for another two to four years, frustrating some investors. Some were disappointed Moderna had begun emphasizing vaccine discovery, a crowded and challenging field seen as having limited financial potential.

By then, some of Wall Street’s largest investors had sold the stock, even those who were previous fans. Viking, a $29 billion hedge fund, owned 5.2% of the company’s shares at the end of 2018, after it went public. It owned just 0.3% of the company by the end of March. A Viking spokeswoman declined to comment.

In early January, Mr. Bancel was on vacation with his family in France when he read news about a mysterious virus spreading in China. He emailed a National Institutes of Health vaccine researcher about working together on a potential vaccine, he recalls, which eventually led to a collaboration.

Back at the office, Mr. Bancel pushed colleagues to focus on the new virus. “How do we accelerate our vaccine?” he asked one.

Some inside the company harbored doubts about pursuing a vaccine against the new coronavirus. The company had been traumatized by its failure to find a vaccine for the Zika virus after a 2016 outbreak, Mr. Bancel says, though it is now developing a backup candidate. Dr. Hoge says he worried coronavirus vaccine work could jeopardize the development of its other products, some with major commercial potential.

“Are we sure we should be doing this?” Dr. Hoge recalls asking in internal discussions.

“This is going to be a big deal, we have to do something now,” Mr. Bancel responded, according to Dr. Hoge.

The company had a “once-in-a-lifetime opportunity” to save lives, says Mr. Bancel, whose mother is battling blood cancer and is immunocompromised.

Mr. Bancel and the NIH, which co-designed the vaccine, set an ambitious new goal: going from vaccine design to a human trial in three months, an unprecedented pace. The company, which counts about 800 employees, is hiring about 150 new workers largely to assist in the effort to scale up manufacturing capacity.

Unlike competitors who are developing vaccines that use a killed coronavirus or proteins from the virus, Moderna’s vaccine uses only a genetic sequence from the virus. The programmed material—mRNA—directs a person’s cells to make proteins that, in turn, trigger the immune system to produce antibodies to the coronavirus.

A potential advantage of Moderna’s approach: The mRNA vaccine can be designed and manufactured more quickly than vaccines based on older technologies, which often require growing the virus or proteins for weeks or months.

Moderna’s vaccine was among the first to begin testing in humans. After producing positive preliminary results in the first phase of human testing, the vaccine started the second stage of studies with 600 people in May. The tests this month will encompass up to 30,000 people, and will determine whether Moderna’s vaccine reduces rates of infection and disease.

The relatively rapid progress, and its soaring shares, have made Mr. Bancel a billionaire, at least on paper. The company is now worth around $24 billion, more than many drugmakers with medicines already on the market.

Some days, news of the Moderna vaccine’s progress has powered the overall market.

Many investors remain skeptical the Moderna strategy will work, though. Nearly 10% of the company’s shares available to trade have been shorted, up from 5% a year ago, as of June 15, according to FactSet, a level that is higher than any health-care stock except one in the S&P 500 index. Investors using this strategy are betting that the stock’s price will decline.

“There are better approaches” to discover a coronavirus vaccine, says Joseph Lawler, a physician who runs JFL Capital Management, a hedge fund betting against Moderna, partly due to the company’s rich valuation.


How should the world ensure equal access to a potential coronavirus vaccine? Join the conversation below.

Moderna’s own executives, including Mr. Bancel, have been selling. This year through late June, executives and directors have sold about $161 million worth of shares, according to InsiderScore, which tracks insider transactions. Flagship, the venture-capital firm that founded the company, sold more than $68 million of shares.

Most of the sales were preplanned, including those of Mr. Bancel, the company says.

The validation of Moderna’s technique could raise expectations for more profitable products in the future.

While many vaccines fail in the trials, Anthony Fauci, the nation’s top infectious-diseases expert, recently said he was “really optimistic” about Moderna’s vaccine. The U.S. government is investing nearly $500 million to speed up testing and prepare for making hundreds of millions of doses.

After the large trial of Moderna’s vaccine starts, similar U.S. tests are planned for a vaccine co-developed by the University of Oxford and AstraZeneca, and one from Johnson & Johnson.

Pfizer Inc. and partner BioNTech SE also are planning to start a large trial this month for an experimental vaccine.

The challenge of developing the first vaccine means even more pressure for Mr. Bancel and his colleagues. On a recent Saturday, manufacturing staffers were told to turn off their mobile phones and take the day off. The team had been working nonstop for a few months on the vaccine.

Instead, staffers spent the day trading project-related emails, as if it were a regular workday. Executives who had issued the stop-work order were copied in and monitored the email exchanges without interfering.

“We’ve always had this hard-charging culture of relentlessness,” Mr. Bancel says. Moderna’s ability to quickly respond to the coronavirus pandemic “is why we worked so hard for nine years.”

Hedge Fund Star John Paulson Calls It Quits

| August 5, 2020 | 0 Comments

John Paulson made billions of dollars anticipating the 2008 financial collapse. But after running into difficulties in recent years, Mr. Paulson will convert his hedge fund firm into a private investment firm that runs only his family’s money.

Mr. Paulson’s decision to hand his investors’ their cash back and turn his firm into a family office has been long telegraphed as assets at his firm have fallen and returns declined. He had a strong year last year, in which his key merger hedge fund rose nearly 30%. But the fund is down over 10% so far this year, according to someone close to the matter.

Investors have been leaving his funds for nearly a decade. Paulson & Co. managed less than $9 billion last year, most of which is his own money, down from $38 billion in 2011.

Mr. Paulson is the latest investing star to make the move.

Over the past few years, well-known investors including Leon Cooperman, Eric Mindich and Jonathon Jacobson have returned billions in client money and converted their own firms into family offices, amid a period in which the hedge fund industry has failed to keep up with broader stock and bond markets. Unusual volatility, efforts by the Federal Reserve to bolster markets, and a rush of news and other data that can be hard to digest, have all been factors making it harder for traditional investors to keep up.

Mr. Paulson’s decision was first reported by Bloomberg News. The 64-year-old investor wouldn’t comment.

“The last 26 years of running an asset management firm have been thoroughly rewarding,” Mr. Paulson said in a client letter. “Recent volatility notwithstanding, I am proud of our long-term returns.”

Mr. Paulson achieved investing fame in an unlikely fashion.

Born in Queens, New York, Mr. Paulson started his firm in 1994 but labored in relative obscurity for years. A merger-arbitrage specialist, Mr. Paulson churned out respectable gains betting on companies likely to see previously announced mergers completed or receive higher takeover bids, considered among the safest forms of investing.

In early 2006, Mr. Paulson, then 49, became focused on the spectacular surge in U.S. housing prices. Working with an analyst named Paolo Pellegrini, Mr. Paulson seized on the idea of buying credit-default swaps, a form of insurance, to wager against the riskiest mortgage debt.

The trade paid off in spectacular fashion, netting $20 billion in profits for clients and employees in 2007 and 2008. Mr. Paulson’s personal tally for 2007 was nearly $4 billion, considered the largest one-year payout in the history of the financial markets.

Mr. Paulson followed that trade with a prescient, early bet on gold, adding to his wealth. Investor interest surged and Paulson & Co. became one of the largest hedge funds in the world.

Inconsistent and often disappointing performance soon ensued. Mr. Paulson shifted from his traditional strategy to invest in gold miners, banks, pharmaceutical companies and other kinds of companies, trades that sometimes didn’t work out.

Two years ago, Mr. Paulson gained recognition for something very different: paying among the largest-ever personal tax bills. After deferring the bulk of his profits from his subprime-mortgage trade, he made federal and state tax payments of about $1.5 billion, a figure so large it dwarfed the maximum amount the Internal Revenue Service allows taxpayers to pay with a single check.

Over the past years, Mr. Paulson has been regularly seen walking in Central Park. He has been a financial supporter and hosted a fundraiser for President Donald Trump. He remains a billionaire, but his firm has declined in prominence. Major recent holdings include Bausch Health Cos Inc., down nearly 40% so far this year, Horizon Therapeutics PLC, up approximately 53%, and AngloGold Ashanti Ltd, up 30%.

“With one chapter closing, a new one is beginning for me and I look forward to continuing as an active participant in financial markets,” Mr. Paulson wrote to his investors.

With Biotech Stocks, Investors Love the Thrill of the Chase

| August 5, 2020 | 0 Comments

Eric Distenfeld is rolling the dice on CytoDyn Inc.

Last month, the real-estate executive bought 1,000 shares of the unheralded biotech company, which hopes to discover a Covid-19 drug.

Now, he spends the day tracking shares, checking news and debating friends whether CytoDyn can overcome the odds. Mr. Distenfeld leaves most of his stocks alone. When it comes to CytoDyn, he is obsessive.

“It’s like being in Vegas without the hangover,” says Mr. Distenfeld, 40 years old, a former portfolio manager who lives in Teaneck, N.J.

Few stocks have captured investors’ affections lately like biotech companies chasing coronavirus advances. Stocks such as Moderna Inc. MRNA -3.39% and Novavax Inc. have soared, but so too have tiny ones a long way from an approved U.S. vaccine or treatment, including CytoDyn, Equillium Inc. EQ 2.51% and Humanigen Inc., HGEN -2.75% all of which are up between 207% and 944% this year, thanks in large part to the fervor of individual investors.

Their passion stems from the promise of medical advances that can send shares surging. Small biotechs constantly need financing, so executives tend to be more comfortable promoting themselves, efforts that also can hook investors.

“People tend to fall in love with biotech companies,” says health-care investor Brad Loncar at Loncar Investments. “There’s an emotional aspect given that it is medical-related and then, because the stocks are so volatile, like a casino, it adds fuel to the fire on both sides.”

Tom Yarborough has made over $100,000 from his CytoDyn shares.


For every investor playing biotech stocks for fun and profit, another, like Tom Yarborough, has an unshakable conviction these companies are nearing historic breakthroughs.

“They have so many potential cures,” says Mr. Yarborough, a 74-year-old retired stockbroker in Cape Canaveral, Fla., referring to the range of diseases CytoDyn’s key drug, leronlimab, might address. “There are 59 different possibilities that it could cure, including Covid.”

The love for risky biotech shares isn’t unrequited. Mr. Yarborough has made over $100,000 from his CytoDyn shares. He had 110,000 shares at one point, but sold some over the years. He still holds 27,000—worth about $136,890—spread across investment accounts held by him and his family. The Vancouver, Wash.-based company, which closed at $5.07 on Tuesday, has climbed more than 1,000% since Mr. Yarborough bought shares four years ago.

“It’s my only position,” says Mr. Yarborough. “I’ll always own shares; my commitment, my loyalty is there.”

CytoDyn’s valuation ballooned to more than $4.5 billion in May from just over $100 million last year, after the Food and Drug Administration greenlighted the use of leronlimab for Covid-19 patients in emergency situations and clinical trials.

Montefiore Health System in the Bronx, N.Y., is evaluating the drug for Covid-19 in two separate trials; results are expected soon, says Dr. Harish Seethamraju, Montefiore’s medical director of lung transplantation.

Leronlimab’s mechanism of action, or how it is supposed to work, makes sense to CytoDyn fans. Leronlimab aims to block a receptor that causes cytokine storms, severe immune-system reactions that inflame and fatally damage lungs and other organs of some Covid-19 patients.


Are investors too optimistic about biotech companies? Join the conversation below.

Some investors, like Judah Kraut, 41, are doing more than rooting for CytoDyn. He is searching out doctors with experience with leronlimab and sharing the results with friends, though he recognizes what he is finding are just anecdotal reactions.

“I know of 19 people who have invested because of me, so I’m a little nervous about that,” says Mr. Kraut, who lives in New York City and is finishing a Ph.D. in ancient Near Eastern literature at the University of Pennsylvania. “But the theory it’s a scam would require doctors with impeccable credentials to be in on it; that would be mind-boggling.”

There are warning signs, though. Most experts don’t give CytoDyn much chance of success. The company hasn’t made any money other than what it pulls in from stock sales. It has been seeking FDA approval for leronlimab to combat HIV and about two dozen types of cancers over the better half of a decade.

Its chief executive, Nader Pourhassan, promotes his company in news releases, articles and videos paid for by the company. In late April, he appeared in a sponsored video claiming that almost 95% or 100% of patients who had Covid-19 and were treated with leronlimab survived testing. Within the same video, he clarified that his figures included 28 patients across the country—not the 11 others who also received the drug in New York, some of whom died.

“That’s a spectacular result, and we wanted to make sure everybody knows that,” Mr. Pourhassan said in the YouTube video posted by, a platform that charges companies $25,000 a year to run promotional content. CytoDyn’s shares rose nearly 8% that day.

A CytoDyn presentation shared with The Wall Street Journal showed seven of the patients in New York had died as of mid-May. In a broader study across the country of 34 patients, five patients had died and 15 were said to have improved.

“I’m giving information as honestly as possible. When it changes, I give that,” Mr. Pourhassan said of his interactions with investors.

On April 27, CytoDyn said it had submitted a drug marketing application to the FDA, sending shares up another 17%. But the company said in subsequent news releases that the submission included mock data sets and wouldn’t be considered complete until it provided clinical data on May 11. The FDA ultimately refused to grant the license in July, sparking criticism from some investors toward the company during a conference call several days later.

Mr. Pourhassan said the FDA requested CytoDyn make those additional statements after determining the application was incomplete.

Last week, a YouTube video titled “A Drug You Can Invest In and Simultaneously Save the World” featured testimonials, including one by actor Charlie Sheen, who said that he has enrolled in a trial for leronlimab, which also is being studied to treat HIV infection, and that he “felt great.”

A representative for Mr. Sheen said he wasn’t compensated for his appearance.

In April, Mr. Pourhassan sold 4.8 million shares of his company for $15.7 million, according to securities filings. Mr. Pourhassan, who has a doctorate in mechanical engineering, once faced federal charges over allegedly selling fake Native American goods. The charges were dropped. He said the charges had no merit.

As for the stock sale, he said, “I’ve been waiting all these years, I might as well have some security for myself.”

Richard Trauger, who worked at CytoDyn between 2011 and mid-2013 and served as its chief science officer, says he witnessed Mr. Pourhassan exaggerate claims during interactions with investors.

Once, when Mr. Pourhassan was chief operating officer, he told an investor group CytoDyn would have a license from the FDA in two years. Mr. Trauger said he objected to the timeline, drawing the ire of Mr. Pourhassen.

“He went off on me,” Mr. Trauger said, adding that Mr. Pourhassan had asked him “if it’s possible. ‘Of course, anything is possible,’ I’d say, but it’s not likely. That’s all he needed to hear.”

“I hope it works,” said Mr. Trauger of CytodDyn’s drug. “But I haven’t seen any data, and that’s the problem.”

New Jersey investor Mr. Distenfeld is uncomfortable with Mr. Pourhassan’s sale of personal stock and his relentless promotion.

But the possibility that CytoDyn might achieve a breakthrough is worth the risk, he says.

“I can make five times my investment and my downside is 80%,” Mr. Distenfeld says. “I go to Vegas and play poker against pros which is a losing proposition—this is more fun and has better odds.”

Bob Mercer’s Influence on Politics Wanes as New Donors Emerge

| June 5, 2019 | 0 Comments

Two years ago, hedge-fund investor Robert Mercer and his daughter Rebekah had the president’s ear. Now, on the eve of midterm elections, a different group of Wall Street executives enjoys access to the Oval Office.

The Mercers are playing a less-important role backing conservative politicians, according to campaign finance filings and people close to the matter, even as a handful of other finance executives boost their contributions during the latest election cycle.

“They’ve fallen off the grid,” a leading member of the conservative movement said of the Mercers. “We don’t hear much from them.”

It is a marked step back for a pair who two years ago seemed well-positioned to influence the new administration.

At an August 2016 fundraiser on Long Island, Ms. Mercer approached then-candidate Donald Trump and encouraged him to hire Steve Bannon and Kellyanne Conway to stabilize his flailing campaign. Mr. Trump agreed, and the Mercers entered the president’s inner circle. After the election, Mr. Trump attended a costume party at Mr. Mercer’s home and Ms. Mercer advised the president on certain appointments.

The Mercers, though, experienced unexpected blowback from their forays into politics—which friends say prompted them to shift to a lower-key approach, with smaller political contributions and little regular communication with Mr. Trump or members of his administration.

Other financial executives, meanwhile, have gained more clout.

Blackstone Group LP Chief Executive Stephen Schwarzman, for example, has regular phone conversations with Mr. Trump, according to people close to the executive, to discuss economic policy and other matters. Mr. Schwarzman didn’t back Mr. Trump during the presidential election but shortly afterward chaired the since-disbanded White House Strategic and Policy Forum.

In recent months, Mr. Schwarzman has informally advised Mr. Trump on certain topics, the people say.  A spokeswoman for Mr. Schwarzman wouldn’t comment.

Mr. Schwarzman has boosted his political donations, even as the Mercers have pulled back. This year, as of Oct. 26, the Blackstone co-founder made $12.8 million in disclosed political contributions to Republican candidates, political-action committees and outside groups, according to the Center for Responsive Politics, making him the third-largest Republican donor. By contrast, Mr. Mercer made $5.9 million in disclosed political contributions.

In 2014, the last midterm-election year, Mr. Mercer made $9.7 million in political contributions, and he gave $25.6 million during the 2016 election year, making him one of the party’s top donors, the Center says.

Among other Wall Street executives, Kenneth Griffin, founder of hedge fund Citadel Investment Group Inc., and brokerage founder Charles Schwab have given more this year to conservative causes than Mr. Mercer.

Some of Mr. Mercer’s political bets have gone awry. This past June, he gave $500,000 to a political action committee backing Kelli Ward, who lost Arizona’s Republican Senate primary in August. Ms. Ward drew criticism for accusing the family of the late Sen. John McCain for timing the announcement of the end of his cancer treatment to undercut her campaign.

Over the past year, Mr. Mercer has backed a PAC called Black Americans for A Better Future, which encourages the involvement of more black men and women in the Republican Party, and a PAC supporting U.S. national security adviser John Bolton.

“There were high expectations that they would be huge players in the administration, but that’s not what they want,” said Utah Republican Sen. Mike Lee, who has received support from the Mercers.

Mr. Mercer couldn’t be reached for comment. A spokesman for Ms. Mercer wouldn’t comment.

Mr. Mercer for years played a crucial role at his hedge fund Renaissance Technologies, while he and his daughter became more involved in conservative and other causes, aiming to upend a Republican establishment friends say they had become disenchanted with. They backed Cambridge Analytica, the data firm that forged ties with President Trump’s 2016 campaign, the conservative website Breitbart News and right-wing firebrand Milo Yiannopoulos.

After the election, the Mercers fielded intense criticism. Some Renaissance investors and employees grew uncomfortable with Mr. Mercer’s political activities, according to people close to the matter, while Ms. Mercer has spoken of receiving death threats and dealing with protesters in front of her home.

Mr. Mercer and his daughter hadn’t prepared for the negative reaction, friends say.

“They were so much more successful in the political arena than they expected, it took off like a rocket,” said Brent Bozell, a friend who runs the Media Research Center. “There’s bitterness…people have disappointed them.”

Mr. Mercer agreed to step down as co-chief executive officer of his firm, shifted his Breitbart stake to his daughters, and broke ties Mr. Yiannopoulos and Mr. Bannon, who eventually quit the administration.

Today, the Mercers remain close with Ms. Conway but don’t have another conduit to communicate with Mr. Trump or his advisers, according to people close to the matter. The Mercers tell friends they continue to support Mr. Trump and are pleased with his policies.

Lately, Mr. Mercer has focused on his firm, while Ms. Mercer has been involved in issues far from the headlines, such as working to boost free speech on college campuses, the friends say.

A few weeks ago, Ms. Mercer was honored at a Washington, D.C., gala where she said shared concerns about the level of discourse on college campuses, saying schools “churn out a wave of ovine zombies steeped in the anti-American myths of the radical left, ignorant of basic civics, economics and history, and completely unfit for critical thinking.”

“I will not be silenced,” she said.

Rather than attend the event, Mr. Trump sent a letter of appreciation, an attendee says.

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Herd-like Behavior of Computerized Traders Contributes to Market Swoon

| June 5, 2019 | 1 Comments

Behind the broad, swift market slide of 2018 is an underlying new reality: Roughly 85% of all trading is on autopilot—controlled by machines, models, or passive investing formulas, creating an unprecedented trading herd that moves in unison and is blazingly fast.

That market has grown up during the long bull run, and hasn’t until now been seriously tested by a prolonged downturn.

Since peaking in late September, the S&P 500 index of U.S. stocks has fallen 19.8%. The S&P is down 15% in December alone. It isn’t just stocks. Crude oil stood above $75 a barrel in October. By Christmas Eve it was below $43. Monday was the worst Christmas Eve for the Dow Jones Industrial Average in its history.

To many investors, the sharp declines are symptoms of the modern market’s sensitivities. Just as cheery sentiment about the future of big technology companies drove gains through the first three-quarters of the year, so too have shifting winds brought the market low in the fourth quarter.

Today, quantitative hedge funds, or those that rely on computer models rather than research and intuition, account for 28.7% of trading in the stock market, according to data from Tabb Group–a share that’s more than doubled since 2013. They now trade more than retail investors, and everyone else.

Add to that passive funds, index investors, high-frequency traders, market makers, and others who aren’t buying because they have a fundamental view of a company’s prospects, and you get to around 85% of trading volume, according to Marko Kolanovic of JP Morgan .

“Electronic traders are wreaking havoc in the markets,” says Leon Cooperman, the billionaire stock picker who founded hedge fund Omega Advisors.

Behind the models employed by quants are algorithms, or investment recipes, that automatically buy and sell based on pre-set inputs. Lately, they’re dumping stocks, traders and investors say.

“The speed and magnitude of the move probably are being exacerbated by the machines and model-driven trading,” says Neal Berger, who runs Eagle’s View Asset Management, which invests in hedge funds and other vehicles. “Human beings tend not to react this fast and violently.”

Among the traders today are computers that buy and sell on models, and passive funds that seek only to hold the same securities as everyone else does. Meanwhile, bankers and brokers—once a ready source of buying and selling—have retreated. Today, when the computers start buying, everyone buys; when they sell, everyone sells.

The market of 2018 is a creation years in the making, and would be hard to quickly unwind give how much is now baked into the system.

Troubles in financial markets, rather than in global economies, best explain the recent market losses, argues Michael Hintze, chief executive officer of $18.1 billion London-based CQS LLP, which manages two big hedge funds that were positive for the year through November.

Mr. Hintze says “the market’s new structure,” featuring less trading by investment banks and more by algorithmic-focused funds, has reduced the ease with which investors can get in or out of markets. As a result, normal year-end nervousness has been amplified, and selling that in the past would have resulted in measured losses leads to deep drops.

Markets were remarkably placid in recent years, even as machine trading came to dominate, suggesting that these approaches didn’t cause problems during the bull market, or even contributed to the market’s extended calm.

One reason the dynamic might have changed: Many of the trading models use momentum as an input. When markets turn south, they’re programmed to sell. And if prices drop, many are programmed to sell even more.

The robots didn’t trigger the decline, of course. But they devoured a stew of red signals in the second half of the year:

The bouts of automated selling have landed in a market ill-prepared for it.

One measure of this is liquidity, the ease with which buyers can find assets to buy and sellers can find people to take assets off their hands. When liquidity declines, prospective buyers have to offer more or prospective sellers have to accept less. That makes swings in market prices bigger. It works both on the way up and on the way down.

Signs of diminishing liquidity can be found all across the markets.

The number of contracts available to buy or sell S&P 500 futures at the best available price has dwindled in recent years and dropped 70% over the past year alone, hitting a decade low, according to Goldman Sachs.

Boaz Weinstein, founder of credit hedge fund Saba Capital Management LP, said the market had been underpricing uncertainty. Now it’s taking into account political issues “at the same time as the Fed is hiking, the economy is slowing, and a lot of people are feeling like the best days for markets are over,” he said.

Mr. Weinstein says there are dangers building in the junk-bond market. One worry, he says, is that so many junk bonds—he estimated about 40%—are held by mutual funds or exchange-traded funds that allow their investors to sell any day they like, even though bonds inside the funds are hard to sell.

When enough investors want to cash out, such a fund has to start selling bonds. But without much liquidity, finding buyers could be hard.

A selloff could start simply, he said. “It has its own gravity.”

There are no apparent signs, analysts and portfolio managers say, of the economic imbalances that fueled the 2008 meltdown, which started with a housing bust that went on to infect the banking sector and eventually morphed into a full-fledged financial crisis.

The depth and speed of the market downturn are forcing a re-examination of conditions in the global economy and comparisons to previous market downturns that took place without economic recessions.

Some analysts see similarities to the late 1998 pullback in U.S. stocks that followed a year of turmoil in emerging markets, punctuated by the Asian financial crisis of 1997 and the Russian default of 1998 and culminating in the collapse of the highly leveraged Long Term Capital Management hedge fund.

Others point to the market shakeout in late 2015. Like the current episode, it lacked an obvious trigger and was accompanied by anxiety over the Federal Reserve’s plans to raise interest rates—in that case, the Fed’s first rate increase in nearly a decade. Like this year, the 2015 retreat featured a sharp decline in oil prices and a significant drop in the S&P 500.

In both those cases the market bounced back when investors regained confidence that the U.S. economic expansion was intact.

Most U.S. economic data and surveys of consumers and businesses are still optimistic. This month, the Federal Reserve moderately lowered its median projection of next year’s economic growth from 2.5% to a still-respectable 2.3%. Markets are telegraphing a darker message. Yields on 10-year Treasury bonds have fallen from 3.24% in early November to 2.74% just before Christmas, a sign investors think the economy won’t be solid enough to make steady interest-rate increases possible.

“There is a disconnect between what the financial markets are signaling about the economy and what the data are signaling,” said Catherine Mann, chief global economist at Citigroup.

Those sirens also include large drops in commodities like oil and copper, which hint at slowing global demand, and stress in the corporate-bond market. The spread between riskier high-yield debt and Treasury bonds widened to five percentage points from three percentage points in early October. Spreads moved at similar ranges between July and November 2007, one month before the most recent recession began.

Sentiment among chief financial officers, who help set budgets that will shape investment and hiring decisions, has also soured. Half of CFOs believe a recession will start within a year, and 80% think a recession will hit by the end of 2020, according to a Duke University survey.

“It’s not just about the equity market throwing a temper tantrum, it’s far deeper than that,” said David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “This is a much broader global liquidity story.”

Encouraged by signs of economic strengthening, the Fed has been gradually raising interest rates from rock-bottom levels and selling back the trillions of dollars in bonds it bought in the postcrisis years. The central bank says the roll-back of stimulus is smooth. Others aren’t so sure what comes next. There has never been such a huge stimulus, and one has never before been unraveled.

Some believe there’s a hidden risk in debt that consumers and companies took on when borrowing was inexpensive. The Fed’s campaigns were  “fundamentally designed to encourage corporate America to lever up, which makes them more vulnerable to rising borrowing costs,” said Scott Minerd, chief investment officer at Guggenheim Partners. “The reversing of the process is actually more powerful,” he said.

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Quant Pioneer Helped Jim Simons Transform Trading

| June 5, 2019 | 0 Comments

Elwyn Berlekamp, the son of a pastor in rural Ohio, was a grade-school pupil in the 1940s when it began to dawn on him that math was not a torment inflicted on schoolchildren.

It was a game, he concluded, and also a way to win games.

That discovery shaped his career as a computer scientist whose algorithms helped make possible cellphones, compact discs and transmission of crisp images from spacecraft. He also helped devise mathematical investment strategies for the hugely successful hedge-fund investor Jim Simons and became an authority on the math underlying games ranging from the Asian game of Go to the pencil-and-paper game Dots and Boxes.

Some of his most important work involved ways of dealing with so-called noise in data transmissions—caused by such things as static, radiation or loss of signal strength—that can turn digital messages into nonsense.

Claude Shannon, who taught at the Massachusetts Institute of Technology, had developed a theoretical framework for adding extra bits to messages to ensure transmission errors could be found and corrected. Others produced codes to do that, but decoding those messages was complicated and costly. Dr. Berlekamp, who worked with Dr. Shannon at MIT in the 1960s, devised more practical and efficient ways to decode the messages.

His algorithms have been used in the Hubble Space Telescope, the Voyager space mission and cellphone transmissions. Variants of his work also allow devices to read smudged bar codes or scratched compact discs. His 1968 book “Algebraic Coding Theory” is considered a landmark in its field.

Dr. Berlekamp, who died April 9 at age 78 from complications of pulmonary fibrosis, spent most of his career as a professor at the University of California, Berkeley. In his spare time, he juggled and rode unicycles, sometimes at the same time. He and his wife set up a foundation to support math and science education.

In 1973, he co-founded a company, Cyclotomics, to help clients use his error-correcting technology. His sale of that company in 1985 toEastman Kodak Co. left him with several million dollars to invest.

He began exploring investment techniques with a fellow mathematician, Dr. Simons, who had helped start Axcom, a tiny firm that ran the Medallion fund.

When Axcom’s co-founder, James Ax, left the firm after deep losses and a falling out with Dr. Simons, Dr. Berlekamp bought Dr. Ax’s share in the business and began to run it in 1989.

Dr. Berlekamp favored making frequent trades in commodity, currency and bond markets. At the time, most rivals worried commissions and other costs resulting from a higher-frequency approach would offset any profits. With Dr. Simons and other colleagues, he devised a computer-driven quantitative trading style of the sort that now dominates Wall Street.

Their trading system spotted barely perceptible patterns in markets that had no apparent explanation. These trends and oddities sometimes happened so quickly as to be unnoticeable by most investors. They were so faint the team took to calling them “ghosts.” Yet they reappeared often enough to be worthy additions to the team’s mix of trade ideas.

The revitalized Medallion fund scored a gain of about 56% in 1990. At the end of that year, Dr. Berlekamp sold his stake in Axcom to Dr. Simons and returned to academia. In 2008, Dr. Berlekamp became chairman of a hedge fund called Berkeley Quantitative, which at one point had assets of about $250 million. It closed in 2012 after recording middling returns.

Beginning in 1982, he wrote a series of books called “Winning Ways for Your Mathematical Plays,” with John H. Conway and Richard K. Guy, on the math underlying successful strategy in board games. He also helped organize conferences on games and puzzles.

Elwyn Ralph Berlekamp was born Sept. 6, 1940, in Dover, Ohio. His father, Waldo Berlekamp, was a minister in the United Church of Christ. His mother, Loretta Berlekamp, was a church librarian.

When Elwyn was 9, the family moved to Fort Thomas, Ky., a suburb of Cincinnati.

As president of the high school band, he composed several marches and copyrighted one of them. To show school spirit and prove he wasn’t only a nerd, he joined the swimming team, despite a lack of aptitude for the sport. (As the team was short on members, he calculated that his chances of being cut were low.) In a biographical note, he said he graduated second in his high school class rather than first “due to a lone B, in Latin.”

With a National Merit Scholarship, he enrolled in 1958 at MIT, where he earned both his bachelor’s and master’s degrees in electrical engineering in four years. In 1964, he received a doctoral degree at MIT with a thesis called “Block Coding With Noiseless Feedback.”

Early in his career at Berkeley, in the mid-1960s, he was juggling in his apartment when he heard a rapping from the floor below, where two female roommates objected to the noise. His apology led to an introduction to Jennifer Wilson, an Englishwoman studying at Berkeley. They married in 1966. She survives him, along with three children, four grandchildren and a sister.

In his Berkeley academic career, he called on his quick thinking and sense of strategy. During one meeting of computer scientists he chaired in the 1970s, a participant made a motion of no-confidence in Dr. Berlekamp. He promptly seconded the motion, surprising everyone and defusing the challenge to his authority.

He was known for his ability to talk at length about almost anything and said that ideally he liked to do 80% of the talking in a conversation. When he met other intellectual chatterboxes, he was willing to reduce his share to 60% or so.

On one trip, en route to a conference in Australia, Dr. Berlekamp was asked by a border-control agent whether he was traveling for work or pleasure. He replied that he had arranged his life “such that there shall be no distinction between the two.”

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‘You Have to Stop,’ Renaissance Executive Tells Boss About Trump Support

| November 3, 2017 | 0 Comments

At some companies, a divisive presidential campaign has led to disharmony in the workplace

By Gregory Zuckerman for The Wall Street Journal
Feb. 23, 2017

David Magerman says he was in his home office in suburban Philadelphia earlier this month when the phone rang. His boss, hedge-fund billionaire Robert Mercer, was on the line.

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Meet the Mercers: A Quiet Tycoon and His Daughter Become Power Brokers in Trump’s Washington

| November 3, 2017 | 0 Comments

Armed with data on an alienated electorate, a hedge-fund magnate and his family shun the GOP establishment to support the winning campaign; advising on cabinet selections

By Gregory Zuckerman, Keach Hagey, Scott Patterson and Rebecca Ballhaus for The Wall Street Journal
Jan. 8, 2017

In February 2014, a group of conservative political donors gathered at New York’s Pierre Hotel to strategize about the coming presidential contest.

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15 Years After 9/11, a Brother Confronts Grief’s Long Arc

| November 3, 2017 | 0 Comments

Harley Di Nardo had long suppressed his pain over the loss of his sister—until sorrow proved stronger

By Gregory Zuckerman for The Wall Street Journal
Sept. 9, 2016

The night before everything changed, Harley Di Nardo and his sister, Marisa, treated their mother to a birthday dinner at Windows on the World, the restaurant on the World Trade Center’s 107th floor.

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Billionaire George Soros Lost Nearly $1 Billion in Weeks After Trump Election

| November 3, 2017 | 0 Comments

Hedge-fund manager’s ex-deputy, Stanley

By Gregory Zuckerman and Juliet Chung for The Wall Street Journal
Jan. 13, 2017

Billionaire hedge-fund manager George Soros lost nearly $1 billion as a result of the stock-market rally spurred by Donald Trump’s surprise presidential election.

But Stanley Druckenmiller, Mr. Soros’s former deputy who helped Mr. Soros score $1 billion of profits betting against the British pound in 1992, anticipated the market’s recent climb and racked up sizable gains, according to people close to the matter.

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