Tuesday

May 31, 2016

www.bloombergbriefs.com

Commodity Funds Get $5 Billion Embrace on Oil GainBY NISHANT KUMAR AND JESSE RISEBOROUGH    

The rally in oil has given a fillip to long-suffering commodities hedge funds. After four years of hemorrhaging cash and clients, managers are once again making money and winning back investors.    

About $5 billion has coursed into the funds in 2016, with the first quarter seeing the biggest inflows since 2009, data compiled by eVestment show. Investors are being drawn by gains of more than 18 percent reported in a letter to clients by Stuart

ZP Energy Fund in New York and 12.7 percent posted by Zimmer's Pierre Andurand's$1.1 billion Commodities Master Fund in London. Fund officials declined to comment.

“Funds that survived a significant fall in the oil price and in most commodities are clearly real hedge funds,” said , the London-based chief investment Michele Gesualdiofficer for hedge-fund investing at , who oversees $2.5 billion and has Kairos Partnersre-started investing in commodity funds “There are not many funds operating in this . asset class and some of them are extremely volatile.”

With crude flirting with $50 a barrel, after dropping to almost $26 in February, gold up 14 percent this year and soybeans 24 percent higher, investors are betting that an expanding U.S. economy will spur global growth. Commodity prices are unlikely to return to lows seen in the first quarter, according to Citigroup Inc.

Commodity money managers suffered outflows totaling $6.2 billion from 2012 through 2014, starving them of capital and forcing some players out of the business. More than a dozen asset managers including Clive Capital LLP, Centaurus Energy LP and firms such as Higgs Capital Management and Mastic Investment closed funds.

Now the prospect of higher oil prices is encouraging new startups. Former Brevan Howard and Moore Capital money manager

said Luke Sadrian he is preparing to open a commodities fund in London in the second half of 2016 that will trade futures and options on all commodities and bet on a rising oil price. 

Not everyone expects the dark clouds to

disappear. Goldman Sachs Group Inc. sees no “sustainable shift in fundamentals” and says higher U.S. interest rates will keep the outlook bearish. Concerns that China’s faltering economy and its growing bad-debt burden will slow growth continue to weigh on some commodities.

Geoff Blanning, Schroders' commodities head, said it’s almost “politically incorrect to say that you’re buying commodities,” but those investing will earn strong returns in the next two to three years. Schroders started a fund with its own money last month and is raising capital from investors to bet on the energy, agriculture and metals sectors.

 — With assistance from Hema Parmar, Will Wainewright, Andy Hoffman and Colin McClelland

NUMBER OF THE WEEK

$22 million — that Aid Bridgewater will receive from Associates

Connecticut, which has been working to keep businesses from leaving the state.

Glenview's Capital Partners fund rose 2.6 percent in April. Tourbillon Capital

' global master fund rose 3 Partnerspercent last month: Returns in Brief

Blackstone's James says hedge funds may lose 25 percent of assets in the next year. says DoubleLine's GundlachChanos is the greatest hedge fund manager: Seen & Heard

Tudor Pickering Holt & Co.'s Pickering said in March that oil prices had already bottomed: Market Calls, Revisited

Omni Event Fund's Melsom says the fund is seeing opportunities in European M&A: Spotlight

Alaska Permanent Fund Corporation was scheduled to have a hedge fund panel discussion with presentations from Albourne, AQR and Blackstone: From the Minutes

Pelargos Capital joins funds' bet on a turnaround at battered Honda. AE

trimmed bets against the Capital Australian dollar: Market Calls

INSIDE

"If you can find the intersection where an activist is looking to shake up a company — and that company's fundamentals are already deteriorating or have the potential to deteriorate — that's where you can find very interesting short opportunity."

— David Ford, founding partner/co-portfolio

manager at Latigo Partners, in an interview

QUOTE OF THE WEEK

RETURNS IN BRIEF

Commodities Lured Investors

About 290 commodities-focused hedge funds tracked by eVestment managed $70.5 billion at the end of March, rebounding from a near six-year low of $65.4 billion at the end of last year. Average returns were 6% in the first four months of the year, after a loss of 10.4% last year.

May 31, 2016 Bloomberg Brief Hedge Funds 2

 

RETURNS IN BRIEFA look at hedge fund performance last month. Funds in the table below not mentioned in the accompanying text on this page were reported in other issues of the Brief or in Bloomberg News stories. For questions, e-mail mkarsh@bloomberg.net.    

Glenview Capital Management's Capital Partners fund rose 2.6 percent in April, paring this year's loss through April 30 to 9.5 percent, according to a person familiar with the matter. A spokesman for the $8.2 billion firm, run by Larry

, declined to comment.Robbins

— Hema Parmar and Saijel Kishan

Jason Karp’s Tourbillon Capital trimmed losses for the year to Partners

13.6 percent in its global master fund after it rose almost 3 percent last month, according to a person familiar with the matter. , the $4 billion firm’s Amy Zipperchief operating officer, declined to comment.

— Hema Parmar and Saijel Kishan

PlusTick Management, the $75 million Charlottesville, Virginia-based hedge fund that focuses on distressed investments, gained 15.5 percent in its PlusTick Partners fund in April, bringing returns for the year to almost 22 percent, according to an investor letter obtained by Bloomberg. The fund’s largest long positions are in the equity of Straight Path Communications Inc., which holds licenses to airwaves, and both the equity and debt of Sanchez Energy Corp. "In March and April we bought distressed high-yield energy bonds and took some relatively small positions in the equities of those issuers," managing partner Tom

said in a telephone interview. "Both Hillhave had significant upside moves over the past two months." Hill said about half of the fund’s year-to-date gains came from its energy bets. "We had a large short allocation to energy last year going to January and February, and covered that in March when we flipped to long-biased in energy," he said. PlusTick was founded in December 2012 by Hill and

.Adrian Keevil

— Hema Parmar

’s Marshall Wace Asset ManagementMW Eureka Fund rose 0.6 percent in its

 

euro share class last month, paring this year’s loss through April 30 to 4.5 percent, according to a performance document. The $7.7 billion fund,

managed in London by firm cofounder , rosePaul Marshall

11.1 percent last year. The figures were confirmed in an e-mailed statement from

a spokesman for Marshall Wace, which bets long and short on equities.

— Will Wainewright

 

April Returns

Year-to-Date Returns to End-April

*Returns through April 22

May 31, 2016 Bloomberg Brief Hedge Funds 3

 

FROM THE MINUTES ITEMS MAY BE SUBMITTED TO MKARSH@BLOOMBERG.NET

May 31, 2016 Bloomberg Brief Hedge Funds 4

FROM THE MINUTES ITEMS MAY BE SUBMITTED TO MKARSH@BLOOMBERG.NET

BY BRIAN CHAPPATTA AND KATIA PORZECANSKI, the world’s largest hedge fund, will receive $22 million Bridgewater Associates LP

in aid from Connecticut, which has been working to keep businesses from leaving the state.

The firm, led by billionaire , was approved for a $5 million grant and a $17 Ray Daliomillion loan to expand in Westport, Wilton and Norwalk, according to minutes of the state bond commission’s meeting on Friday. The loan may be forgiven if Bridgewater, which manages about $150 billion, retains some 1,400 jobs and creates 750 new ones through 2021.

Connecticut was in direct competition with states including New York when talks over the funding began with Bridgewater in 2012, Democratic Governor Dannel Malloy said at the meeting. The company is receiving the assistance as hedge funds come under scrutiny from clients, including public pension funds, for charging hefty fees while delivering lackluster results.

“We were aware of specific campuses in other states we were competing with,” Malloy said. “I wish we didn’t compete that way, that dollars were not part of the competition, but the reality is that they are.”

The measure drew rebukes from State Representative Christopher Davis and Comptroller Kevin Lembo, who said Connecticut can’t afford to be “picking winners and losers” when its stagnant economy led to two credit downgrades this month. Davis told Malloy at the meeting that Bridgewater can afford the cost of the expansion without public funds and that it came to the state “as a lender of first resort.”

Connecticut is the wealthiest U.S. state, yet has had difficulty balancing budgets as its finance-based economy struggles to rebound from the last recession. Malloy has pushed through tax increases to fill the shortfalls, though he now warns of a “new economic reality” that must be addressed with spending cuts.

The state has turned to financial incentives to keep companies within its borders. It suffered a blow earlier this year when General Electric Co. announced it would move its headquarters to Boston, after residing in Fairfield since 1974. That came even after Malloy pulled back on a plan to raise business levies that led GE to look elsewhere. Other financial companies have received loans like the one approved for Bridgewater. In October 2014, Connecticut extended through 2021 an agreement with UBS AG that gave the bank a $20 million loan that doesn’t have to be repaid if it keeps at least 2,000 employees in-state.

Bridgewater was founded by Dalio in 1975 from his two-bedroom apartment. Its Pure Alpha fund tumbled 6.7 percent in the first quarter of this year, according to a person familiar with the returns. Dalio earned about $1.4 billion last year, according to Institutional Investor’s Alpha’s 2016 Rich List. He’s worth about $14.1 billion, ranking him the 60th richest person in the world, according to the Bloomberg Billionaires Index.

Billionaire-Led Bridgewater Lands Connecticut Aid   

Maryland State Retirement and Pension System’s investment committee was scheduled to hear a presentation from Albourne Partners, the system’s hedge fund consultant, at a meeting on May 6, according to the . The next investment agendacommittee meeting is scheduled to take place on Sept. 2.

Alaska Permanent Fund Corporation was scheduled to have a hedge fund panel discussion at its May 24-25 meeting of the board of trustees, according to the board

. The discussion was packetscheduled to provide trustees with current hedge fund industry perspectives as well as impressions on the APFC’s absolute return portfolio from Albourne Partners, its independent third-party absolute return consultant. Other panel participants included AQR and Blackstone, according to the packet.

— Compiled by Ainslie Chandler and

Melissa Karsh

 

Q&A

May 31, 2016 Bloomberg Brief Hedge Funds 5

Q&AActivist Shareholders Signal Distressed Bond Opportunity, Says Latigo's Ford

> Shareholder activists involved in deteriorating credits create short bond opportunities.  > NGPL, Freeport-McMoRan bonds have value.    Interviewed by Tania Chen, Bloomberg, on May 19

David Ford, Founding Partner/Co-Portfolio Manager, Latigo Partners

 Q: What's your outlook? A: Our focus is investing in distressed. With the uptick in defaults and restructurings, for the next 6 to 12 months that is definitely going to continue.

Q: How do you pick investments?A: We run a concentrated portfolio. We invest in 35 to 40 positions at any one time. We like a big situation where there is a lot of debt where the securities trade on a regular basis — where there is still liquidity.

Q: How much of the portfolio is in the energy sector? A: It's a growing percentage. If you looked at midstream, some recent E&P investments, as well as pipelines which remain our largest investment, it's over 25 percent. Midstream is an area where we've spent a tremendous amount of time over the last year. has been NGPLour biggest position for quite a while. NGPL was an 8 percent position.

Q: How did you invest in their bonds?A: We started out in the front end of the curve, the 2017 maturity and we ultimately rotated into the longest dated 2037s, which have had the most upside recently with the recent capital injection.

Q: How else do you play energy?A: [In midstream] if you could buy something that traded like it took commodity price risk but wasn't actually taking commodity price risk, that was a great place to be where you had good downside protection. That's what brought us to midstream and NGPL. Bonds that were in the 70s and 80s are now all above par.

Q: What if NGPL had gone under?: We thought we had good downside A

protection when we looked at what a restructuring might look like. It's always

 

easier to avoid a bankruptcy but if you have to go through bankruptcy that's fine. We've seen enough bankruptcies and been involved in hundreds of them over the years that we have a pretty good idea of how cases are going to shake out.

Q: You prefer liquid assets, but isn't that space very competitive?

: We're looking for situations where we Acan add value through a bond that's got a different covenant or some sort of structural advantage that maybe the market overlooked. We think of ourselves as a speed boat that maneuvers between the super tankers.

Q: Where have you seen opportunity?A: Earlier this year, the European bank Tier 1 market. That sector sold off really hard in February with the Deutsche Bankscare. We had the opportunity to invest both in AT1s and legacy Tier 1s at significantly lower prices than what we had seen just a few months earlier. It was at a subsidiary that was better capitalized than the bank but had a support agreement from the bank. It was like your classic double dip security and you could buy it at the same price as other Tier 1s and so you got that structural enhancement for free. What we're always looking for is this idea of free optionality: multiple ways to win.

Q: How else do you pinpoint trades?: If you think about the role of the A

activist, it's to create value for shareholders. Often that comes at the expense of creditors. No activist has ever walked into a boardroom and said, "I have a great idea, let's pay off the debt!" If you can find the intersection where an activist is looking to shake up a company — and that company's fundamentals are already deteriorating or have the potential to deteriorate — that's where you can find very interesting short opportunity.

Q: What are examples of bond shorts like that?

: was one. A J.C. Penney Transoceanwas another one where an activist had put in place a dividend where the company was going to have a very hard time to pay.

Q: What else are you buying?: We got attracted to A Freeport-

earlier this year. Bonds have McMoRanalready moved up into the 70s but we think they are well covered at par as the company continues to sell assets. We like that situation, where management is doing all the right things for creditors, paying down debt and improving the credit profile, and you have this embedded call option in the energy business.

At A Glance

BREAKFAST: Green juiceBOOK: Seven Brief Lessons on Physics by Carlo Rovelli

 GUEST LECTURER:

CAREER:

LATIGO AUM:

On distressed investing at Columbia University Graduate School of Business2002-2005 portfolio manager at Satellite Asset Management in charge of credit and distressed related investments. 2000-2002 launched distressed component of Och Ziff's fixed income business. 1994-1999 PM of ING Barings’ North American proprietary distressed securities and merger arbitrage portfolios$556 million as of Jan. 1

SEEN & HEARD

May 31, 2016 Bloomberg Brief Hedge Funds 6

 

SEEN & HEARD

Hedge Funds May Lose 25% of Assets, Blackstone’s James Says  BY SCOTT DEVEAU AND DEVIN BANERJEE

The $2.9 trillion hedge-fund industry may lose about a quarter of its assets in the next year as performance slumps, said Tony

, ’s billionaire president.James Blackstone Group LP“It’s kind of a day of reckoning that we face here,” James said

Wednesday in an interview with Bloomberg TV Canada’s Pamela Ritchie at a conference in Toronto. “There will be a shrinkage in the industry and it will be painful. That’s going to be pretty painful for an awful lot of places.”

The hedge-fund industry is having its worst start to a year in performance and investor withdrawals since global markets reeled after the financial crisis. Third Point, the hedge-fund firm founded by Dan Loeb, last month said the industry is in the first stage of a “washout” after “catastrophic” results this year.

Hedge funds have lost 1.8 percent this year, according to Hedge Fund Research’s global index, the poorest performance since 2008. The industry had net outflows of $16.6 billion in the past two quarters, the most since 2009, according to HFR. In 2015, 979 funds closed, more than any year since 2009, according to the research firm.

Blackstone is the largest allocator to hedge funds globally, and the New York-based firm also provides startup money to managers and buys equity stakes in hedge-fund firms. Results in its hedge-fund business are better than the industry average, James said, though performance generally remains a cause for concern. “We’re definitely worried about what’s going to happen in the hedge-fund world right now,” he said, speaking at the Canadian Venture Capital and Private Equity Association’s annual conference.

Hedge-fund managers have been stymied by central bank stimulus worldwide, declining trading volumes and markets marked by wide swings in prices. Carlyle Group LP’s David Rubenstein said this month he was surprised that “so many macro people got it wrong.” Carlyle owns three hedge-fund firms and on May 20 said Mitch Petrick, the head of the unit that houses the firms, stepped down.

James said hedge funds may be expected to under-perform the

stock market during a bull run because they’re hedged to reduce volatility. Blackstone’s fund of hedge funds has about one-fifth of the volatility of the stock market and about 65 percent of the upside, he said.

“For a while that’s a good trade for them,” James said of investors in hedge funds. “But the longer that bull market goes, they fall further behind. Pretty soon, they don’t like that trade anymore.”

James also called out hedge-fund managers for the fees they charge, which are typically 2 percent of assets annually and 20 percent of investment profits — a structure he said “is hard to justify these days.” Billionaire Warren Buffett last month described such fees as “a compensation scheme that is unbelievable,” and Bill Gross of Janus Capital Group Inc. said on Twitter: “Hedge fund fees exposed for what they are: a giant ripoff.”

Tudor Investment Corp. is trimming fees, according to a letter sent to clients. The $11.6 billion firm, run by Paul Tudor Jones, will reduce fees for a share class that contains most of its biggest fund’s money to 2.25 percent of assets and 25 percent of profits starting July 1. That’s down from 2.75 percent and 27 percent.

“We’re talking about three years of under-performance, the fact that investors pulled $1 billion of capital and already a 2-and-20 fee structure which is under duress,” Ilana Weinstein, the chief executive officer of IDW Group, which recruits investment professionals for hedge funds, said of Tudor. “Investors aren’t really excited about a slight discount for crappy performance.”

“There’s going to be a real weeding out of hedge funds,” she said Wednesday on Bloomberg TV.

Blackstone had $68.5 billion dedicated to hedge funds as of March 31, and the business produced $244 million in economic income, which includes realized and unrealized gains and losses, in the past year, down 35 percent from the previous 12 months. The alternative asset manager, run by James and CEO Steve Schwarzman, oversaw $344 billion in real estate, private equity holdings, credit assets and hedge funds at the end of the first quarter.

— With assistance from Saijel Kishan

DoubleLine’s Gundlach Says Chanos Is Greatest Hedge Fund Manager  BY JOHN GITTELSOHN

Jim Chanos, founder of , is the best Kynikos Associateshedge fund manager because he’s permanently bearish and avoids the group think that led others in his industry to lose money last year, according to bond manager Jeffrey Gundlach.

“The greatest hedge fund manager in the world is Jim Chanos,” Gundlach, chief executive officer of DoubleLine Capital, said Thursday during a wide-ranging presentation in Beverly Hills, California. “Jim Chanos is a permanent bear. He’s dour, he’s curmudgeonly, he’s bearish as hell all the time.”

Gundlach said he would personally invest with Chanos, who’s best known for short-selling. Unlike Chanos, prominent managers

including William Ackman, David Einhorn and Leon Cooperman lost money last year because they were unable to benefit from momentum stocks, Gundlach said.

“It’s not a trending market,” Gundlach said. “You can’t just play momentum.”

Gundlach’s $59.7 billion DoubleLine Total Return Bond Fund is up 2 percent in 2016 and has outperformed 97 percent of its Bloomberg peers over the past five years. DoubleLine Capital’s total assets under management stood at $99.7 billion as of Thursday, according to Ron Redell, the Los Angeles-based firm's executive vice president.

MARKET CALLS ITEMS MAY BE SUBMITTED TO MKARSH@BLOOMBERG.NET FOR CONSIDERATION

May 31, 2016 Bloomberg Brief Hedge Funds 7

MARKET CALLS ITEMS MAY BE SUBMITTED TO MKARSH@BLOOMBERG.NET FOR CONSIDERATION

Pelargos Capital BV, a Dutch hedge fund manager that’s prospered by snapping up battered stocks, is adding to its stake in Honda Motor Co. and is predicting that shares may double, joining other investors placing faith in a recovery for the besieged automaker.

“The market clearly hates Honda,” said , chief investment Michael Kretschmer

officer of Pelargos, a manager of $237 million that was spun off from insurer Aegon NV. “If you assume in the long run they will go back to profitability, like they have in the past, you can easily double your money on Honda.”

Pelargos joins money managers such as ClearBridge Investments and American Century Investments that have accumulated more than 63 million shares of Honda since 2015, triple the 22.6 million shares sold in the same period, according to regulatory filings. Honda shares have dropped about 22 percent in the past six months amid recalls of a supplier’s faulty air-bags and are trading at 0.8 times their book value, near the lowest in the last 20 years.

Pelargos, which has almost half its assets in a Japan-focused strategy, tends to outperform during market downturns. The $104 million Pelargos Japan Alpha Fund advanced 3.2 percent in the first four months of this year, compared with a 14 percent decline for the MSCI Japan Index in the period, and beat that benchmark in 2010 and 2011 amid broader market declines.

“Beaten up stocks, those with negative price momentum and strong underperformance, draw our attention,” Kretschmer said.

Kretschmer said he may buy more Honda shares, boosting the stake to account for as much as 5 percent to 7 percent of the fund’s assets, from about 2 percent.— Kathleen Chu and Komaki Ito, with assistance

from Craig Trudell and Ma Jie

, a hedge fund run by a AE Capitalformer atmospheric scientist, trimmed bets against the Australian dollar as it

Pelargos Joins Funds’ Bet on Turnaround at Honda

AE Capital Cuts Profitable Aussie Short

 

MARKET CALLS, REVISITED BY HEMA PARMAR

Tudor Pickering Holt & Co.’s co-founder on March 31 said oil Dan Pickeringprices had already bottomed. "We saw prices down in the $25 a barrel range last month and that feels like we’ve seen the lows," Pickering, whose energy-focused firm manages $1.9 billion, . "We’re going to see meaningfully better said at the timeprices over the next 18 months or so."

Since WTI crude fell to $26.21 a barrel on Feb. 11, prices almost doubled to top $50 a barrel on May 26 before retreating slightly later that day. WTI crude was trading at about $49.54 at 9 a.m. in New York. In June 2014, the commodity traded at $107 a barrel. "The trend of the tightening supply-demand balance is firmly in place but there are enough short-term issues such as Iranian production coming back, producer hedging, more drilling in the U.S.," Pickering said in a May 27 interview. "All of those may intermittently spook the market this year but overall we will be tighter by the end of the year." Pickering said there’s "a good chance" oil will reach at least $60 a barrel by the end of the year.

gauges shifts in the world’s two biggest economies.

The Australian, Canadian and New Zealand dollars will likely be the most sensitive to changes in the outlook for U.S. interest rates and for the economy in China, the biggest consumer of raw materials, said Chief Investment Officer

. The three are among the Lyle Pakulafour worst performers in the Group-of-10 currencies this month as traders boosted bets the Federal Reserve will raise rates as early as June. Pakula says they could rally if the U.S. central bank delays or should commodity prices resume gains.

AE Capital made about 6 percent in the first four months of the year, according to the manager, outperforming the average 0.4 percent return of other hedge funds tracked by Eurekahedge Pte. The fund, which uses computer algorithms to trade

in financial markets, had bet on a decline in the Aussie against the greenback in late April, before cutting its position on May 20, Pakula said. The currency has dropped below 72 U.S. cents, from a 10-month high of 78.35 reached last month, after the Reserve Bank of Australia cut its benchmark rate to a record low in May.

“I don’t think you’re going to see another 6-to-7 cent drop in the Aussie in the short term,” Pakula said in an interview. “You’d need some massively positive U.S. data and very negative Australian data to really push through that barrier.”

The Aussie has tumbled 4.8 percent this month to 72.36 cents as of 5:30 p.m. in Sydney Tuesday. The currency gained as much as 1 percent Tuesday following economic reports on building approvals and net exports.

— Netty Ismail

OVER THE HEDGE

For a live version of this chart, click on image or run .G #HF.BRIEF 15

May 31, 2016 Bloomberg Brief Hedge Funds 8

OVER THE HEDGE

Ackman Dangles Meeting With ‘Hamilton’ Star for Rapper ScientistBY AMANDA GORDON

The Park Avenue Armory presents some interesting theater, but it’s never seen anything like the Wednesday night performance by Christopher Mason, an associate professor of computational genetics at Weill Cornell Medicine.

Standing in front of the Tiffany blue-glass mosaic in the Armory’s Veterans Room — recently restored at a cost of more than $8 million — Mason rapped in honor of the 2016 presentation of the Pershing Square Sohn Prize for Young Investigators in Cancer Research.

"Like Aristotle gives philosophy, these models reveal radiation oncology," Mason rhymed, before taking aim at cell checkpoints, "precariously shifting states, endlessly nefarious as they ablate the orderly procession of lineage fates." Mason also described "splitting, conscripting, and hitting mutant RNAs with new therapeutic forays."

’s Pershing Square Capital Management Bill Ackman immediately rose to show his appreciation.

"The really sad thing is we’re going to lose him to Broadway," Ackman said, before suggesting he could make it happen. "Actually, I know Lin-Manuel," he said of the star and creator of the musical "Hamilton," indicating just how helpful a

well-connected and philanthropic hedge fund manager can be.

Ackman has a vested interest in keeping Mason in the lab. He and his wife, Karen, are primary funders of the prize, which gives $200,000 a year for up to three years to young scientists in New York.

In addition to Mason, this year’s winners are Omar Abdel-Wahab and Andrea Ventura, whose labs are at Memorial Sloan Kettering Cancer Center; Uttiya Basu at Columbia University; Agnel Sfeir of New York University School of Medicine; Samuel Sidi of Icahn School of Medicine at Mount Sinai, and Christopher Vakoc of Cold Spring Harbor Laboratory.

The prizes are now in their third year, with New York Community Trust joining as a funder of one of the awards. They are presented by an alliance of the Pershing Square Foundation and the Sohn Conference Foundation, founded after Wall Street professional Ira Sohn, who died of cancer.

Ackman has presented ideas at Sohn investment conferences for years, and he had one at this event too: teach scientists how to rap. It could be a useful tool for fundraising, he said.

 

   

ACTIVIST SITUATIONS COMPILED BY PATRICK BROWN AND MICHAEL THIEME, BLOOMBERG DATA

May 31, 2016 Bloomberg Brief Hedge Funds 9

Significant Actions at Companies Targeted by Activist Investors

COMPANY ACTIVIST WHAT HAPPENED

Magnachip Semiconductor Corp.

Engaged Capital

Activist investor with an 11 percent stake May 27 for two board seats at the South Korean chipmaker. The settlement, which concluded settledwithin weeks of the activist filing for up to four directorships, also included standstill provisions and that the pair will join the strategic review committee.

SunOpta Inc.Tourbillon Capital Partners

The largest shareholder with a 9.9 percent stake sent a letter on May 27 to the Canadian company's board it to “immediately engage an urgingindependent investment bank to advise on a value maximization process — including the execution of a sales process." The activist cited the supplier of organic and specialty foods' poor share-price performance in the past two years and said the firm has a “uniquely attractive business” in the rapidly growing area of sourcing hard-to-find organic and non-genetically modified ingredients.

London Stock Exchange Group Plc

TCI Fund Management

Activist investor with a 4.25 percent stake said May 27 that it supports the company's proposed takeover by Deutsche Boerse AG, clarifyingthe motives behind its purchase of a sizable stake in the U.K.'s primary stock exchange. It hasn't always viewed the tie-up between the two companies so positively when in 2005 it, along with another activist, forced Deutsche Boerse to drop its offer to by the company. 

Depomed Inc.Starboard Value

Activist firm with a 9.9 percent stake a DFAN14A on May 26 proposing to modify the slate of six board nominees, citing continued filed concerns regarding what it calls corporate governance deficiencies, questionable capital allocation decisions and actions by the board to "stymie" strategic interest.

Chico's FAS Inc.

Barington Capital

Activist fund pushing for reductions in marketing expenses and improvements in corporate strategy plans to seek election of its founder and another director to the company's board at the annual meeting scheduled for July 21, according to a May 24  .statement

New York REIT Inc.

Land & Buildings Investment Management

The New York-based real estate investment trust on May 25 to be acquired by closely held JBG Cos., creating an $8.4 billion real agreedestate company focused on New York and Washington-area properties. The activist fund had previously urged the firm to overhaul its board and was in favor of exploring a sale of the company.

Source: Bloomberg News, NI SHRHOLDACT<GO>, BI BESG <GO>

This story was compiled by Bloomberg LP employees involved with data collection and was edited by the News department. To suggest ideas or provide feedback, contact the editor for this story: Melissa Karsh at mkarsh@bloomberg.net. For more on activist investors from Bloomberg Intelligence, run   on the terminal.    BI BESG <GO>

  

ACTIVIST SITUATIONS COMPILED BY PATRICK BROWN AND MICHAEL THIEME, BLOOMBERG DATA

   

DEAL ARBITRAGE

May 31, 2016 Bloomberg Brief Hedge Funds 10

TARGET ACQUIRERDEAL SIZE (M)

EXPECTED COMPLETION

DATE

OFFER PER

SHARE

TARGET PRICE

PAYMENT TYPE

SPREADPROJECTED ANNUALIZED

RETURN

1W CHANGE

IN SPREAD

MAJOR MOVE

AGL Resources Inc Southern Co/The 11,937 12/31/16  66.00 65.64 Cash 0.5% 0.9% -0.1%

Alere Inc Abbott Laboratories 8,040                -   56.00 42.57 Cash 31.5% 0.0% -4.2% ▼

Amaya IncConsortium Led By David Baazov

6,487                -   21.00 18.75 Cash 12.0% 0.0% -3.5% ▼

Anacor Pharmaceuticals Inc Pfizer Inc 4,633 09/30/16  99.25 99.43 Cash -0.2% -0.5% 0.0%

Axis Capital Holdings Ltd Arch Capital Group Ltd 6,560                -   65.00 54.80 Cash 18.6% 0.0% -1.2%

Baxalta Inc Shire PLC 35,563 06/03/16  45.86 45.53 C&S 0.7% 38.1% -1.8%

Cablevision Systems Corp Altice NV 17,835 06/30/16  34.90 34.67 Cash 0.7% 7.1% -0.3%

Cigna Corp Anthem Inc 50,382 12/31/16  170.74 128.82 C&S 32.5% 54.5% -3.0% ▼

Columbia Pipeline Group Inc TransCanada Corp 12,026 07/01/16  25.50 25.53 Cash -0.1% -1.2% -0.1%

EI du Pont de Nemours & Co

Dow Chemical Co/The 65,591 12/31/16  66.89 67.17 Stk -0.4% -0.7% -0.4%

EMC Corp/MA Dell Inc 63,491 10/31/16  30.67 27.83 Cash 10.2% 23.7% -0.4%

Humana Inc Aetna Inc 28,906 12/31/16  219.85 173.74 C&S 26.5% 44.4% -0.9%

IHS Inc Markit Ltd 9,774 12/31/16  121.78 122.66 Stk -0.7% -1.2% -1.9%

IMS Health Holdings IncQuintiles Transnational Holdings Inc

12,559 12/31/16  25.61 25.35 Stk 1.0% 1.7% 0.8%

Ingram Micro IncTianjin Tianhai Investment Co Ltd

6,133 12/31/16  38.90 34.77 Cash 11.9% 19.9% -0.6%

ITC Holdings Corp Fortis Inc/Canada 11,150 12/31/16  46.22 44.56 C&S 3.7% 6.2% -0.8%

Johnson Controls Inc Tyco International Plc 28,667 09/30/16  39.79 44.10 C/S -9.8% -28.3% -1.3%

KLA-Tencor Corp Lam Research Corp 10,955 06/30/16  73.49 72.99 C&S 0.7% 7.3% -0.2%

Medivation Inc Sanofi 8,766                -   52.50 60.63 Cash -13.4% 0.0% 0.2%

Micron Technology IncPrivate Advantage FIC FI Multimercado

22,973                -   21.00 12.31 Cash 70.6% 0.0% 240.1% ▲

Monsanto Co Bayer AG 61,698                -   122.00 109.49 Cash 11.4% 0.0% -3.1% ▼

Piedmont Natural Gas Co Inc

Duke Energy Corp 6,536 12/31/16  60.00 59.96 Cash 0.1% 0.1% -0.3%

Questar Corp Dominion Resources Inc/VA 5,965 12/31/16  25.00 25.28 Cash -1.1% -1.9% -0.7%

Rite Aid CorpWalgreens Boots Alliance Inc

16,708 12/31/16  9.00 7.75 Cash 16.1% 27.0% -1.0%

St Jude Medical Inc Abbott Laboratories 30,108 12/31/16  80.97 78.18 C&S 3.6% 6.0% -0.3%

TECO Energy Inc Emera Inc 10,361 06/30/16  27.55 27.53 Cash 0.1% 0.8% -0.1%

Terex CorpZoomlion Heavy Industry Science and Technology Co Ltd

4,960 05/27/16  0.00 20.89 Cash 0.0% 0.0% -23.4% ▼

Valspar Corp/The Sherwin-Williams Co/The 11,206 03/31/17  113.00 107.55 Cash 5.1% 6.0% -0.6%

Waste Connections IncProgressive Waste Solutions Ltd

7,815 06/01/16  68.03 68.15 Stk -0.2% -12.5% -1.2%

Williams Cos Inc/The Energy Transfer Equity LP 58,093 06/30/16  25.88 21.48 C/S 20.5% 220.0% -4.8% ▼  MARB <GO> North American deals

*Spread moved by more than 2% of price target: = up, = down  C/S=cash or stock▲ ▼

DEAL ARBITRAGEThe table below tracks pending corporate mergers in North America and the deal spreads — the difference between the offer price and the target's stock price. The table shows the change in those spreads from Monday, May 23 through Friday, May 27. Spreads that have moved by 2 percent or more are flagged in the far right "major move" column by an arrow indicating the direction of movement. Projected annualized returns are based on the spread and the deal's expected completion date.  

SPOTLIGHT

May 31, 2016 Bloomberg Brief Hedge Funds 11

SPOTLIGHT

Omni Event Fund CIO Melsom Sees Opportunities in European M&A

John Melsom, chief investment officer of the

$150 million Omni Event Fund, said the fund is

starting to allocate more capital to Europe after

seeing an increase in merger and acquisition

opportunities there. He spoke with Bloomberg

Brief's Melissa Karsh in a telephone interview this

month. His comments have been edited and

condensed.

Q: How has your fund performed?A: We had a pretty big year for M&A last year and managed to capitalize on that. We were up about 16.6 percent last year. So far this year it's more of the same in terms of year on year compared to Q1 in 2015. M&A levels seem to be about the same. We're down from Q4 in 2015. We didn't have a great April — we were down about 50 basis points, but we've already made that back and then some so far in May. On the year right now we're right around 6 percent.

Q: What occurred in May to spur the performance increase?A: One of our large positions is Baxalta-Shire, so that’s come in significantly. The spread widened out over the new rules from the U.S. Treasury on inversions. This isn’t an inversion, but people were nervous of anything that had any kind of non-U.S. buyer. There's also concern after the Pfizer-Allergan deal fell apart that perhaps Shire would become a target for one of them, but I think that fear has now disappeared. So that spread has come in. The Recall Holdings-Iron Mountain situation has given us some profit this month. There was an index reweight in Australia, which allowed us to take a short position in Iron Mountain at levels quite a bit higher than it’s traded for a long time in the U.S. And those positions are completely fungible. So those deals are the two main contributors so far this month.

Spreads had generally widened a little in April, in part due to the fact that one of the largest deals, Allergan-Pfizer, got effectively blocked by the Treasury. This caused some pain for many merger arbitrage funds, which in turn can cause other spreads to widen. With some big deals closing in May, we started to see

 

money being put to work again, which caused spreads to tighten somewhat.

Q: What sectors do you like?A: We're fairly sector agnostic. The nice thing about the hard catalyst style of investing is we're not trying to predict the future in terms of where deals are going to be, so we can react to the environment as it happens. Inversion or no inversion, we're still seeing a lot of activity in the medical sector, in the pharmaceutical sector and biotech. The problem with some of the health-care deals is that politics often gets involved and sometimes that's harder to price risk. It's hard to know how much of a haircut to give that. It also leads to wider spreads, which provides opportunity for us. The oil and gas sector will be interesting this year. There's a lot of stress in the smaller exploration-type companies so that could lead to some consolidation there.

Q: Wider spreads, how so?A: Right now you’ve got a big divergence in spreads where the very straight forward deals are trading at not tight, but much smaller annualized spreads. Anything with a bit of risk is trading much wider, but that can provide some opportunities for us. The other thing we're seeing is an increase in buyers out of Asia, in particular China. That comes with its own set of risks from a regulatory side, especially when they are buying US companies and in sensitive sectors. The main one for the U.S. seems to be the technology sector, so anything where they think they are buying intellectual property, especially any IP that is in some way used for national security, which can cause issues from a U.S. approval standpoint.

We’ve seen a pick up in outbound investment from China. But it's across sectors really.

Q: Are you following regional trends? In Europe, we look at when A:

companies refinance. Often it’s through rights issues, so there's a trend right now where the European steel companies are all refinancing to shore up their balance sheets and those rights issues provide opportunities for us both on an arbitrage and a directional point of view. In Asia, it's been more sporadic in terms of the hard catalyst events. In the last 12 months in Australia, we've been involved in a lot of REIT-type deals. In the U.S. the biggest sector has definitely been health care. But we focus where the deals are happening as opposed to looking in certain sectors. After a very dead period in terms of European M&A we're seeing a big pick up, so we’re starting to allocate some more capital to Europe. You might also see a further pick up in European M&A once there's some clarity around the Brexit referendum in the U.K. 

Q: What's your allocation to Europe? We’re seeing more opportunities so A:

more capital is flowing into Europe, but that was from a very low level throughout 2011-2012. Right now, we're probably about 30 percent in Europe, 10 percent in Asia and 60 percent in the U.S. Because we're a very liquid fund and most of the activity has been in the U.S., that's nearly always the largest proportion. The global aspect for us is good because when we feel like things are getting a bit crowded or spreads are too tight in the U.S. we’ll look to other geographic regions for opportunities.

Birthplace: U.K.Based in: Orange County, CaliforniaEducation: University of Newcastle upon TyneHobbies: Skiing, automotive enthusiastFavorite vacation spot: Lake Como

CALENDAR TO SUBMIT AN EVENT E-MAIL MKARSH@BLOOMBERG.NET

May 31, 2016 Bloomberg Brief Hedge Funds 12

DATE ORGANIZER EVENT SPEAKERS/ATTENDEES OF NOTE/DETAILS LOCATION

June 2  Connecticut Hedge Fund Association

Role in Asset Allocation and Portfolio Construction

Sarah Samuels, Massachusetts Pension Reserves Investment Management Board;  , MKP.  David Burke

Greenwich, Connecticut

June 2 Hedge Fund AssociationSoutheast Chapter Cocktail Reception

For more information, contact .events@hedgefundassoc.org Miami, Florida

June 5-7 Context Summits Context Summits Texas 2016 One-on-One meetings with investors. Arlington, Texas

June 7   Markets Group  2nd Annual Pacific Credit & Hedge Fund Investor Forum

Christopher L. Winiarz, University of California; , Arn AndrewsSan Jose Federated City Employees' Retirement System.  

San Francisco  

June 7 BloombergMiddle Market Direct Lending Forum Chicago 

Ian Fowler, Babson Capital; , NXT Capital; John Kal KilgastMartin, Antares Capital.

Chicago

  June 8   Bloomberg   Hedge Fund Marketing ForumAdam Blitz, Evanston Capital;  , 50 South; Dianna John FredeHenrich, Grosvenor; Anthony Lombardi, Aon Hewitt.  

JW Marriott Chicago  

June 8-9 RG+Associates 13th Annual ConsortiumEast Michael Silva, Calpers; , GCM Grosvenor. Kelly Williams New York

June 15 BattleFin Discovery Day IntrepidAnthony Scaramucci, SkyBridge; Michael Kieffer, Kieffer Capital.

New York

June 16 RavenPack 4th Annual Research SymposiumGordon Ritter, GSA Capital; , Deutsche Bank; Yin Luo Matt

, Millennium Partners.OberNew York

June 21 Markets GroupNew England Credit & Hedge Fund Investor Forum

Eric Nierenberg, Massachusetts PRIM; James Mnookin, Cambridge Associates; Kamal Suppal, NEPC.

Boston

June 21  Managed Funds Association  

Forum 2016Brian Hurst, AQR;  , Neuberger Berman; Ian Haas Sandy

, Man AHL;  , KKR Prisma.  Rattray Jackie RosnerFour Seasons, Chicago  

June 23-24 Storm-7 ConsultingHedge Funds: Regulatory, Risk and Compliance

Sessions include U.S. and EU regulatory frameworks, business continuity and disaster recovery and 3rd-party administration.

New York

June 28 Hedge Fund AssociationMitigating Risks Caused by Rogue Employees

Paul Neale, DOAR; , Gibbons; , Mark S. Sidoti R. Scott GarleyGibbons.

Harvard Club, New York

June 30New York Hedge Fund Roundtable, Bloomberg

June RoundtableMaureen Sherry, author of "Opening Belle" and previously of Bear Stearns.

New York

DISCLAIMER: The information on this page was compiled by Bloomberg from multiple sources, public and private, and is deemed to be accurate, but not definitive or exhaustive. Questions about events should be addressed to the event organizer.

Bloomberg Brief: Hedge Funds

CALENDAR TO SUBMIT AN EVENT E-MAIL MKARSH@BLOOMBERG.NET

The "organizer" and "event" columns link to websites, where available. "Attendees of note" links to the individual's BIO page, where available, on the Bloomberg terminal.  

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