Tuesday

July 19, 2016

www.bloombergbriefs.com

Context Looks to Hedge Fund Managers Post-Brexit  BY MELISSA KARSH

Context Asset Management is looking to add three hedge fund managers in the next 12 to 18 months to its liquid alternative mutual fund platform because alternatives may see increased demand following the U.K.’s decision to exit the European Union, according to President and Chief Investment Officer .  John Culbertson

The Bala Cynwyd, Pennsylvania-based firm plans to create three liquid alternative mutual funds and hire the hedge fund managers to serve as subadvisers, said Ron

, CEO of its parent company, . Context Capital Biscardi Context Capital PartnersPartners, which has previously seeded five hedge funds, will help seed the new funds, with initial investments typically ranging from $20 million to $30 million, Biscardi said.

"Brexit is confirming our bias toward those strategies that we really like," including systematic quants, hedged equity, quant equity and volatility strategies, Culbertson said in a telephone interview last month. "What we’re not doing is going back toward early business-cycle strategies, which are pro-growth, high-beta strategies."

The firm, which currently runs one liquid alternative mutual fund — the $93.5 million Context Macro Opportunities Fund — is now "more aggressively" looking to partner with managers that offer a low correlation to risk assets, provide high efficiency ratios and asymmetric returns, Culberston said. "Because of Brexit, we believe there’s an opportunity for those types of strategies to perform very well, and for our investors to be attracted to them," he said.

Hedge fund managers have been looking to liquid alternative funds to attract new clients as money coming into hedge funds plateaus, of Franklin Robert Christian Templeton’s , which invests in hedge funds, said in an last K2 Advisors interview month. Eighty-four percent of hedge fund investors money in the first half of withdrewthe year, citing underpofrming funds as the main driver, according to a Credit Suisse Group AG study released last week, and a net $15 billion was from hedge funds pulledin the first quarter, the most since 2009, Hedge Fund Research Inc. found.

"We’re in a market where we believe you need to be more defensive than offensive and alternatives are better suited for that kind of positioning than your mainstream product," Biscardi said in a separate interview. "We’d absolutely lean more toward hiring a hedge fund manager as a subadviser because they have alternatives experience, versus a classic mutual fund portfolio manager."

$101.8 Billion — Amount funds of hedge funds in the 12 months lost through March because of outflows and poor performance, according to a report from eVestment.

NUMBER OF THE WEEK

Incline Investment's Tahoe Fund rose more than 9 percent in June: Returns

SoMa Equity Partners is said to close the founder's class of its flagship fund on Sept. 1: Milestones

Tremblant hires former FrontPoint executive Daniel Waters as co-president: On the Move

Newbrook goes long Dave & Busters, shorts Goodyear. Perella Weinberg’s

says weak banks amplify VassalouBrexit risk: Market Calls

EU regulator backs overseas-fund access with new AIFMD passport advice.

to the U.S. ValueAct to pay $11 millionover its Halliburton stake: Regulatory

Gramercy Funds Management's Peru is now playing in a theater bond fight

near you: Over the Hedge

Paamco may increase its exposure to , long-short equity funds post-Brexit

according to managing director Alper Ince: Spotlight

INSIDE

“Organizations and investors don't like to pay 2-and-20 when funds are not making money. ... The big investors are forcing that change and they will continue to do that by starting to pull money. You don’t get any more money if you don’t change.”

— Nomura Holdings Inc.'s Christopher Antonelli

QUOTE OF THE WEEK

RETURNS IN BRIEF FOR QUESTIONS, E-MAIL MKARSH@BLOOMBERG.NET

Funds of Hedge Funds Retreat to Under $850 Billion in Q1

Funds of hedge funds assets to $841.6 billion at the end of the first quarter.fell— Hema Parmar

July 19, 2016 Bloomberg Brief Hedge Funds 2

RETURNS IN BRIEF FOR QUESTIONS, E-MAIL MKARSH@BLOOMBERG.NET

Mooring Capital Fund, the $60 million hedge fund that invests in distressed and sub-performing commercial loans, gained about 15 percent in the second quarter, bringing returns for the year to roughly 19.9 percent, said Chief Executive John Jacquemin. The fund purchases commercial loans from banks and other financial institutions and then works with borrowers to restructure and modify the mortgages, according to a document obtained by Bloomberg. The second-quarter return was boosted by the sale of an industrial park in Las Vegas, which the fund was invested in, to electric car company Faraday Future, Jacquemin said. "We were recipients of 41 percent of the benefits," he said in an interview. "We didn’t anticipate we would sell the land one year after we bought the rights

On July 1, the firm bought shares in to it." iShares UK Property UCITS ETF and on July 7 it bought shares of U.K.-based homebuilder Redrow Plc, which had fallen more than 31 percent since June 23, to take advantage of market "overreaction" following the U.K.’s vote to leave the European Union, Jacquemin said. "Our view is the London real estate market is over-appreciated, but non-London-based real estate markets are attractive. Most of Redrow’s construction is outside of London," he said. The fund is run by Virginia-based Mooring

, which manages $110 Financial Corp.million in assets.

Highwood Capital LLC, the New York-based fund of hedge funds, gained 0.3 percent last month, which is also its return for the year through June, said a person familiar with the matter. Hedge Fund Research’s HFRI Fund of Funds Composite Index fell 0.3 percent last month and 2.4 percent this year through June. Highwood "has continued to outperform the markets with significantly less risk by properly allocating funds across uncorrelated strategies of well-established hedge fund managers,"

, founder and managing Robert Bankerpartner, said via e-mail. The fund rose 4.6 percent in 2015, the person said.

Incline Investment Management, the Incline Village, Nevada-based systematic hedge fund, gained 9.5 percent in June in its Tahoe Fund, bringing returns for the year to 9.6 percent, according to an investor letter obtained by Bloomberg.

The fund’s returns were boosted by long positions in bonds across Asia, Europe and the U.S., as government bonds extended their gains last month after the U.K’s Brexit vote, the letter said. "We were already following the long-term trends in a number of markets pre-Brexit. So when Brexit hit, the systems were able to capture the significant moves," CEO said in an interview. Ted ParkhillThe largest bets were in commodities and fixed income. The portfolio was short the British pound, and long the U.K.’s FTSE 100 Index. "Following the Brexit vote, the

FTSE 100 is one of the strongest stock markets in the world," the letter said. "Whether it turns into a sustained uptrend is anyone’s guess, and either way we will stick to our discipline."

Hema Parmar—

Seth Klarman’s $28 billion hedge fund rose about 1.25 percent in June, bringing

its gain this year to about 4 percent, said a person with knowledge of the firm.

hBaupost as seen some energy bets 2015 rebound after they dragged on

performance. Diana DeSocio, a Baupost spokeswoman, declined to comment.

— Sabrina Willmer

MILESTONES

June Returns

Year-to-Date Returns to End-June

Funds not mentioned in the text on this page were previously reported in the Brief or on BN.

July 19, 2016 Bloomberg Brief Hedge Funds 3

MILESTONES

 

SoMa Equity Partners, the technology-focused hedge fund started by former Apex Chief Investment Officer , is planning to close the founder’s share Capital Gil Simon

class of its flagship fund on Sept. 1, according to a person familiar with the matter.The founder’s share class carries a 1 percent management fee and a 15 percent

performance fee, the person said.The fund, which started in May, had almost $80 million in assets as of July 1 with

another roughly $90 million in commitments planned over the next six months, the person said. It has returned about 6.9 percent since May 1, according to a performance document obtained by Bloomberg.

The fund was up 2.6 percent in June, with long positions in LinkedIn Corp. and Yelp Inc. being the largest performance contributors, Simon wrote in a July 12 investor letter seen by Bloomberg. He said in the letter that the LinkedIn bet is an example of the firm's focus on "high quality, growth companies when the market is distracted by short-term concerns."

On Aug. 1, SoMa will start an offshore version of its onshore vehicle, the person said.Simon, who joined Apex in 2006 and became CIO in 2015, started the San Francisco-

based fundamental long-short equity fund manager with seven former Apex employees. It focuses on the TMT sector. Apex founders and are both Sandy Colen Danny Katzinvestors in the SoMa fund, according to the person.

Todd Nabi, a spokesman for SoMa Equity, declined to comment.— Melissa Karsh

Algebris Investments will start trading its Macro Credit Fund on July 19, the London-based hedge fund firm said in a statement on Monday.

The new strategy is "designed for a world of negative rates" and will be led by Alberto , a partner and head of macro strategies at the $4.5 billion firm. "Credit markets Gallo

are at a multi-decade turning point," according to the statement. Monetary easing measures such as government bond-buying are becoming "ineffective," the statement said.

The fund aims to return between 6 percent and 7 percent a year with 5 percent volatility, investing in government, corporate and bank debt.

Aditya Aney and , who both started at Algebris last month, will be analysts Tao Panand associate portfolio managers for the fund. They previously worked at Royal Bank of Scotland Group Plc, the U.K. lender where Gallo also worked before joining Algebris in April.

Italian hedge fund manager founded Algebris in 2006.Davide Serra— Will Wainewright

SoMa Equity Said to Close Founder's Class Sept. 1

Algebris Investments Starts 'Negative Rates' Fund

FROM THE MINUTESThe was scheduled to hear a City of Milwaukee Employes' Retirement System

UBS hedge fund solutions presentation at the July 14 investment committee meeting of the annuity and pension board, according to a revised meeting dated July 12. agendaAlong with the presentation, the agenda, signed by executive director Bernard J. Allen, included an item on the approval of a UBS hedge fund solutions guideline change. An e-mail to David M. Silber, chief investment officer of Milwaukee ERS, seeking more details on the guideline change was not returned.

— Melissa Karsh

Asia Research & Capital Management, started by ’s Perry Capitalformer Asia head , has raised Alp Ercil$1.3 billion for its third fund, which invests in distressed assets globally with a focus on Asia, said a person with knowledge of the matter.

Ercil’s Hong Kong-based company completed capital raising for the ARCM Master Fund III last week, said the person. The new five-year pool, its largest, will primarily invest in publicly traded and private credit, the person added. Yusuf Haque, ARCM’s head of business development, declined to comment on the fundraising.

Distressed-debt funds are raising capital to snap up assets amid an uneven global economic recovery and a commodity price slump. The vehicles are also finding opportunities as companies struggle to renew their debt terms after banks pulled back lending and curtailed proprietary trading that had been a source of financing.

The fundraising signals client appetite for the strategy at a time when investors are pulling capital from under-performing hedge funds. Distressed debt funds, by contrast, raised $4.3 billion this year through May 17, according to data provider Preqin. A HFRI index tracking funds focused on distressed and restructuring assets gained 3.2 percent in the first half this year, more than twice the pace of the global hedge fund index.

ARCM sought capital for its newest pool after fully deploying the $1.1 billion investors pledged to ARCM Master Fund II, which finished fundraising in December 2013, said the person. Its maiden master fund, set up in 2012, generated double-digit returns, the person added. The HFRI distressed and restructuring index returned an annualized 3.7 percent since the beginning of 2012.

A significant portion of ARCM’s recent investments have been in the energy sector. ARCM also manages a $400 million dedicated energy fund that it started in January 2015, which is close to being fully invested, the person said. Ercil also focused on energy and cyclical industries at Perry.

— Bei Hu

Perry Alumnus Said to Raise $1.3B for Fund

RESEARCH

July 19, 2016 Bloomberg Brief Hedge Funds 4

RESEARCH

Funds of Hedge Funds Shrink by 11% as Losses Spur Redemptions      BY HEMA PARMAR

Funds of hedge funds lost more than $100 billion in 12 months because of outflows and poor performance, according to a new report.

Clients pulled $50.3 billion over the four quarters through March, while managers posted $51.5 billion in investments losses, eVestment said Friday after analyzing data from more than 2,500 funds. Assets in the sector shrank 11 percent to $841.6 billion, the lowest since June 2009.

“Their dominance as allocators to hedge funds has been waning steadily since their heyday prior to the financial crisis and we do not currently see any evidence of this trend abating,” eVestment wrote. “Although the industry is certainly far from lost, we have yet to hit the floor on support levels for funds of hedge funds."

Funds of funds have struggled to keep clients amid disappointing returns from underlying managers and a backlash over

the layer of fees the firms charge to act as middlemen. Funds of funds were once the largest single investor in hedge funds, accounting for almost 50 percent of assets in 2008. Now they make up 28 percent, eVestment found.

Industrywide, hedge funds lost $123.7

billion because of performance in the 12-month period, while flows were essentially flat, eVestment said.

Returns for funds of funds haven’t perked up in 2016. This year through May, the funds were down 1.5 percent, according to the research firm.

    

ON THE MOVE

July 19, 2016 Bloomberg Brief Hedge Funds 5

ON THE MOVE

  

Farhad Nanji, a managing director at , has left the Highfields Capital Managementinvestment firm, according to a person with knowledge of the matter.

Nanji, who worked at Highfields for nine years, focused on investments in distressed securities, restructurings, structured credits and global financial services, according to a biography on the website of PennyMac Financial Services Inc., which lists him as a board member.

At Highfields, which occasionally takes activist positions, Nanji helped push for management changes at CoreLogic Inc. in 2012 when the investment firm was its biggest shareholder. He and Chief Executive Officer sent a letter in Jon Jacobson March of that year to the company’s chairman calling for new directors.

Highfields told investors at the end of 2015 that Nanji was leaving the firm.Todd Fogarty, a spokesman for Highfields at Kekst & Co., declined to comment. Nanji didn’t respond to e-mailed requests for comment and a call to his office phone was answered by a recording that said he no longer worked for Highfields.

Jacobson, 55, founded Highfields in 1998 after managing equities for Harvard University’s endowment.

— Sabrina Willmer

Highfields Managing Director Nanji Has Left Firm

Daniel Waters, former co-chief executive officer at , has joined FrontPoint Partnersas partner and co-president.Tremblant Capital Group

Waters will oversee client activities and be part of Tremblant’s management and investment/risk committees in the newly created role, the firm said Thursday in a statement. Tremblant, a global asset manager founded in 2001, specializes in funds that bet on and against stocks, as well as others that wager on rising equities.

“Dan’s extensive experience will enhance our world-class firm and enable us to build upon our strong 15-year track record,” , Tremblant’s founder, CEO and Brett Barakettchief investment officer, said in the statement.

Tremblant oversees about $1.7 billion. FrontPoint liquidated in 2011 amid client withdrawals after former health-care money manager was charged with Chip Skowron securities fraud as federal authorities targeted insider trading in the hedge-fund industry.

— Taylor Hall

Tremblant Hires Ex-FrontPoint Waters

Man GLG, a unit of , the world’s largest publicly traded hedge fund Man Group Plcfirm, has added five managers to its newly established developing-nation bond team amid a rebound in the asset class.

The group will report to , the former head of emerging-market debt Guillermo Ossesat HSBC Asset Management, who was hired to lead the Man team six months ago. It started a new emerging-market fund with American Beacon Advisors Inc. in May.

Phil Yuhn, who worked with Osses at HSBC before moving to American Century Investment, joined as a portfolio manager based in New York, according to a statement.

, another former colleague of Osses at HSBC, also joined as a fund manager.Lisa ChuaOther new hires include , former head of foreign-exchange research at Jose Wynne

Barclays Plc, and , who previously advised clients on risk management at Ehsan BashiKPMG. joined as a product specialist in London, coming over from Maria do Carmo CalBanco Itaú BBA International where she was the head of capital markets.

Man GLG, which was acquired by Man Group in 2010, oversaw about $28 billion at the end of March.

— Ye Xie and Elena Popin

Man Group Adds Emerging-Market Bond Managers

Investors are starting to withdraw money from mediocre Asian hedge funds that charge high fees, a trend that’s forcing changes in the economics of the business, according to the global head of prime brokerage at Nomura Holdings.

“Organizations and investors don’t like to pay 2-and-20 when funds are not making money,” Nomura’s Christopher

said in an interview. “The big Antonelli investors are forcing that change and they will continue to do that by starting to pull money. You don’t get any more money if you don’t change.”

Hedge funds charge the most among asset managers. They’re now seeing investors push back after many have failed to beat benchmarks amid volatile market conditions.

“With the new launches, we are seeing more varied fee structures and we will continue to see that,” Antonelli said.

Against this backdrop, Antonelli sees fewer high-profile hedge fund launches in Asia. With a cyclical slowdown in major markets such as India and China, hedge funds may abstain from starting, while major firms headquartered in other parts of the world won’t set up regional offices in the region, he said.

“There have not been many large funds that have started in Asia recently and I’m not sure that’s going to change anytime soon,” Antonelli said.

Launches in Asia are on track for the lowest level in at least 10 years, according to Eurekahedge Pte, with 18 new openings in the first half of the year, less than a quarter than the 79 funds started in 2015. There has been no launch with assets of more than 100 million this year, the data show. That compares to seven launches surpassing that amount in 2015 and and at least 14 in each of the previous six years.

While Antonelli said Nomura’s business is doing well because of its niche focus on smaller managers in Asia, he added that “it’s becoming more and more difficult to make money in prime brokerage. There is cost compression everywhere.”

— Klaus Wille

FEES

Fee Pressure Looms for Underperformers: Nomura  

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

July 19, 2016 Bloomberg Brief Hedge Funds 6

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

Newbrook Capital Advisors, the $1.5 billion hedge fund, is betting on Dave & Buster’s Entertainment Inc. and against Goodyear Tire & Rubber Co.

Dave & Buster’s can more than double its current store base and the company’s move to start franchisee agreements internationally is "very attractive" and a "low-risk opportunity to redeploy free cash flow going forward," according to a second-quarter letter to investors obtained by Bloomberg. "We believe its stock price has significant upside over the next 18 months." The stock has gained almost 15 percent so far this year.

Meanwhile, Goodyear, which has benefited from lower raw material costs over the last three years, will struggle as prices begin to pick up, according to the letter dated July 14.

"Tire manufacturers will have to raise pricing just to maintain margins, which will not be feasible given that the industry did not give back the benefits of the last three years," Newbrook CEO Robert

wrote in the letter. Additionally, Boucaiconsensus earnings per share estimates are overly optimistic and the extremely fragmented tire industry, of which Goodyear holds a 13 percent share, creates a high risk of pricing pressure, Boucai wrote. The stock has fallen more than 18 percent since January. A Goodyear spokesman declined to comment.

A spokesman for Newbrook, which according to the letter rose 2.7 percent in the second quarter, declined to comment.

— Hema Parmar and Arie Shapira

, Trilogy Capital Management LLCfounded by former Bear Stearns Cos. bond salesman , Jonathan Rosensteinstayed away from risky assets for most of 2015, keeping as much as 45 percent in cash at year end, said Barry Kupferberg,research director at Greenwich, Connecticut-based Trilogy, which manages $125 million. The fund doesn’t own any CCC-rated debt, he said.

“We are running very defensively,” said Kupferberg, 53. “We look around the

Newbrook Goes Long Dave & Busters, Shorts Goodyear

Trilogy Staying Away From Riskier Assets

U.S. hedge funds investing in distressed debt and restructuring situations returned 3.9 percent in the

first half of the year, according to data from Hedge Fund Research, while BofA’s U.S. high-yield

corporate bond index gained 9.3 percent. Bonds of distressed or bankrupt companies were top

performers in the oil and gas exploration and production sector during the second quarter, according

to Bloomberg Intelligence.

— Jodi Xu Klein

 world and all we see is uncertainty.”

As oil fell below $30 a barrel in mid-February, Trilogy started buying bonds in Hess Corp., Anadarko Petroleum, Nabors Industries and Rockies Express Pipeline, Kupferberg said. All were heavy on cash.

Trilogy fell 8 percent last year, then gained 5.4 percent for 2016’s first half, said a person familiar with the fund.

Jame Donath, founder of distressed-focused hedge fund Magnolia Road

, said he favors “stressed but Capitalperforming credits where we anticipate a near-term takeout at par, as opposed to investing in deeply distressed names where returns are predicated on asset recoveries over a longer time period.” Donath, whose manages about $130 million, pointed to Zekelman Industries Inc. and Ryerson Holding Corp., whose bonds had fallen along with metals prices. Both were able to refinance and repaid the old bonds, he said.

Trilogy plans to keep its conservative stance this year, Kupferberg said. "We intend to bring in the sails and prepare for some choppy waters during the second half," he said.

— Jodi Xu Klein

Risks from the U.K. decision to exit the European Union are amplified by the fragility of the continent’s banks, said

's .Perella Weinberg Maria Vassalou“This is a very sensitive time for

Europe, it’s really an inflection point,” Vassalou said on Bloomberg TV Friday. “As we’ve seen since the financial crisis, banks have increased their capital buffer. However in Europe, these increases have been much lower than what we’ve seen in the U.S.”

European bank stocks have been plunging this year as the companies work to meet capital standards and confront low interest rates. “Most of the European banks are still under-capitalized,” Vassalou said. “That’s why we see the pressures that we’re seeing recently, and that’s on top of the issues that they need to deal with — Spain and Portugal having reached their budget deficit limits. And at the same time, we’re going through a prolonged period of low growth and low inflation.”

— Sonali Basak

Perella Weinberg PM: Weak Banks Amplify Brexit Risk

REGULATORY/COMPLIANCE

Hedge Trimming

Source: Bloomberg

Click on the chart for a live version or run on the Bloomberg terminal.G #HF.BRIEF 33

July 19, 2016 Bloomberg Brief Hedge Funds 7

REGULATORY/COMPLIANCE

ValueAct Capital Management agreed to pay a record $11 million fine to settle a US lawsuit claiming that the hedge fund violated antitrust law by failing to notify officials about investments in Halliburton Co. and Baker Hughes Inc. as the two companies sought to merge.

The Justice Department sued ValueAct in April, claiming a $2.5 billion investment in the oil-services companies should have been reported to the U.S. for approval and didn't qualify for an exemption for passive investors because the activist fund had sought to influence the companies.

The notification requirements "are the backbone of the government’s merger review process, and crucial to our ability to prevent anticompetitive mergers and acquisitions," Renata Hesse, who leads the antitrust division, said in a statement last Tuesday.

The U.S. said ValueAct bought stakes in Halliburton and Baker Hughes after their merger was announced in 2014, intending to influence the companies amid the antitrust review of the deal, which was abandoned in May. That meant the hedge fund was required to report and seek approval for the investment.

ValueAct, run by , countered that when it bought stakes in both Jeffrey Ubbencompanies its holdings were entirely passive, even though the firm spoke with the companies for investment research purposes — as it routinely does and as other major investors would do. It wasn’t until later that ValueAct decided to take a more active role in Baker Hughes, at which point it amended a regulatory filing and notified antitrust officials before buying more shares. "ValueAct Capital fundamentally disagrees with DOJ’s interpretation of the facts in connection with our investments in Halliburton and Baker Hughes," the fund said in a statement. ValueAct said it moved to resolve the case quickly ahead of a 150-percent increase in penalties for non-reporting.

— David McLaughlin

The European Union’s investment regulator said some overseas alternative funds should qualify for the right to operate across the trade bloc, creating a potential opening for U.K. managers worried about losing access after Brexit.

There are “no significant obstacles” preventing hedge funds and private equity firms based in Canada, Guernsey, Japan, Jersey and Switzerland gaining so-called passports under a directive due to come into force in 2018, the European Securities and Markets Authority said in a statement. The Paris-based regulator also backed passports for some types of U.S. funds. It delayed opinions on Bermuda and the Cayman Islands, pending new rules in these nations.

Hedge fund lawyers have highlighted the ESMA report as a key indicator in determining whether European regulators will let the U.K.’s 700-billion-pound ($922 billion) alternative investment industry operate across the bloc once the country leaves the grouping. About 85 percent of Europe’s hedge-fund assets are managed out of London, making it the second-largest center worldwide after New York, according to estimates from industry group TheCityUK.

Under the Alternative Investment Fund Managers Directive, non-EU funds may be able to get a single passport that will let them sell products in every EU country. Whether a fund qualifies will largely depend upon the regulations in force in its home market. The European Commission will consider the ESMA’s recommendation when it draws up legislation to implement the directive.

The ESMA generally backed awarding passports to firms based in Hong Kong and Singapore, while noting that there are discrepancies in how accessible funds are for investors in different European countries. It also said Australian firms should get passports, provided the nation standardized its treatment of European funds. The regulator didn’t give an opinion on the Isle of Man because the island doesn’t have a investment regime comparable to the EU directive.

— Luca Casiraghi and Silla Brush

ValueAct to Pay $11M to U.S. Over Halliburton Stake

EU Regulator Backs Overseas-Fund Access

A Fortress Investment Group managing director who fired an LLC

employee with a degenerative disease said he didn’t notice that his colleague couldn’t walk farther than 50 meters (164 feet) without stopping and believed his limp was a result of a soccer injury.  

Christopher Linkas, head of European credit at Fortress, said he fired for poor Michael Johnsonperformance and was unaware the former army officer couldn’t walk up inclines or stairs because it was common at Fortress to use elevators, according to a witness statement made public Friday.

Johnson, who suffers with motor neurone disease — known  as amyotrophic lateral sclerosis in the United States — is suing the New York-based asset-management company in a London court. He sat in a wheelchair while Linkas testified in the lawsuit, which accuses Fortress discriminating against him because of his disability. Damages in disability discrimination cases are potentially unlimited.

"He and I both played football in over-40s leagues, and sometimes each of us would come in hobbling after our respective matches," Linkas said. "I assumed he had suffered from something of this sort when I saw him limping."

Fortress, which has $70.6 billion under management, denies knowing of Johnson’s illness, and says he was fired because of poor performance.

At a five-minute meeting in July 2015, Linkas said he was dismissing Johnson because the firm was “downsizing” and “it’s just not working out,” according to the complaint. His firing a year ago came "without any warning," four working days after he returned to work following treatment, according to the complaint.

A Fortress spokesman didn’t respond to a request for comment.

— Patrick Gower

Fortress Boss Mistook Lou Gehrig Disease for Soccer Injury

OVER THE HEDGE

July 19, 2016 Bloomberg Brief Hedge Funds 8

OVER THE HEDGEA unit of , a New York-D.E. Shaw & Co.

based hedge fund managing more than $37 billion, bought a 100-megawatt solar project in Minnesota from Community Energy Inc. It will be the largest solar farm in the Midwest. Xcel Energy Inc. has a 25-year power purchase agreement with the North Star solar project in Chisago County, D.E. Shaw Renewable Investments LLC said in a statement Tuesday. Swinerton Renewable Energy is building the project, which is expected to be operational by year-end. It should power about 20,000 homes in its first year. Terms weren’t provided.

    — Brian Eckhouse

On Thursday, appeared Martin Shkreli in Brooklyn federal court for a scheduling conference. Watching from the public

benches was an acting student on a mission — to glean what he could from his first sighting of the 33-year-old ex-pharmaceutical executive he is to portray at a midtown theater this week. "This was one of the weirdest things’ve done in a while," said , Patrick Swailes Caldwellthe actor who has spent hours watching videos of Shkreli. "I felt like the court jester." Swailes Caldwell accompanied a Bloomberg reporter to the hearing. The musical, “Martin Shkreli’s Game,” part of the Midtown International Theater Festival, takes as its conceit yet another facet of the man that has outraged many — his purchase for $2 million of the single copy of a Wu-Tang Clan album, keeping the work to himself (and claiming that he hasn’t bothered to listen to it). The plot involves an effort by the rap group and

actor Bill Murray to steal the album back. It will not endear potential jurors to Shkreli. One of its songs is “I’m Martin F-----g Shkreli and You Can All Go F--- Yourselves,” in which Swailes Caldwell sings that he is “the richest damn Albanian to walk this earth” while gliding on a hoverboard. On Twitter, Shkreli has weighed in favorably — and critically. "I've never acted or sang before but I believe @shkrelisgame will be the greatest musical ever made," he tweeted on June 9. "i’ve seen better funded high school musicals," he tweeted at the show's creators the next day. "sorry for your careers." Shkreli was arrested in December and accused of defrauding investors and using $11 million of assets of Retrophin Inc. to pay them off.

— Katherine Greifeld

 

Hedge Fund's Peru Bond Fight Now Playing at a Theater Near YouBY JOHN QUIGLEY

A spat between Peru and bondholders over decades-old unpaid debts is playing out in an unlikely place: your local movie theater.

“The Debt,” as the movie is titled, is a fictional account of ruthless Wall Street types who seek to enrich themselves at the expense of the nation’s poorest citizens. While the specifics are different, it has parallels with the real-life dispute between Peru and , Gramercy Funds Managementa $6.1 billion hedge fund based in Greenwich, Connecticut.

In 2006, the firm began snapping up the defaulted bonds that were originally handed out to landowners when their farms were seized in the 1960s and 1970s. It’s now demanding that Peru pay up. Gramercy says Peru snubbed efforts to negotiate a settlement and left the firm with no choice but to sue, while the government contends the fund has mounted a smear campaign to profit from the developing country’s past misfortunes.

Earlier this month, Peru asked a tribunal to toss out a $1.6 billion claim over the notes held by Gramercy.

The movie, which started playing in New York and San Francisco theaters July 7, was conceived by director Barney Elliott, who moved to Lima in 2009. He started working on it after speaking to landowners who had given up hope the government would honor the debt and sold them to foreign investors like Gramercy at a deep discount. And he realized that these funds would one day take Peru to court over the debt, which bothered him.

“The Debt” is a clear example of art imitating life, to an extent. In the movie, Peru is forced to cut back spending on its health service to pay a hedge fund called Union Global Capital. A nurse’s assistant turns to crime to pay for a surgery the hospital can’t afford, which serves to illustrate the human cost of the fund’s exploitation.

In reality, Peru’s finances are robust and nowhere close to

being compromised should it ultimately lose the debt case.Reviews have been mixed, with Canada’s Globe & Mail

newspaper calling it “well-meaning but contrived.”Gramercy said the movie doesn’t reflect the truth of its

dispute with the government, and glosses over the fact that the majority of land-bond holders are local Peruvians who the hedge fund says are getting a raw deal. “The reality of what has occurred today in Peru is much different,” Steve Bruce, a spokesman for the hedge fund, said in an e-mail.

Pablo Secada, a former Finance Ministry official who saw the movie, said the government bears responsibility for dragging its feet in resolving the land-bond dispute. He expects President-elect Pedro Pablo Kuczynski to negotiate a settlement. Carlos Anderson, a spokesman for APJ, an umbrella group of local bondholders, says the film wrongly suggests that Peru shouldn’t have to repay its debts. He said local bondholders, who hold 80 percent of the debt outstanding, welcomed Gramercy’s suit.

— With assistance from Ben Bartenstein

SPOTLIGHT

Source: Barney Elliot

Stephen Dorff, center, in "The Debt" portraying a hedge fund employee demanding payment from Peru’s finance ministry.

July 19, 2016 Bloomberg Brief Hedge Funds 9

SPOTLIGHT

Paamco's Ince Says Firm May Increase Exposure to Long-Short Equity Post-Brexit

Alper Ince, a managing director at $10 billion

, Pacific Alternative Asset Management Co.

spoke to Bloomberg Brief's Will Wainewright

about how his firm's hedge fund investments will

be affected by the U.K.'s vote to exit the

European Union. Ince, who helps oversee

Paamco's investments in long-short equity and

event-driven managers, said long-short equity

funds are more appealing post-Brexit. Comments

were edited and condensed.

Q: How did hedge funds perform following the British vote for Brexit?A: The industry did well, especially compared to long-only funds. The markets provided hedge funds good opportunities to trade around dislocations. The result of the vote was too close to predict and the potential outcomes, particularly to the downside, were extreme, so most firms chose not to take a big bet and lowered their exposure. Many funds did put on some Brexit-specific hedges, which were more profitable because of the way the result went. We invest in a lot of managers that hedge their currency exposure, so we weren't directly impacted by the selloff in the pound. I am relatively happy by how hedge funds performed. It was not a repeat of the Swiss franc event last January, which brought down some firms.

Q: How will the result affect your future allocations?A: There are some interesting opportunities both long and short now for short-term, trading-oriented managers. It is a good environment for them. We focus on smaller funds, particularly those which can prosper during periods of market dislocation. The merger arbitrage strategy is one example of a sector which often presents opportunities during dislocations, though we have not seen spreads widen as much as in other episodes of volatility due to a lack of de-leveraging. We are thinking of increasing exposure to select long-short equity funds in the wake of Brexit as we think the environment will present them opportunities. In general, we like funds that are defensively-positioned,

 

tightly-hedged and don't take directional risk on markets.

Q: So you expect more marketvolatility in the next few months?A: Yes, this volatility is not going to go away. Now we have the Italian banking crisis and there will be others in the next few months. Other issues on our radar include the banking stress tests in Europe, the lack of political leadership in the U.K. and elections later in the year in the U.S. There are lots of big macro political questions waiting to be resolved. The opportunities are all there for funds that can be nimble, which is a key reason we prefer small managers.

Q: Back to long-short funds, where in particular do you see opportunities?A: We are most interested in managers trading long and short in the same sector, so not taking a huge amount of sector risk. We like managers looking to pick up small amounts of alpha from mis-pricings generated by the volatility in the market. In particular, we see opportunity in commodities and energy stocks. Firms which cut down production may now be less sensitive to changes in the oil price, for instance. We also like health-care specialists — there is a lot of new research going on in the biotech sector, which can be traded on the margin. Big pharmaceutical companies are well-placed to prosper in the volatility too.

Q: Do these conditions present a greatopportunity for global macro funds?

Yes, and we have been upping ourA:

exposure to that strategy over time. We are interested in managers trading the volatility directly, using the options market created by the big divergence between asset classes. We shy away from traditional global macro managers who are betting on political events or solely on central bank policy divergence. Those funds really rely on one person's call on events which are hard for us to underwrite. It will be interesting to see the extent to which the Brexit outcome destabilizes the broader European Union project. A lot of people are very bearish about the next few years — taking up positions being long gold, long-duration, index hedges, short bets.

Q: Which hedge fund strategies are less attractive following Brexit?A: Anything directionally net-long Europe. We don't have exposure to funds with that strategy, and that won't change any time soon. They will be out of favor for a while.

Q: Hedge funds have faced a lot of criticism this year. Does the Brexit outcome and the resulting market climate present an opportunity for the sector to rebound?A: Definitely. Hedge funds have been criticized for negative alpha, but now we have a great set of conditions in which they can shine. Parts of our portfolio of hedge funds have made money since the vote, particularly in fixed-income relative value, merger arbitrage and equity market neutral strategies. Short-term trading funds, which can be nimble, are especially well positioned in our view.

Age: 44Irvine, CaliforniaBased in:

Hometown: Istanbul, TurkeyEducation: Economics degree from METU in Ankara, Turkey, before MBA in finance from University of HartfordCareer: Managing director at Paamco. Prior to Paamco, was an associate director at pension-consulting firm BARRA RogersCasey.Hobbies: Reading, guitar, tennis, movies  Recommended book: "The Firm: The Story of McKinsey" by Duff McDonaldBest recent vacation: Park City, Utah

DEAL ARBITRAGE

July 19, 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

Alere Inc Abbott Laboratories 8,040                -   56.00 43.26 Cash 29.4% 0.0% -7.1% ▼

Amaya IncConsortium Led By David Baazov

6,487                -   21.00 20.30 Cash 3.4% 0.0% -1.2%

Cigna Corp Anthem Inc 50,382 12/31/16  172.95 133.13 C&S 29.9% 65.8% -2.2% ▼

Colony Capital IncNorthStar Asset Management Group Inc/New York

6,024 03/31/17  16.83 17.37 Stk -3.1% -4.4% -2.0% ▼

EI du Pont de Nemours & Co Dow Chemical Co/The 65,591 12/31/16  67.43 68.06 Stk -0.9% -2.0% -0.4%

EMC Corp/MA Dell Inc 63,491 10/31/16  31.00 27.54 Cash 12.6% 43.6% 1.1%

Envision Healthcare Holdings Inc

Amsurg Corp 7,520 12/31/16  26.37 26.06 Stk 1.2% 2.6% -1.2%

Humana Inc Aetna Inc 28,906 12/31/16  224.13 159.64 C&S 40.4% 88.8% -2.5% ▼

IMS Health Holdings IncQuintiles Transnational Holdings Inc

12,559 12/31/16  27.79 28.12 Stk -1.2% -2.6% 0.1%

Ingram Micro IncTianjin Tianhai Investment Co Ltd

6,133 12/31/16  38.90 35.13 Cash 10.7% 23.6% -0.1%

ITC Holdings Corp Fortis Inc/Canada 11,150 12/31/16  47.72 46.43 C&S 2.8% 6.1% 0.7%

Johnson Controls Inc Tyco International Plc 28,667 09/30/16  40.03 44.12 C/S -9.3% -45.7% -0.3%

KLA-Tencor Corp Lam Research Corp 11,033 12/30/16  76.67 75.93 C&S 1.0% 2.1% -0.1%

LinkedIn Corp Microsoft Corp 24,380 12/31/16  196.00 189.60 Cash 3.4% 7.4% 0.4%

Manitoba Telecom Services Inc

BCE Inc 4,171 06/30/17  41.17 38.46 C/S 7.0% 7.4% 0.0%

Media General IncNexstar Broadcasting Group Inc

4,474 12/31/16  17.23 17.67 C&S -2.5% -5.5% 1.7%

Medivation Inc Sanofi 9,708  -   58.00 61.83 Cash -6.2% 0.0% 0.7%

Memorial Resource Development Corp

Range Resources Corp 4,287 09/30/16  16.34 16.13 Stk 1.3% 6.3% -0.2%

Monsanto Co Bayer AG 63,035  -   125.00 106.44 Cash 17.4% 0.0% -0.8%

NorthStar Realty Finance Corp

NorthStar Asset Management Group Inc/New York

10,055 03/31/17  12.62 12.99 Stk -2.8% -4.0% -2.8% ▼

Piedmont Natural Gas Co Inc Duke Energy Corp 6,536 12/31/16  60.00 59.76 Cash 0.4% 0.9% 0.1%

Questar Corp Dominion Resources Inc/VA 5,965 12/31/16  25.00 25.17 Cash -0.7% -1.5% 0.1%

Rite Aid Corp Walgreens Boots Alliance Inc 16,708 12/31/16  9.00 7.01 Cash 28.4% 62.4% -1.8%

SolarCity Corp Tesla Motors Inc 5,739                -   29.64 26.14 Stk 13.4% 0.0% -5.2% ▼

St Jude Medical Inc Abbott Laboratories 30,108 12/31/16  83.40 80.56 C&S 3.5% 7.8% 0.1%

Starz Lions Gate Entertainment Corp 4,154 12/31/16  31.89 30.27 C&S 5.4% 11.7% 0.8%

Talen Energy Corp Riverstone Holdings LLC 5,045 12/31/16  14.00 13.71 Cash 2.1% 4.7% -0.1%

Valspar Corp/The Sherwin-Williams Co/The 11,206 03/31/17  113.00 108.23 Cash 4.4% 6.3% 0.3%

Westar Energy Inc Great Plains Energy Inc 12,117 12/31/17  60.00 56.36 C&S 6.5% 4.4% 0.1%

WhiteWave Foods Co/The Danone SA 12,349 12/31/16  56.25 55.70 Cash 1.0% 2.2% 0.8%  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 week-over-week change in those spreads through Monday. 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.    

ACTIVIST SITUATIONS COMPILED BY MELISSA KARSH

July 19, 2016 Bloomberg Brief Hedge Funds 11

Significant Actions at Companies Targeted by Activist Investors

COMPANY ACTIVIST WHAT HAPPENED

Bank of East Asia Ltd. Elliott Management Corp.Activist hedge fund said in a July 18 that it has started legal proceedings against the Hong Kong-listed statementcompany and some of its directors, alleging "serious corporate governance failings."

Herbalife Ltd. Bill AckmanNutrition company to pay $200 million and retool its business after a Federal Trade Commission review sought agreedby the activist. The FTC stopped short of activist's calls to declare the company a pyramid scheme and to shut it down.

Poundland Group Plc Elliott Capital AdvisorsActivist hedge fund said in a on July 14 that it holds a 13.21 percent stake in the U.K. discount chain via filing derivatives and other options. In a  on July 15, Kepler Cheuvreux said the stake makes Steinhoff International noteHoldings NV's deal to buy the grocery chain more complicated.

Oi SA Aurelius Capital ManagementA growing number of creditors is said to be joining an opposition group, which includes activist, that opposes the bankrupt Brazilian telecom carrier's reorganization plans, Bloomberg News July 13.reported

Lionbridge Technologies Inc.

Omega AdvisorsActivist its stake in the company to 8.1 percent as of July 12 from 7.1 percent as of Nov. 25, and is now increased ranked a top two holder, according to Bloomberg data.

Imperva Inc. Elliott Management Corp.Cybersecurity company targeted by activist is said to have hired an advisory firm to explore a sale after receiving unsolicited takeover interest, Bloomberg News July 11.reported

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

Bloomberg Brief: Hedge Funds

ACTIVIST SITUATIONS COMPILED BY MELISSA KARSH

 

 

 

 

 

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

July 19, 2016 Bloomberg Brief Hedge Funds 12

DATE ORGANIZER EVENT SPEAKERS/ATTENDEES OF NOTE/DETAILS LOCATION

July 21Investment Management Institute, HFA

10th Annual Alternative Investment Consultants Summit

Josh Zweig, Cambridge Associates; Karen Chandor, Mercer; Todor Todorov, Willis Towers Watson.

Hyatt Regency Greenwich, Connecticut

July 23 Hedge Funds Care  San Francisco Bike Ride For more information, contact RWheeler@hfc.org. Hillsborough, California

July 26 Hedge Funds CareNew York Young Professionals Summer Sunset Social

For more information, contact LFisher@hfc.org.Hotel Hugo Rooftop, New York

July 26 Hedge Funds Care Denver Golf Tournament For more information, contact NMoriarty@hfc.org. Littleton, Colorado

July 27California Hedge Fund Association

Summer Social at the Races 2016 Del Mar Thoroughbred Club. Del Mar, California

Aug. 2  New York Hedge Fund Roundtable

August Roundtable: Money, Politics and the 2016 Presidential Race

David Urban, American Continental Group and senior adviser to the Trump campaign.  

Penn Club, New York  

Aug. 17 Markets Group Private Wealth Midwest ForumKatherine Nixon, Northern Trust; Kevin Rochford, Bessemer Group; , Matter Family Office.Katherine Lintz

Chicago

Aug. 25 Hedge Funds Care San Francisco Golf Tournament For more information, contact RWheeler@hfc.org. Presidio Golf Course

Aug. 25-26 FRA LLCPrivate Investment Fund, Operations & Compliance Forum West

Michael Maestas, Charles Schwab & Co.; Adam L. Menkes, Credit Suisse.

San Francisco

Sept. 7 Markets Group2nd Annual Texas Credit & Hedge Fund Investor Forum

Joseph Quinlan, Bank of America PWM; Lisa Needle, Albourne; James Perry, Dallas Fire and Police.

Austin, Texas

Sept. 7-9 RadiusWorld Alternative Investment Summit Canada

Dennis Mitchell, Sprott Asset Management; Matthew Barnes, Centurion Asset Management.

Fallsview Casino Resort, Niagara Falls

Sept. 8-9 IMN 22nd Annual Alpha Hedge WestBruce Richards, Marathon; , Man Guillermo OssesGLG; , Highland; , Cheyne.Mark Okada Stuart Fiertz

San Francisco

Sept. 13 CNBC, Institutional Investor Delivering Alpha 2016 To be released. New York

Sept. 15 CTA Expo CTA Expo ChicagoErnest Jaffarian, Efficient Capital Management; Eddie

, Gemini Fund Services.LundUBS Center, Chicago

Sept. 19 CatalystCap Intro: L/S Equity/Event Driven Alternative Investing

One-on-one meetings.   New York

Sept. 19-21 BHASelect Hedge Funds Conference & Private Markets Connector

Jim Chanos, Kynikos Associates. Boston

Sept. 20 Risk.net Risk Hedge USA 2016Lars Nielsen, AQR; , Highbridge; Max Roberts Paul Richardson, Pine River; , Paamco.Ronan Cosgrave

New York

Sept. 21 Hedge Funds CareNY Hedge Fund Charity Poker Tournament

For more information, contact mangliss@hfc.org. Yale Club, New York

Sept. 20-23 TABOR   Family Office Conference Includes 50 family offices and 25-30  managers.   Beaver Creek, Colorado  

Sept. 25-27 Context Summits Context Summits West 2016 One-on-One meetings with investors. Dana Point, California

Sept. 28 Context Summits Alternative Lending Summit 2016 Prosper Marketplace;  , Ron Suber, Alan Snyder

Shinnecock Partners; Damon Krytzer, GreyWolf Capital;  , Coastland Capital.  Peter Sterling

Dana Point, California

Sept. 28-30 RadiusWorld Alternative Investment Summit

Lawrence McDonald, ACGA; , Apex.  Peter Hughes Bermuda

Oct. 5 Sohn Conference Foundation Sohn San FranciscoCarson Block, Muddy Waters; , ValueAct Jeff UbbenCapital; , Marcato Capital Management.Mick McGuire

San Francisco

Oct. 5-6 AIMA Canada Hedge Fund Conference To be released. Quebec

Oct. 6-7American Conference Institute, OFA

Hedge Fund ComplianceMichael Neus, Perry Capital; George Chang, D.E. Shaw;  , SEC; David Chaves, FBI. Jennifer Duggins

Park Lane Hotel, New York

Oct. 17 CatalystCap Intro: Credit/Fixed Income Alternative Investing

One-on-one meetings.     New York

Oct. 18  Great Investors' Best Ideas Foundation  

10th Annual Investment SymposiumCaroline Cooley, Crestline;   Greenlight; David Einhorn,

BP Capital.  T. Boone Pickens,Dallas, Texas  

Oct. 18 High Water Women Investing for Impact Symposium Elizabeth Littlefield, Overseas Private Investment Corp. New YorkDISCLAIMER: 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.

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