A Look at 3 Activist Moves Made by Elite Hedge Funds

On January 13, Marcato Capital Management ceased to be the beneficial owner of more than 5% of LPL Financial Holdings Inc. (NASDAQ:LPLA)’s shares. In a 13D filing, the investment firm reported ownership of 4.39 million shares of the independent broker-dealer, which account for 4.9% of its outstanding common stock. In mid-November, Marcato Capital filed a 13D on the company that disclosed an ownership stake of 6.05 million shares. The largest independent broker-dealer in the United States and leading independent consultant to retirement plans has seen its shares decline by 15% over the past year, thanks to a significant pullback triggered at the end of 2015. The extremely high market volatility and investor uncertainty are definitely set to impact sales-based activity for alternative investments, variable annuities, and mutual funds. Most importantly, the rising interest rate environment might hurt the demand for fixed and variable annuity products, thus, putting more weight on the company’s financial performance.

Approximately a week ago, Citigroup downgraded the stock to ‘Sell’ from ‘Neutral’, so it appears that most market participants and analysts are ignoring the company’s attractive valuation metrics and are focused on its worsening market conditions. Certain recurring revenue of LPL Financial Holdings is associated with asset balances, which fluctuate depending on market values and interest rates. Hence, the company’s asset balances (and its recurring revenue) tend to have a correlation of roughly 60% with the S&P 500 benchmark. The smart money sentiment towards the stock was negative during the third quarter, as the number of hedge funds in our system with positions in the company dropped to 18 from 23 quarter-over-quarter. John H. Scully’s SPO Advisory Corp owns 8.71 million shares of LPL Financial Holdings Inc. (NASDAQ:LPLA) as of September 30.