As investors are gearing up for the highly anticipated interest rate hike, a number of moves reported by elite funds might have slipped under the radar. But they did not slip past us and in this article we’ll see what activist investors Nelson Peltz and Paul Singer have been up to lately.
Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions performed actually better than the market. Small-cap stocks, activist targets, and spin offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 53 percentage points since the end of August 2012 (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.
Paul Singer has stepped up his efforts from preventing the breakup of American Capital Ltd. (NASDAQ:ACAS), increasing Elliott Management economic exposure to the stock. As reported in a recently amended filing with the Securities and Exchange Commission, Elliott continues to directly hold approximately 12.2 million shares of American Capital, but has increased its economic exposure through a derivative agreement. As a result, the fund has economic exposure to roughly 10.3% of the common stock, up from the previous position that gave them exposure to 9.1% of outstanding stock.
American Capital announced a year ago plans to separate its business-development corporations operations, which manages the assets bought by the firm, from its asset management arm, which cashes in the fees from managing the assets. Company executives argued this move would allow for a better management of both businesses, but Paul Singer sees this as a “poison-pill” meant o “entrench” the management. He argues hare buybacks, cost cutting and another strategic review are better ways to increase shareholder value and sees the stock surging to $23 per share should the company take this road instead. Shares are currently trading at $14.25 apiece, down by 3% for the year.
At the end of the third quarter, roughly a third of American Capital Ltd. (NASDAQ:ACAS)’s outstanding stock has held by 36 elite funds, down from 38 at the end of the previous quarter. Jeffrey Tannenbaum, on the other hand, was buying the stock, increasing his position by 2% by the end of September. His fund, Fir Tree, reportedly holds 12 million shares valued at $146 million.