Hedge Fund News: Jeffrey Smith, George Soros, Ray Dalio

Activist investor Starboard Value to unveil stake in Office Depot -WSJ (Reuters)
Activist hedge fund Starboard Value is expected to disclose on Monday that it has taken a 13.3 percent stake in Office Depot Inc, making it the biggest shareholder of the office products supplier, the Wall Street Journal reported, citing people familiar with the matter. Starboard CEO Jeffrey Smith wrote in a letter to Office Depot Chief Executive Neil Austrian that the company’s shares are “deeply undervalued” but management could take certain actions such as cutting expenses to improve performance, the Journal, which had reviewed the letter, said in a report published early on Monday.

setting up a hedge fund

Wells Fargo rebrands its LaCrosse Global Fund Services business (AssetServicingTimes)
Wells Fargo & Company has rebranded its hedge fund administration and middle-office service provider, LaCrosse Global Fund Services, as Wells Fargo Global Fund Services. In September 2011, Wells Fargo announced the agreement to acquire LaCrosse Global Fund Services, which was an independently managed hedge fund administration and middle-office service provider, from Cargill. The newly-named firm will continue to provide offerings to the hedge fund administration market including traditional fund administration services, operational support, derivatives processing, bank debt processing and cash/collateral management.

SEC Weighs Up Sophisticated Investors’ Sophistication (InstitutionalInvestor)
As the Securities and Exchange Commission prepares to permit hedge funds and other private partnerships to advertise, the trade group that looks out for the interests of hedge funds has asked the regulator to spell out exactly what they must do to verify whether investors are accredited after the rules in the Jump Start Our Business Start-ups Act (JOBS Act) are finalized. The Hedge Fund Association wants the SEC to eliminate managers’ legal liability if they follow certain procedures or standards such as receiving a signed subscription agreement from an investor who “unequivocally affirms” that he or she is an accredited investor. If the SEC implements a stiffer requirement, it could create administrative burdens for hedge funds and other private partnerships and defeat the purpose of the Act — to create jobs, the HFA asserts.

Four Key Factors That Every Hedge Fund Investor Should Consider (CFAInstitute)
The recently unveiled rules proposed by the U.S. Securities & Exchange Commission that would lift restrictions on hedge fund advertising may be welcome news to the industry, but they also provide an occasion to reflect on the challenges of investing in a segment of the money management universe that has chalked up net inflows of nearly $150 billion since the beginning of 2010 alone. Nowadays, it seems, everyone wants to invest in a hedge fund, start one, or work for one. But as Simon Lack, CFA, author of The Hedge Fund Mirage, asserted at the recent CFA Institute Financial Analysts Seminar in Chicago, the popularity of hedge funds may be unwarranted given their performance.

Marc Faber: Hedge fund managers could take advantage of increased volatility in markets (Opalesque)
Swiss-born economist Marc Faber, author of the Gloom Boom & Doom Report, has painted a bullish picture on hedge funds and China and European stocks, it was reported. Speaking during a hedge fund managers’ forum in Hong Kong, Faber declared, “I think China stocks are quite a good buy,” and added that he also sees opportunities on European stocks, which he has been buying for about four months now. “Investors will look back at the European crisis today and think ‘we should have bought equities in 2012’,” he told his audience, TheGuruInvestor.com reported. Faber also explained that the current poor performance in the hedge fund industry could be a contrarian indicator. He thinks fund managers could take advantage of increased volatility in markets.

US and English courts differ over broker-dealer bankruptcy on out-of-the-money swap (HedgeFundsReview)
Hedge funds rely on broker-dealers to provide an array of services and products including over-the-counter swaps. Historically, when a hedge fund entered into a swap with a broker-dealer, the failure of the broker-dealer was a remote concern. The bankruptcies of Lehman Brothers entities around the globe have focused attention on the counterparty credit risk to broker-dealers and have highlighted several questions in the OTC swaps market arising from the insolvency of a broker-dealer.

New York long/short equity hedge fund firm Lasair Capital to close down (Opalesque)
Lasair Capital, a long/short equity strategy hedge fund based in New York and founded by Mrs. Carrie MCCabe in 2008, closed down and will return the firm’s $250m assets back to investors. According to a Reuters report, McCabe already informed her clients of her decision to shut down the fund. Lasair invested money in underlying hedge funds for some large pension funds, including the Illinois Teachers’ Retirement System. The firm was backed by General Electric’s asset management unit.

Swiss index firms move to meet appetite for passive approach (InvestmentEurope)
Alix Capital, an index provider based in Geneva, has launched six indices covering onshore hedge strategies. Meanwhile, exchange-traded fund provider Source has listed 14 ETFs on the Six Swiss Exchange. The six strategies for Alix’s latest indices are emerging markets, event-driven, market neutral, FX, macro and multi-strategy. The Genevan firm now publishes 11 strategy benchmarks for the onshore hedge industry, which manages about €133bn.

Ex-Touradji Trader Crone Starts Citrine Commodity Hedge Fund (Bloomberg)
Paul Crone, the former head trader at Touradji Capital Management LP who left the firm in March after seven years, has started a metals hedge fund in New York, according to Citrine Capital Management LLC, his new company. Citrine, located on the 34th floor of the Chrysler Building, has a team of three led by Crone, who’s chief investment officer, according to a statement. The fund will trade listed derivatives in base metals, gold and platinum-group metals, Crone said in an e-mail interview, declining to specify how much money the fund has raised nor its target size.

Asset gap widens as funds of funds slide (PIOnline)
The gap between the growing assets managed by large hedge fund managers and the dire declines of many hedge funds-of-funds firms widened into a chasm over the past year. …P&I’s 2012 class of the largest hedge fund firms welcomed four new entrants, and a year-to-year comparison of the full universe showed much higher aggregate growth of 14.2% for the year ended June 30. The four firms are Davidson Kempner Capital Management LLC, with $19.5 billion under management; Lone Pine Capital LLC, $19.2 billion; Millennium Management LLC, $15.7 billion; and Viking Global Investors LP, $15.6 billion. Of these, Davidson Kempner and Lone Pine are new to P&I’s full hedge fund universe.

Institutional investors turn to hedge fund managers for strategy, macro advice (PIOnline)
Hedge fund managers are becoming trusted advisers to their clients, adding the role of portfolio consultant to their investment duties for large and small investors. Institutional investors the world over are looking to the hedge fund industry for assistance in managing their entire portfolio, sources said.

The Australian dollar is trading well over parity at around $US1.0551. But if hedge fund Hayman Capital is to be believed, that’s anywhere from 15 per cent to 20 per cent above where it should be. Speaking to The Australian Financial Review on Monday, Hayman global strategist Richard Howard joins a number of prominent voices in cautioning that the Aussie dollar is being pushed higher by foreign central bank appetite for the local unit. The Norwegian krone is in the same basket, being from a triple-A rated country, like Australia. He says the relatively small size of the Australian dollar market compared to the US dollar and euro markets amplifies the effects of this central bank buying, allowing the Aussie to trade well above where it should be.

Former Nomura traders reunite at hedge funds (eFinancialNews)
Alexandre Capez, who was a managing director and head of structured volatility at Nomura, and Othmane Akherraz, an equity derivatives trader at Nomura, have joined as convexity and volatility traders, a spokesman for Occitan confirmed. Occitan, which invests in equities and equity derivatives, has also hired Simon Price from Lansdowne Partners as a financials analyst, and Christopher McNally from RWC Partners as a global industrial analyst. All four new hires joined this month.

Investcorp, the international alternative asset manager, announced today that David Cranston has rejoined the firm to support the business development efforts related to the Single Manager Platform, the firm’s hedge fund seeding business. Mr. Cranston serves as a managing director in Investcorp’s hedge funds group. He previously held a similar role with the firm from 2005 through 2010. Before rejoining Investcorp, Mr. Cranston was a partner at North Creek Advisors, an independent hedge fund seeder. Prior to initially joining Investcorp, he raised capital for hedge fund products at Capital Z Investments’ Channel Capital Group. Mr. Cranston also spent 10 years managing derivatives sales desks and marketing derivatives to the largest macro hedge funds and proprietary bank trading groups while at a number of bulge-bracket investment banks in the United States and London.

In the Markets: Successful seer’s surprising forecast (CrainsNewYork)
Über-investor Ray Dalio (pictured) has built the world’s largest hedge fund, Bridgewater Associates, by accurately forecasting big events—such as the housing crash of 2007, the eurozone mess and other calamities. According to Forbes, his personal income was $3 billion last year. Unsurprisingly, his public appearances draw big crowds, and last week such luminaries as Paul Volcker, Loews Corp. CEO James Tisch and rival hedge fund manager John Paulson all flocked to the Council on Foreign Relations to listen to the man who manages $120 billion. What they got was a lesson in what Mr. Dalio calls “beautiful deleveraging,” which is the relatively happy state of affairs the U.S. is in right now, thanks to heavy government spending offsetting the economic drag of American consumers and companies paying down their debts.

Escape From Iron Mountain (Barrons)
Iron Mountain shares shot up from $25 to $35 last year, when hedge-fund firm Elliott Management launched a proxy contest to oust management of the document-storage company. Revenue growth had been slowing at the Boston-based operator of archival warehouses as customers went digital. The activist firm said Iron Mountain Incorporated (NYSE:IRM) should stop trying to remake itself into a digital-backup service and, instead, milk the ample rental income from its thousand warehouses by converting into a real-estate investment trust. In a March 2011 presentation, Elliott argued that a REIT could double or triple Iron Mountain stock. One slide read, “Business Improvements + REIT Conversion = Potential $52-$77 Stock Price.”

Time to take Soros seriously? (Gulf-Daily-News)
I rather like George Soros which I find odd as arbitrage traders do not tend to be at the top of my Christmas card list. But there are a few things I admire about him. He effectively destroyed the last Tory government in the UK when its then chancellor of the exchequer Norman Lamont was erroneously trying to peg the pound sterling to the Deutschmark. He worked out that sterling was well out of sync with the German currency and bet some $10 billion against the pound and came out about $1bn ahead on the gamble. That move alone effectively ended the remnants of Tory rule in the UK for a decade and a half.

Pandit, Paulson, Cohn, Soros, Schwarzman Lead Galas (Bloomberg)
Gary Cohn’s hand surgeon will operate for another year, Vikram Pandit will help disadvantaged children save for college and George Soros is sending aid to threatened scholars. Financial-industry executives are set to take leading roles in New York’s nonprofit gala season. “When people like Vikram step up and say, ‘I believe in this organization, here’s what I’ve been doing,’ that’s gold for us,” said Richard Buery, chief executive officer of the Children’s Aid Society. Pandit, CEO of Citigroup Inc. (C), will be honored at the society’s “Keeping the Promise” gala on Nov. 29 at 583 Park, which has a $1,000 ticket. The spotlight will be on Citigroup’s creation of a college savings program for grade-school children. Citigroup has donated $2 million to the society over two decades, Buery said.

Zamil wants action against those receiving funds from Soros (MySinchew)
Zamil Ibrahim, who claims to be Parti Keadilan Insan Tanah Air president, wants action to be taken against those who received financial support from maverick currency speculator George Soros. He claimed they were Soros’ proxies and could be regarded as traitors of the country. “Those individuals are using non-governmental organisations as a cover-up, purportedly to champion human rights and freedom of expression,” he said.

Ray Dalio, What Keeps You Up At Night? (DailyMarkets)
Ray Dalio of Bridgewater hedge fund response to the question ‘What keeps you up at night?’ is most likely the reason why the ECB and FED went ‘unlimited’ with QE policy this month. Points to note – Europe crisis has much more trouble to come and will result in a lost decade – $2 trillion euros of losses to be soaked up by European banks by either write offs or monetary policy – Age of great returns is over, as there will be no benefit from interest rates falling (as they are already zero) – De leveraging safely requires the correct balance between austerity, monetary and fiscal policy – Depressions happen when there is no monetary or fiscal policy At 9.50, the question is: What keeps you up at night?

Marc Faber: Federal Reserve Policies Will ‘Destroy the World’ (MoneyNews)
Loose monetary policies pushed through by the Federal Reserve as well as at other central banks will literally “destroy the world” by sending the global economy swelling, bursting and then tanking, said Marc Faber, publisher of the Gloom Boom & Doom Report. The Fed recently announced plans to stimulate the U.S. economy by purchasing $40 billion a month in mortgage-backed securities from banks, a monetary policy tool known as quantitative easing that pumps liquidity into the economy in a way that pushes down interest rates to encourage investing and hiring.

Jim Rogers: Elections Will End Good Times; Recession 2013 Is Unavoidable (RJA, SLV, GLD, UUP) (ETFDailyNews)
Don Miller: If legendary investor Jim Rogers is right, not only is Recession 2013 unavoidable, it’s going to be a doozy. In recent interviews, Rogers has been predicting a 2013 recession, bowled over by a potential blowout in Europe and unsustainable spending by the U.S. government. “Be very worried about 2013 and be very worried about 2014, because that’s when the next slowdown comes,” Rogers told Reuters. And while Rogers sees no true safe havens out there, a few investments can provide some comfort – specifically, commodities in the form of agriculture, gold, and silver.

Bullish Wagers at 16-Month High as Citi Sees Gains: Commodities (Bloomberg)
Bullish commodity wagers rose to a 16-month high just before the Federal Reserve’s pledge for more stimulus drove prices to a seventh weekly advance and banks from HSBC Holdings Plc to Citigroup Inc. forecast more gains. Hedge funds and other speculators lifted their net-long positions across 18 U.S. futures and options by 0.3 percent to 1.33 million contracts in the week ended Sept. 11, the most since May 2011, U.S. Commodity Futures Trading Commission data show. Copper holdings surged 25-fold to 17,509 contracts, the biggest gain on record. Gold bets climbed to the highest since Feb. 28, and silver wagers advanced for a seventh week.

California Voters Weigh $1 Billion Tax Break for Business (Bloomberg)
California lawmakers couldn’t bring themselves to end a $1 billion tax break for General Motors Company (NYSE:GM), Kimberly Clark Corp (NYSE:KMB) and other multistate businesses, so now voters will decide. If Proposition 39 is approved, as at least one recent poll suggests, corporations based outside California would lose an option that let some pay lower income taxes than those in-state. California, the most populous and most indebted state, has cut spending on schools and the poor to help erase a $15.7 billion deficit. Governor Jerry Brown is asking voters in November for higher sales and income taxes.

Hedge funds back off banks as mutual funds dip in (Reuters)
Hedge funds who have tried to make money out of European banks during the euro debt crisis are becoming frustrated with the sector’s erratic movements just as some bigger, and more patient, institutions are dipping tentatively back in. European bank stocks .SX7P have risen more than 25 percent since late July, fuelled by relief over new crisis-fighting plans, in particular the ECB’s latest announcements which have triggered hopes of a more lasting solution.

Hedge funds reap rewards as firms rush to refinance (Reuters)
Hedge funds that bought into depressed corporate loans during the worst of the euro zone crisis are now being rewarded for their faith in a recovery, with returns of sometimes more than 30 percent. Companies such as German forklift truck maker Kion and privately-held U.S. firm ServiceMaster are taking advantage of a booming high-yield bond market to refinance their loans and pay out investors, including hedge funds.

Hedge funds see further profit from Glencore-Xstrata (Reuters)
Hedge funds are betting that commodities trader Glencore will succeed in its battle for miner Xstrata, in a long-running deal that has been profitable for arbitrageurs and is still attracting funds looking to make money. Arbs, hungry for action after a lean period for M&A, have been buzzing around the deal for months, attracted by its size, liquidity and complexity, and many profited from last week’s move by Glencore(GLEN.L) to sweeten its now 23 billion pound all-share bid.

Traders bet on EADS bounce as merger with BAE faces hurdles (Reuters)
Bets that a proposed EADS-BAE Systems merger will struggle to be completed or even fail are on the rise, signalling a possible recovery in the recently-hammered shares of EADS, the Airbus parent. The deal – to create a European aerospace-defence giant with sales of more than 70 billion euros – faces political and regulatory hurdles. There are also shareholder concerns over the structure of the deal. Hedge fund, merger arbitrage and options market positioning, along with short-selling data and technical charts all point to a bounce for EADS given the scale of the sell-off by institutional investors when tie-up talks were announced.

Viennese firm seeks hedge fund and fund of fund acquisitions (Opalesque)
Oliver Prock, chief executive officer and chief investment officer of Vienna and Liechstenstein based Salus Alpha Group AG is in the market to buy other alternatives businesses. In an interview with Opalesque, Prock said: “We are interested in buying other businesses, either funds of funds run by people that are done with the business and want to have a change, or maybe single strategy funds of any type where there is a problem with distribution or marketing.” The firm was founded in 2001 by Prock and a team from Erste Bank in Vienna, where they had been responsible for funds of funds and other alternatives.

Report finds Australian hedge and boutique universe is thriving (Opalesque)
The inaugural Triple A Partners/Basis Point Consulting Australian Hedge and Boutique Fund Directory reveals that there are at least 165 Australian hedge and boutique funds that control 17% of the entire Australian domestic investment industry. The report’s author and publisher, David Chin, Managing Director of Basis Point Consulting said: ‘The Australian hedge and boutique universe is much larger than expected and…

SEC Charges New York Stock Exchange for Improper Distribution of Market Data (SEC)
The Securities and Exchange Commission today brought first-of-its-kind charges against the New York Stock Exchange for compliance failures that gave certain customers an improper head start on trading information. SEC Regulation NMS (National Market System) prohibits the practice of improperly sending market data to proprietary customers before sending that data to be included in what are known as consolidated feeds, which broadly distribute trade and quote data to the public. This ensures the public has fair access to current market information about the best displayed prices for stocks and trades that have occurred.

Hedge Fund Sponsored Man Booker Prize 2012 Shortlist (HedgeCo)
Deborah Levy, Hilary Mantel, Alison Moore, Will Self, Tan Twan Eng and Jeet Thayil are the six shortlisted authors in contention for the Man Booker Prize 2012. Sponsored by hedge fund giant Man Group PLC., the Booker Prize Foundation works to promote the art of literature for the public benefit through various schemes, initiatives and projects. The judges praised the powerful language and artistry displayed in the six books, whose common themes include old age, memory and loss.

MFA, PerTrac Offer Tools for Investor Education (HedgeFund)
Sometimes, those with an interest in the financial world may not know the answer to a simple question like “What is a hedge fund?” That’s why the Managed Funds Association on Friday launched its new Hedge Fund Fundamentals website, which the advocacy group is offering to help provide insight into the $2 trillion hedge fund industry, and show its benefits to investors and the global economy.

SC Capital Launches $530M Asian P.E. Fund (Finalternatives)
Singapore-based SC Capital Partners has raised $530 million for its Real Estate Capital Asia Partners III fund. The fund, which closed August 13 and which attracted investment from pensions, funds of funds, endowments and foundations, will focus on undervalued, undermanaged and distressed Asian real estate and real estate-related investments. It is a successor to the $190.3 million Real Estate Capital Asia Partners II fund launched in 2008.

Patron Capital Raises $1B For European P.E. Fund (Finalternatives)
European private equity firm Patron Capital has raised US$1.1 billion for its new Patron Capital IV fund. Fund IV will seek to make opportunistic investments in distressed and undervalued properties and property-backed corporate situations, chiefly in Western Europe. The fund attracted investment from pensions, foundations, endowments and high-net-worth individuals.

Fund-of-funds firms continue spiral of asset declines (PIOnline)
Hedge funds-of-funds managers are, in the main, losing the battle to hold onto their assets, although a cadre of firms still is thriving. The one-year asset declines amounted to an 8% drop in the aggregate assets — $405.7 billion as of June 30 — compared to the prior year for the 53 firms running at least $1 billion in hedge funds of funds that responded to Pensions & Investments’ 2012 survey. Far worse, aggregate assets declined 42% — fully $294 billion — in the four years ended June 30 following the financial crisis of 2008-2009. Blackstone Alternative Asset Management was the largest hedge funds-of-funds manager in P&I’s 2012 ranking, with $41.4 billion as of June 30, followed by UBS Global Asset Management Alternative and Quantitative Investments, $25.6 billion, and Goldman Sachs Asset Management, $22.5 billion.

India-focused Venus Capital attracts new inflows (HedgeFundIntelligence)
Vik Mehrotra’s Venus Capital has secured at least $350 million in new inflows mostly from European family offices seeking bespoke exposure to Asian corporate fixed income. On top of that, the Boston-based firm also secured $40 million for mezzanine secured structured lending in India and has received $15 million from Gottex Fund Management for an arbitrage strategy similar to the Venus Relative Value Fund. Gottex is an $8-billion fund of funds assisting Venus in raising capital and providing back office and has launched the arbitrage strategies on its managed accounts platform.

Raising the steaks (NYPost)
A high-end steakhouse in the Meatpacking District has taken the price of beef to sizzling new heights by offering a 12-ounce cut of meat for a whopping $350. The new steak dish at Old Homestead is so expensive because it is a rare cut of real Japanese Kobe beef, which had been banned for sale in the US until recently. “It’s the most delicate, decadent beef in the world,” said restaurant co-owner Marc Sherry. “It’s like having July 4th in your mouth — there is an explosion of flavors.” Although the Kobe cut is in a price range few but a hedge-fund king would like, Old Homestead has already had numerous customers ready to throw their money down to reserve the steaks.

Shoe-loving poker player Beth Shak starting own shoe line (NYPost)
She’s bought every other shoe in the world — she might as well make her own. Heel-loving professional card player Beth Shak — as famous for her massive shoe collection as for her poker face — is planning to come out with her own line of women’s footwear. “My almost-18-year-old daughter wasn’t happy having a mom that traveled and was gambling,” Shak told The Post. “She kept saying, ‘Why don’t you design a shoe line?’ and one day I was like, ‘You know, she’s right.’ ” Shak, who has competed in the World Series of Poker, has a collection of some 1,200 pairs of shoes that she keeps in password-protected closets in her home in Bryn Mawr, Pa. The collection includes about 700 Christian Louboutin pairs and is valued at nearly $1 million.