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Hedge Funds’ Latest Moves: Diamondback Energy Inc (FANG), Walker & Dunlop, Inc. (WD), Town Sports International Holdings, Inc. (CLUB)

We have a jam-packed update with the latest series of filings concerning some of the top stock picks among the hedge funds we track. Notably, two funds both filed on the same company, Town Sports International Holdings, Inc. (NASDAQ:CLUB), with Farallon Capital (founded by billionaire Thomas Steyer) and Parag Vora (pictured)’s HG Vora Capital Management both filing to disclose the separate agreements they reached with the fitness club operator.

Parag Vora - HG Vora Capital

We’ll start there, given the compelling story of two activist investors being intimately involved in guiding a small-cap company. We pay special attention to hedge funds’ small-cap picks because our research has shown that the top small-cap stock picks of hedge funds outperformed the market by double digits annually in our back-tests. We have also been forward-testing the performance of these stock picks in real-time since the end of August 2012. These stocks outperformed the market by a cumulative 79.4 percentage points over the last 30 months (see the details). We also know the value of tracking the moves of activist investors, who often bring a fresh outlook and an eye on increasing shareholder value to their dealings with the companies they invest in. This is why we actively track and report on what activists are up to, and what it might mean for investors.

In the case of the New York-based Town Sports International Holdings, Inc. (NASDAQ:CLUB), the company is coming off a calamitous year for investors, with shares plunging nearly 60% in 2014. Early in January, Vora and PW Partners Atlas Fund nominated six independent directors for the company’s board after it adopted a “poison pill” to prevent a potential hostile takeover by the funds. The news of a potential proxy fight sent shares of Town Sports up nearly 15% the next trading day.

A proxy fight has been averted however, as Town Sports has reached an agreement with both Vora and Farallon to have three of the original six nominees, and five new nominees in total added to its board of directors effective immediately, while four previous directors have been removed. In accordance with the agreements, both funds have committed to voting their shares for the full slate of director nominees at the 2015 annual shareholder meeting.

Farallon owns 4.06 million shares of Town Sports, a 16.7% stake, while Vora holds a 3.88 million share, 15.9% stake, making them by far the two largest shareholders among funds we track. Billionaire Jim Simons’ Renaissance Technologies also held an 860,800 share stake at the end of 2014.

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