Hedge Fund News Wrap: Week Ending 8/16/13

Hedge Fund Overview: Slow Gains in First Week of August

Hedge funds were up 0.24 percent in the first week of August, according to the Bank of America Merrill Lynch Investable Hedge Fund Composite Index.

Convertible arbitrage and equity long/short funds were the best performers, each adding 0.41 percent and 0.31 percent respectively, while market neutral strategies were the worst, falling 0.36 percent.

However, hedge funds continue to underperform the broader S&P, as they are only up by 4.5 percent for the year compared to the S&P’s 18 percent.

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Ackman Steps Down from JC Penney Board, Ends Feud

Billionaire hedge fund manager, William Ackman, has stepped down from the board of directors at JC Penney. Ackman’s resignation brought an end to a public feud that had threatened the troubled company’s turnaround efforts.

Ackman had breached his boardroom duties by disclosing confidential information about the company’s CEO search and financial condition. His dissatisfaction with the company had sent its stock value on a wild ride as he waged a war with management in an attempt to revamp JC Penney as a high-end retailer.

Forbes calls Ackman both a “catalyst and impediment” to JC Penney, as he had assigned former Apple head of retail Ron Johnson as CEO, which resulted in an immediate and dramatic loss of business and the subsequent firing of Johnson.

In a statement, Ackman said:

“During my time on the J. C. Penney Board of Directors, I have always advocated for what I believe to be in the best interests of the Company – its stockholders, employees and others. At this time, I believe that the addition of two new directors and my stepping down from the Board is the most constructive way forward for J. C. Penney and all other parties involved.”

Overall, it’s been a hard year for Ackman’s hedge fund business. Ackman’s hedge fund, Pershing Square Capital Management LP, is lagging behind many of its biggest competitors this year with a 3.7 percent return through July in his largest fund. With JC Penney, Ackman has lost an estimated $700 million. To top it off, his public bet against Herbalife has resulted in a $320 million loss.

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The Wall Street Journal


SAC Closes Parameter Capital Unit Amid Investigation

In the wake of a criminal indictment, SAC Capital has shut down one of its subsidiary hedge funds, Parameter Capital Management, in an attempt to shrink its base. The subsidiary, which was started by Anil Stevens and Glenn Shapiro three years ago, mainly traded financial stocks and managed close to $300 million.

According to Bloomberg’s source, Stevens plans to start his own hedge fund and take as many as nine people with him.

SAC has continued to deny any wrongdoing and pleaded not guilty to the recent insider trading charges. Prosecutors have allowed the firm to continue operating as it fights the allegations. However, outside investors have already pulled $5 billion of the $14 billion SAC managed at the beginning of the year. About $8 billion of the fund’s assets are from founder Steve Cohen’s personal fortune.

In an e-mail meant to assuage employees, President Tom Conheeney wrote that the reports about SAC shrinking markedly are “untrue.”

Even so, employees are starting to look for employment elsewhere. The New York Times reports that, “Inside the firm, the indictment prompted employees to circulate résumés across the hedge fund industry. And the decision to close Parameter, which was not mentioned in the indictment, could foreshadow other defections. According to one executive of another hedge fund, some SAC employees are already covertly conducting interviews in hotel rooms and private homes to avoid being spotted on rivals’ trading floors.”

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Icahn Announces Large Stake in Apple, Shares Soar

Carl Icahn, the billionaire activist investor who is known for pushing companies towards share-boosting changes, has announced that he is an Apple shareholder via Twitter. According to Bloomberg, Icahn bought $1 billion worth of Apple stock and wants the company to allocate $150 billion for a repurchase.

The tweet, written by Icahn on Tuesday, states, “We currently have a large position in Apple. We believe the company to be extremely undervalued.” Icahn also added that he spoke to current Apple CEO Tim Cook and that they plan to “speak again shortly.”

The day after his announcement, Apple shares rose 2.5 percent to $501.69, reaching the highest intraday price since January.

In a telephone interview with Reuters, Icahn stated that, “Apple has the ability to do a $150 billion buyback now by borrowing funds at 3 percent. If Apple does this now and earnings increase at only 10 percent, the stock – even keeping the same multiple currently – should trade at $700 a share.”

Icahn’s stake comes at a crucial time for Apple, as the tech company prepares for new releases rumored to happen this Fall. It will be the first time the tech giant releases new products since Cook succeeded Jobs. The Guardian writes, “Should the iWatch and other inventions fail to set the world on fire, Icahn could use his rumored $1bn investment to agitate for bigger changes.”

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The Guardian