Hedge Fund News Wrap: Week Ending 8/23/13

Hedge Fund Overview: No Improvements in August

According to FINalternatives, “August is shaping up as a bloodbath for hedge funds.”

The HFRX Global Hedge Fund Index is down 0.4 percent, through August 16, leaving its year-to-date gains at 3.78 percent. Hedge funds continue to underperform the broader S&P,  which is down 1.89 percent this month, leaving its year-to-date gains at 15 percent.

The average relative-value fund rose 0.17 percent this month, with convertible arbitrage funds adding 0.44 percent and multi-strategy funds 0.09 percent. Multi-region funds and merger arbitrage funds are the only other strategies enjoying gains, posting 0.19 percent and 0.12 percent respectively.

However, master-limited partnerships led the race in August’s biggest losses, with a 1.52 percent decline.

According to The Wall Street Journal, “Part of the blame for the weak performance in 2013 [is] due to how detrimental short positions have been for hedge funds. The gap between the performance of the most-shorted shares and the market as a whole is wider than it has been in at least a decade.”

See detailed coverage from:

FINalternatives

The Wall Street Journal

 

Hedge Fund Manager, Philip Falcone, Agrees to Industry Ban

Philip Falcone, the hedge fund manager of Harbinger Capital, has agreed to a five-year industry ban and will admit wrongdoing to settle charges by the U.S. Securities and Exchange Commission. Falcone has also been fined $18 million. The SEC alleges that Falcone improperly used money from the fund to pay his taxes and unfairly favored some of his investors.

The agreement comes a month after the SEC had rejected a previously agreed upon settlement, which would have allowed Falcone to pay millions in fines without admitting or denying wrongdoing. In addition, Falcone would have continued to work in the brokerage industry.

Following the agreement, the hedge fund manager released a statement:

“I believe putting these issues behind me now is the best course of action for me and our investors,” he said. “It will allow me to continue to focus on my permanent capital vehicles and maximizing the value of LightSquared for all stakeholders.”

The New York Times notes that critics of the SEC’s new policy have argued that companies will refuse to settle cases if they are required to admit wrongdoing. However, this case will serve as a representation of a tougher SEC under the new chairman, Mary Jo White.

Jed. S. Rakoff, a federal judge in Manhattan, has been a longtime critic of settlements that allow defendants to neither admit or deny wrongdoing, calling the policy, “a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C.”

See detailed coverage from:

DealBook

International Business Times

BusinessWeek 

 

Office Depot Ends Board Dispute with Starboard

On Tuesday, Office Depot Inc. announced that it had reached a settlement agreement with its largest shareholder, Starboard Value LP, a day before its annual shareholder meeting.

Under the new agreement, Starboard will be allowed to nominate three board members and will withdraw its proxy solicitation bid. In addition, Starboard will not be allowed to nominate new directors until 2014, a fact that was not mentioned in Office Depot’s announcement.

Currently, Starboard has a 15 percent stake in the company, and had originally pushed to replace four of the board members with their own candidates, citing a lack of experience among current board members.

Office Depot argues that Starboard was urging shareholders to vote in favor of all ten of its nominees at the annual meeting.

In response to Office Depot’s announcement, Starboard’s CEO released a statement:

“The truth is that we made every attempt to work with Office Depot over the past few days to reach a compromise that would vastly improve the current Board and the Pro Forma Board. Unfortunately, Office Depot is not telling you that it was entirely unwilling to entertain any settlement offer that involved the replacement of three incumbent directors with three of Starboard’s highly qualified nominees, as is completely in line with the recommendations of the leading proxy advisory firms. Office Depot is also not telling shareholders that its settlement proposal required Starboard to agree to onerous standstill provisions well into 2015, while the Company refused to agree to re-nominate the Starboard nominees for election to the Pro Forma Board at the 2014 Annual Meeting expected to occur in early 2014.”

See detailed coverage from:

Market Watch 

Reuters

BusinessWeek

 

Hedge Fund Moore Capital Settles Metal Lawsuits for $48.4 Million 

Moore Capital Management has agreed to pay $48.4 million to settle a class action lawsuit alleging the hedge fund manipulated platinum and palladium futures prices.

The settlement will compensate purchasers of platinum and palladium futures between June 2006 and April 2010.

In addition to the settlement, the hedge fund’s trading activity will be restricted for three years, with a two-year restriction of its trade within fifteen minutes of and during the close in the platinum and palladium future and options market.

Back in April 2010, the CFTC had fined Moore Capital $25 million for attempting to manipulate Nymex platinum and palladium future prices from at least November 2007 through May 2008. Allegedly, the hedge fund would enter buy orders in the last ten seconds of trading to push futures’ settlement prices higher. This tactic is known as “banging the close.”

Although the hedge fund settled for $25 million, it did not admit or deny wrongdoing and had pushed for the suit’s dismissal before agreeing to settle.

Moore Capital has not denied or admitted wrongdoing in this new case, either.

See detailed coverage from:

Reuters

CNBC

Law 360 (subscription required)

 

Hedge Fund Manager, William Ackman, Acknowledges “Mistakes”

It’s been a tough month for hedge fund manager, William Ackman.

Less than a week after his “embarrassing” departure from the JC Penney Board, Ackman decided to acknowledge three “failures” at his hedge fund, Pershing Square Capital Management.

In a letter to investors, Ackman wrote off Borders Group, Target and J.C. Penney as the fund’s biggest failures.  “Clearly, retail has not been our strong suit, and this is duly noted,” Ackman wrote in the 23-page long letter.

According to Reuters, Ackman may exit JC Penney, where he owns 39 million shares and is the company’s biggest shareholder. At Target, Ackman stayed for 19 months after losing an expensive proxy fight.

Ackman’s other problems lie with the nutritional supplement company known as “Herbalife,” which he claims is a pyramid scheme. Regardless, he has lost  an estimated $300 million by betting against the company’s stock, which has risen significantly over the last couple of months.

His “mistakes” have cost him dearly—according to an investor who spoke with Reuters anonymously, his hedge fund’s gains are now at 2.7 percent, while the average hedge fund has been struggling with mere gains of 4.5 percent in the first seven months of the year.

See detailed coverage from:

Reuters

DealBook

The Wall Street Journal