Hedge Fund News Wrap: Week Ending 10/4/13

Hedge Fund Overview: Hedge Funds Make Small Gains in September

According to Hedge Fund Research’s HRFX Global Hedge Fund Index, hedge funds were up 0.96 percent in September.

However, hedge funds continue to lag the broader market, as the S&P gained more than 3 percent last month.

The HRFX Global Hedge Fund Index is up 4.29 percent year-to-date, while the S&P is up nearly 20 percent year-to-date.

Hedge fund underperformance continues to discourage investors, which is forcing some funds to cut back on the industry’s famed “2 and 20” fee model: a management fee of 2 percent on assets and a performance fee of 20 percent on profits.

In addition, this is the fifth year in a row in which hedge funds have underperformed the S&P.

 

See detailed coverage from:

FINalternatives

 

Hedge Fund Perry Capital Cuts Stake in J.C. Penney

In a regulatory filing on Monday, the hedge fund firm Perry Capital, revealed that it would cut half of its stake in the struggling retailer, J.C. Penney. According to the filing, the hedge fund firm cut its stake down from 8.62 percent to 3.28 percent.

The sell comes weeks after hedge fund manager William Ackman, of Pershing Square Capital, sold his 18 percent stake in the company and resigned from the board of directors. In a letter to investors, Ackman cited that retail was not his “strong suit,” as his campaign to revamp J.C. Penney failed.

Although Perry Capital has decided to follow in Pershing Square’s footsteps, other hedge funds have been adding to their holdings. According to the Wall Street Journal, Glenview Capital increased its stake by 9.1 percent, from 3.8 percent in August. Soros Fund Management has been adding shares and now has a 9.6 percent stake in the company.

On Monday, J.C. Penney stock fell 2.7 percent and closed at a 13-year low of $8.81.

 

See detailed coverage from:

Business Insider

The Wall Street Journal

DealBook

 

Loeb Takes Aim at Sotheby’s

Activist investor Dan Loeb is known for his caustically challenging remarks aimed at board members of companies he has a large stake in. Over the summer, Sony got the brunt of these, as he referred to its entertainment segment as a “red-headed stepchild.”

Now, Loeb found a new target: the auction house, Sotheby’s.

On Wednesday, in a scathing letter to management, Loeb announced that his hedge fund, Third Point, had become the company’s largest shareholder and is calling for William Ruprecht to step down from his position as CEO and president. In addition, Loeb calls for the roles of Chairman and CEO to be split, and a seat on the board for himself and another major shareholder.

In the letter, Loeb claims that Ruprecht has a “lack of leadership,” a “generous pay package” and other excessive perks that “invokes the long-gone era of imperial CEOs.” Some of these perks include a car allowance, coverage of tax planning costs, and reimbursement for membership fees and dues to country clubs.

Loeb then goes on to say that Sotheby’s “is like an old master painting in desperate need of restoration,” as its rival, Christie’s, “has eaten their lunch since the financial crisis.”

Sotheby’s dismissed the comments as “baseless,” and released a statement:

“Rather than debating incendiary and baseless comments, we are focused on serving our clients’ needs during this critical autumn sales season.”

The tension between Loeb and Sotheby’s underscores the problem many public companies face as activist investors push for drastic, share boosting changes.

 

See detailed coverage from:

FINalternatives

CNBC

Forbes

 

 

Ackman Cuts Bet Against Herbalife

Hedge fund manager William Ackman has been very vocal about his bet against Herbalife, proclaiming that the nutrition company is a huge pyramid scheme. Ten months ago, he told an audience in New York City that Herbalife’s stock was headed to zero in the very near future.

Now, Ackman is modifying his bet against Herbalife, as his hedge fund, Pershing Square Capital, has lost about $500 million on the bet this year.

Herbalife’s stock continues to climb, and has risen up 106 percent since January.

In a letter to investors, Ackman said that the stock price of the company continues to climb because investors believe the “government will do nothing” and that Herbalife will “keep earning a lot of money and buying back its shares,” which would force short sellers like his fund to cover their positions.

Although Ackman contends that Herbalife is a pyramid scheme, many investors continue to invest in the company, the most notable being Carl Icahn.

Overall, it has been a tough year for Ackman’s Pershing Square Capital. After his failed attempt to revamp J.C. Penney, he has shifted away from retail and is now focusing on his newest investment in Air Products and Chemicals Inc.

According to the Wall Street Journal, Pershing Square Capital has lost $2 billion in assets under management, leaving the firm with $11.2 billion compared to the $13.2 billion it had earlier this year.

 

See detailed coverage from:

Forbes

DealBook

Reuters