Hedge Fund News Wrap: Week Ending 11/8/13

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SAC Pleads Guilty, Must Pay $1.2B Fine

After weeks of deliberation, SAC Capital has pleaded guilty to insider trading charges and is set to pay a record $1.2 billion fine. SAC pleaded guilty to a total of five counts of insider trading violations, and is the first large Wall Street firm in a generation to confess to criminal conduct.

The investigation, which took over a decade, has put the spotlight on hedge funds, which are notorious for their secrecy.

According to DealBook, the fine and guilty plea are part of an even bigger settlement that will impose a five-year probation on the hedge fund and will require it to hire an outside monitor. In addition, SAC must also terminate its business of managing money for outside investors.

On Monday, the United States attorney in Manhattan, Preet Bharara said, “No institution should rest easy in the belief that it is too big to jail.”

Over the last twenty years, Steven Cohen has built SAC Capital into a financial powerhouse, as it was valued as a worthwhile trading partner at many major securities firms such as Goldman Sachs.

 

See detailed coverage from:

DealBook

The Wall Street Journal

 

 

Britain’s Co-Op Bank Rescued by Hedge Funds

Britain’s Co-operative Bank has accepted a £1.5 rescue plan backed by a number of U.S. hedge funds and other junior bondholders.

The proposal is meant to bail-in the bank without taxpayer money. This, in turn, will avoid a nationalization of the bank.

According to FINalternatives, the banks’ junior bondholders will exchange their debt for a 70 percent stake, of which the hedge funds will receive half. Co-operative Group, which is Co-op Bank’s current owner, will retain a 30 percent stake.

However, some are worried that the hedge funds involved will strip the bank of its commitment to ethical action.

“With hedge funds at the wheel, the bank will become more ruthlessly commercial. Cutting 1,000 jobs at the same time as you launch an ethics policy is quite a contradiction,” said Andre Spicer, a professor at Cass Business School in London.

However, Co-op is reassuring customers, with a statement from Co-op Group’s Chief Executive:

“What’s really important to our customers and our members is that the bank continues and that the values and ethics of the bank are right at the heart of that. For the first time ever we’ve written that into the constitution of the bank.”

It is still unclear how long the hedge funds’ plans for Co-op will last, as the bank seeks to go public sometime next year.

 

See detailed coverage from:

Reuters

FINalternatives

 

 

Activist Investor, Bill Ackman, Continues Attack against Herbalife

It has been a difficult year for activist investor, Bill Ackman, who continues to wage war against Herbalife.

Just under a year after launching his attack against the nutritional supplements company, Ackman is at it again, announcing plans to release more information on the company’s shortfalls at the Robin Hood Investment Conference later this month. Last December, Ackman publicly called the company a “pyramid scheme” that would have an imminent collapse.

Ackman’s short bet against the company has resulted in a $500 million paper loss. However, other activist investors continue to post gains in their Herbalife bet, most notably Carl Icahn and Third Point’s Dan Loeb.

CNBC reports that the new information was gathered from conversations with several former Herbalife employees.

 

See detailed coverage from:

Business Insider

FINalternatives

Barron’s

 

 

Loeb’s Third Point Hedge Fund Up 19 Percent YTD

Hedge funds have continued to underperform the broader market, with the S&P 500 up about 23 percent year-to-date.

However, Dan Loeb’s Third Point is among the industry’s top performers. Dan Loeb told investors that his Third Point Offshore Fund had returned 19.4 percent this year through October. Reuters reports that the average fund is only up 5.5 percent YTD, making Loeb’s current performance an industry stand out.

Loeb did not disclose which positions contributed to the gain. However, the hedge fund manager is not taking in new money and is returning some to clients by the end of the year.

Word of Third Point’s performance comes out just one day after rival Pershing Square Capital announced that it added 7.9 percent through the month of October, pushing its year-to-date gains above 8 percent.

 

See detailed coverage from:

FINalternatives

Reuters