Hedge Fund News Wrap: Week Ending 12/6/13
Hedge Funds Gain 0.55 Percent in November
According to the HRFX Global Hedge Fund Index, hedge funds rose 0.55 percent in November. The HRFX Global Hedge Fund Index continues to lag behind the broader market, as the Standard & Poor’s
500 Index rose 2.8 percent over the same period of time.
The S&P 500 is up 26.2 percent YTD, a stark contrast from the Hedge Fund Research benchmark, which is up only 6.13 percent YTD.
However, most strategies posted gains last month, with only emerging market funds and convertible arbitrage funds suffering losses. According to FINalternatives, a disappointing year draws to a close as investors continue to lose confidence in the hedge fund industry’s ability to hedge against the market. from the Hedge Fund Research benchmark, which is up only 6.13 percent YTD.
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Investors Lose Confidence in Edward Lampert’s ESL Fund
On Tuesday, Edward Lampert’s ESL Investments announced that for the second year, it has reduced its stake in Sears Holdings in order to balance investor redemptions. In turn, this has caused ESL Investments to drop below 50 percent for the first time since 2008.
Investor redemptions continue to pile up, as the fund’s stake in Sears Holdings continues to decline in value. Lampert, however, insists that he won’t sell his personal shares in the company, as it is a sign of his “confidence and alignment with all shareholders.”
According to DealBook, ESL Investments managed more than $15 billion at its peak in 2006. However, the disclosed total last year was less than $6 billion.
The news of investor redemptions led to an 8.3 percent decline of Sears stock on Wednesday. In total, the shares have fallen 21 percent this week.
According to DealBook, many investors feel that Lampert has failed to deliver with Sears as its chairman and CEO. Craig Johnson, president of Customer Growth Partners says, “Almost since the day he acquired control of Sears, he has been milking the company for cash as opposed to maximizing its performance as a retailer. Its decline began way before Eddie Lampert, but look at the stuff he’s done. He hasn’t invested in stores, in marketing. He’s doing nothing to grow the business.”
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Hedge Funds Seek Change for Struggling Retailer Abercrombie & Fitch
Engaged Capital, an activist hedge fund with a 0.5 percent stake in Abercrombie & Fitch, has publicly urged the company to oust its 69-year-old CEO, Michael Jeffries, after his contract expires in February.
If the company fails to do so, Engaged Capital urges the company to put itself up for sale.
Glenn Welling, the managing member at Engaged Capital, expressed the need for change in a letter to the company’s board members:
“We are confident that an independent and objective evaluation of management’s performance would result in the conclusion that an immediate leadership change is necessary … The board needs to come to the same conclusion that everyone else has—it is time for new leadership at Abercrombie & Fitch.”
According to FINalternatives, Abercrombie shares have fallen 25 percent this year, and is set to miss analysts’ earnings expectations for 2013 by a “wide margin.”
However, with less than 1 percent of Abercrombie’s shares, it is uncertain if Engaged Capital can pressure the company to change its leadership.
Other hedge funds, such as Citadel, reported even smaller stakes earlier this year.
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SAC Money Manager kept Cohen in the Dark about Insider Trading
Michael Steinberg, a former money manager at SAC Capital Advisors LP, has been charged with conspiracy and four counts of securities fraud for allegedly using inside information to make more than $1 million by trading on Dell, Inc.
Allegedly, Steinberg failed to inform his boss, Steve A. Cohen, that he was trading on Dell Inc. with insider information.
According to Reuters, Jon Horvath, the U.S. government’s witness against Steinberg and a former analyst at SAC Capital, told a jury in Manhattan federal court that Steinberg had to reassure Cohen about his bets on Dell in November 2008. At the time, Cohen was betting that the Dell stock would rise.
According to Horvath’s testimony, employees at SAC were encouraged to pass trading ideas along to Cohen, and could receive some profit if Cohen earned as a result of the idea. Allegedly, this pressured SAC employees to seek information that would give Cohen an edge in trading, regardless of how it was obtained.
The trial comes a few weeks after SAC Capital pleaded guilty to securities fraud and agreed to pay $1.2 billion in fines and restitution. Cohen has not been criminally charged, but the Securities and Exchange Commission has filed administrative action, accusing Cohen of failing to manage his employees.
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