Hedge Fund News Wrap: Week Ending 7/25/14

Hedge Fund Manager Ackman Fails to Deliver Deadly Blow to Herbalife

William Ackman, the hedge fund manager of Pershing Square Capital, promised to deliver the “most important presentation of his career.” The activist investor, who has waged a long battle against supplement provider Herbalife, thought he would deliver a “deathblow” to the company with a revealing presentation in front of 500 people at the AXA Equitable Center in New York on Tuesday.

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However, the “deathblow” fell short of its billing, as Herbalife’s stock rose more than 25 percent by the end of the day on Tuesday.

Ackman, who has long contended that Herbalife operates a pyramid scheme, compared the company’s sales practices to those of Enron, the mafia, drug dealers, and even Nazis.

“I’m an extremely, extremely persistent person. Extremely,” said Ackman during the presentation. “And when I believe I am right, and it is important, I will go to the end of the Earth.”

The presentation lasted more than three hours, and allegedly included an abundance of leaked documents from whistleblowers in the company.

During his presentation, Ackman focused on Herbalife’s nutrition clubs, comparing them to Enron’s “phantom trading floor.”

Near the end of the presentation, Ackman appeared emotional as he addressed the history of his great-grandfather, who emigrated to the United States from Russia and started his own coat factory.

“I’m a huge beneficiary of this country,” said Ackman. “Michael Johnson [CEO of Herbalife] is a predator. This is a criminal enterprise. I hope you’re listening, Michael. It’s time to shut this company down.”

Herbalife, as usual, shot back stating that Ackman’s claims are “false and fabricated.”

 

See detailed coverage from:

FINalternatives

DealBook

Fortune

 

 

 

Hedge Funds Investigated in Tax-Avoidance Strategy

A senate investigation has found that hedge funds have been using a tax avoidance technique for years, with one accused firm, Renaissance Technologies, potentially saving $6.8 billion in U.S. taxes.

According to the 93-page report, more than a dozen hedge funds conducted trades using Deutsche Bank’s and Barclays’ “basket options” between 1998 and 2013.

Steve Cohen’s now-defunct SAC Capital Advisors also used basket options according to the report.

“These banks and hedge funds involved in the case used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation,” said Senator Carl Levin, the chairman of the Senate subcommittee on Investigations.

The New York Times writes that under the average brokerage account, investors are allowed to borrow only $1 for every $2 in the account. However, with “basket options,” Renaissance Technologies was able to borrow as much as $17 for every $1 in the account.

On Tuesday, Peter Brown, the co-chief executive of Renaissance Technologies, along with representatives from Barclays and Deutsche Bank testified before a Senate hearing. All three parties contend that they complied with applicable tax laws and regulations.

 

See detailed coverage from:

DealBook

MarketWatch

USA Today

 

 

 

Judge Orders Hedge Funds and Argentina to Talk it Out

Judge Thomas P. Griesa, of the Federal District Court in Manhattan, issued an order on Tuesday that requires Argentina and a group of hedge funds to meet with a court-appointed mediator until they can both come to an agreement regarding debt repayments.

The order, which was issued on Tuesday, comes exactly one week before Argentina is required to make an interest payment on its restructured bonds. The judge ruled that Argentina can’t make the payment unless it pays what it owes to bondholders first.

If both sides fail to come to an agreement and Argentina fails to make the payment, the country will enter into a default on July 30.

Currently, bondholders in the United States insist that they receive the full $1.5 billion amount they are owed, after Argentina proposed exchanging their bonds for lower-valued bonds after the 2001 default.

Elliott Management’s NML Capital is leading the holdout investors in the legal dispute.

 

See detailed coverage from:

DealBook

ABC News

Reuters

 

 

 

 

Pension Funds Pulling Back from Hedge Funds

The California Public Employees’ Retirement System, also known as CalPERS, is planning to cut its hedge fund portfolio by 40 percent this year which will pull an estimated $2 billion from the industry. However, according to The Wall Street Journal, CalPERS will continue to have $3 billion invested in hedge funds.

Other public pension funds are following suit in an effort to reduce costs, as hedge funds continue to offer lackluster returns.

The Los Angeles Fire and Police Pensions Fund decided to sell all of its hedge fund holdings last year, after it earned a meager 2 percent on its seven-year $500 investment. About $15 million in fees went to hedge fund managers.

A spokesperson for CalPERS told The Wall Street Journal that it was taking a “back-to-basics” approach to managing its billions after examining its hedge fund strategies in March.

 

See detailed coverage from:

Money News

FINalternatives

MarketWatch