Thursday, August 4, 2011

Perry Capital's Investment Thesis on Iron Mountain (IRM)

Hedge fund Perry Capital's recent letter to investors outlines why they added to their existing position in Iron Mountain (IRM) in the second quarter. We also posted up Perry's thoughts on credit in another post. Regarding their equity stake in IRM, Perry writes,

"The company’s main business is physical document and data tape storage where it has the #1 market share. In part due to the urging of a shareholder, the company is engaging in a series of changes that should unlock value and drive returns to shareholders. We believe management’s commitment to the shareholders, new board appointments, reductions in capital expenditures, the recent sale of its non-core digital business, rationalization of its international operations, and potential conversion to a REIT all bode well for shareholder value creation. Along with the defensive nature of the business model, management has committed to return $2.2bn of cash to shareholders by 2013 (equal to one third of its market capitalization). This should provide adequate downside protection in an uncertain market environment."

Perry Capital 767 Fifth Avenue New York, NY 10153

Perry Capital: European Markets to Provide Credit Opportunity in Coming Months

Richard Perry's hedge fund firm Perry Capital returned -0.93% in the second quarter and is up 2.69% for the year. The firm now manages $8.6 billion and has used the market volatility to add to their positions in their highest conviction names.

In a past investor letter, we highlighted how Perry saw a growing amount of event-driven opportunities. Their second quarter letter to investors outlines why they sell existing positions:

1. more compelling opportunities are created by the markets
2. a position reaches value
3. our original thesis is refuted based on newly uncovered data.

Perry also writes, "we are comfortable holding higher cash levels when we see potential opportunities on the horizon. The European sovereign debt crisis could be the cause of the next market dislocation."

Credit Positions

The hedge fund's letter mentioned their position in preferred securities of government sponsored enterprises (GSE's) such as Fannie Mae and Freddie Mac. As 90-day delinquencies have been steadily declining, Perry feels the US taxpayers could recoup the $164 billion preferred investment. In the past we've pointed out how Michael Kao's Akanthos Capital Management likes GSE preferreds as well.

Perry also believes that peripheral European markets will be a 'robust' credit opportunity over the upcoming months. Additionally, Perry utilized the June sell-off to add "a small amount of structured credit to the portfolio with a particular focus on asset-centric instruments."

Equity Positions

The hedge fund sold their position in Equinox Minerals as Barrick Gold (ABX) purchased the company and after Zambian approval, Perry tendered its shares into the offer. They also exited their position in Swiss pharmaceutical company Actelion (ETR:ACT) after a failed attempt by an activist shareholder and a disappointing jury verdict.

They also added to their existing position in Iron Mountain (IRM). You can view Perry Capital's thesis on Iron Mountain here.

For more recent hedge fund letters, we've also posted up:

- Ivory Capital's thoughts on why value investing isn't working in this market

- Dan Loeb & Third Point's Q2 letter

- Oaktree Capital & Howard Marks' thoughts on the US debt ceiling

- Corsair Capital's Q2 letter

- David Einhorn & Greenlight Capital's letter

FINforums Annual Hedge Fund Summit: 10% Discount

On September 14th, 2011 in New York City, join FINforums, the events arm of top hedge fund news site FINalternatives, as distinguished experts from the hedge fund industry speak candidly about the biggest issues affecting managers today.

Topics covered include: The global macro outlook for Q4 and beyond; The best investment strategies for finding alpha; Techniques for successful marketing and capital raising; Regulatory and compliance updates; Alternative hedge fund structures (managed accounts, UCITS, investible indices); An institutional investor roundtable, and more.

Registration Discount for Market Folly Readers:

Hedge funds / Buyside = $295
Service Providers / Others = $695

Use discount code FOLLY11 for a 10% discount

Register Today, Space is Limited

Speakers Include:

Frank Ahimaz, CIO, Museum of Modern Art (MoMA)
Michael Alexander, Director, Smarsh Inc.
David Asman, Anchor, Fox News and Fox Business Network
Peter Carey, Managing Director, SkyBridge Direct
Jack Flaherty, Investment Manager, GAM
Simon Fludgate, Principal, Aksia
Bruce Frumerman, CEO, Frumerman & Nemeth
Ibrahim Gharghour, Managing Partner and CIO, Pulse Capital Partners
Todd Groome, Chairman, AIMA
Deepak Gurnani, Head of Hedge Funds, Investcorp
Constance Hunter, Chief Economist, Aladdin Capital Management
Jeremy Kroll, Co-founder and CEO, K2 Global Consulting
Joseph McAlinden, CIO, Catalpa Capital Advisors
Michelle McCloskey, Head of Hedge Fund Research, Man Investments
Eric Munson, Managing Director, Stride Capital
Vinod Paul, Managing Director, Eze Castle Integration
Cathleen Rittereiser, Dir. Of Investor Relations, Concordia Advisors
Larry Smith, Chairman and CIO, Third Wave Global Investors
Don Steinbrugge, Managing Partner, Agecroft Partners
Lisa Vioni, President and CEO, Hedge Connection
Christopher Vogt, Global Head of Hedge Funds, Allstate Investments
Ezra Zask, Founder and President, SFC Associates

Tuesday, August 2, 2011

Hedge Fund Third Point Reduces Equity Exposure For Third Consecutive Month

For the month of July, Dan Loeb's hedge fund firm Third Point offshore fund was up 0.3%. Year to date, they are up 6.9% versus 3.9% for the S&P 500. Seeing 18.4% annualized returns, it's no wonder that Third Point is closed to new investors.

Net Exposures Down Yet Again

Loeb's hedge fund is only 23.3% net long equities (39.7% long and -16.4% short). In June, we detailed how Third Point reduced equity exposure again. July marks the third consecutive month in which Loeb's firm has reduced risk.

In July they ratcheted down exposure from 30.7% net long down to only 23.3% net long. Caution is the name of the game for Loeb's firm and he outlines the rationale in his quarterly letter.

Their largest net long equity exposure comes in the energy sector at 6.1%, as well as consumer and basic materials each at 5.7%. They are net short technology and utilities.

In credit, Third Point is 20.9% net long (32.2% long and -11.3% short). They continue to be net short government issues and their largest net long exposure comes in asset backed securities (ABS).

Third Point's Top Positions

1. Gold
2. Delphi Corp
3. El Paso (EP)
4. CIT Group (CIT ~ multiple securities held)
5. Mosaic (MOS)

Loeb's stake in MOS is brand new and the thesis on Mosaic is detailed in Third Point's Q2 letter. They also continue to hold Delphi, a position numerous hedgies like.

In the past month, Third Point's top winners include gold, Peregrine Metals (PGM), CVR Energy (CVI), Delphi, and an interest rate hedge. Their top losers included NXP Semiconductor (NXPI), CIT Group (CIT), Pall Corp (PLL), Health Net (HNET), and Brenntag AG (BNR).

Shares of NXPI have traded down almost 43% in the past 3 months. Many see this company as a play on the future 'mobile wallet' due to its near field communications (NFC) chip that allows transactions between phones. Third Point has been able to offset the negative performance of this company with gains in other areas.