UK based hedge fund GLG Partners is out with some intriguing research on the effect analyst ratings have on a stock. This is actually a follow-up to some previous commentary where they concluded the following:
- European analyst recommendations outperform
- 'Buy' recommendations outperform more consistently than 'Sell' recommendations
- A bunch of handpicked sell-side firms by GLG outperformed the rest of analyst recommendations in Europe
With that in mind, they move next to the topic of: Which analysts should you pay attention to? Simply put, they find that large broker 'buy' recommendations move junk stocks more significantly than any other category. They also find that 'buy' picks are generally more powerful than 'sell' picks. As one can imagine, stocks that are disliked take a beating when 'sell' recommendations are issued. Large brokers also have more of an impact when they put out a 'sell' on some of the most popular stocks.
Overall, some interesting research from GLG Partners, a hedge fund firm that was recently ranked 22nd on a list of the world's largest hedge funds. It's obvious that sell-side research and alerts have an impact on a stock price, it's just interesting to see it quantified. Things could get even more interesting if they had singled firms out and done a case by case study to determine which sell-siders had the most influence. It looks like we'll have to patiently wait for someone to generate such data.
Taken from GLG's website, embedded below is their look at what type of sell-siders you should pay attention to:
You can directly download a .pdf here.
For more insight from GLG Partners, we covered when Pierre Lagrange recently presented at a hedge fund panel. And for more of our coverage of the UK, head to our posts on positions hedge funds hold in the UK.
Thursday, March 18, 2010
Hedge Fund GLG Partners: Research on Effect of Analyst Recommendations
Thursday, February 4, 2010
John Paulson's Hedge Fund Adds To A Position
John Paulson's hedge fund firm Paulson & Co recently added to their holdings in food producer Premier Foods (LON: PFD). The London Stock Exchange disclosed that Paulson & Co have increased their stake to 11.8% of outstanding shares, up from their previous 8.9% stake. Originally, Paulson started buying into Premier Foods around the March 2009 bottom and shares of PFD have returned 22.5% over the past 52 weeks. In terms of other recent holdings, we also covered Paulson's SuperMedia (SPMD) position.
Paulson & Co's Advantage fund was up 13.75% for 2009, their Advantage Plus fund was up 21%, their Credit Opportunities fund was up 34%, and their Recovery fund was up 24.2% as noted in our post on 2009 hedge fund performance numbers. Then we also took an in-depth look at Paulson's new gold fund as well. For more background on Paulson and his big trade against subprime that made him billions, we highly recommend Gregory Zuckerman's book, The Greatest Trade Ever.
Taken from Google Finance, Premier Foods Plc is "a food producer, producing a range of category branded and retailer-branded food products. As of December 31, 2008, the Company operated in three divisions: Grocery, Hovis and Chilled & Ireland. The Grocery segment includes grocery products. The Hovis segment includes wrapped bread, morning goods and bulk and bagged flour. The Chilled & Ireland segment chilled and frozen meat-free products, operations in the Republic of Ireland, and its retailer branded chilled ready meal and cake businesses. In March 2, 2009, the Company completes its sales of Martine Specialites SAS and Le Pain Croustillant." For more about UK holdings, head to our primer on tracking a hedge fund's UK positions.
Friday, January 22, 2010
Hedge Fund QVT Financial: UK Activist Portfolio
QVT was founded in 2004 by former Deutsche Bank proprietary trader, Dan Gold. QVT's approach in the UK market is to seek out activist positions in small-cap companies, particularly in the investment management sector. They appear to look for out of favor and often illiquid stocks, many of whom trade on London's less regulated AIM market. Several of their positions are in investment trust companies. See our earlier article on UK investment trusts and the potential for hedge fund activism as well as our primer on tracking a hedge fund's UK positions.
QVT have 26 holdings in UK listed companies worth approx £190,300,000. Over 90% of their holdings by market value are in investment managers of one type or another. Real estate investment managers and equity investment managers account for 40% each with non-equity investments like funds of hedge funds and alternative energy accounting for 10%.
We were surprised to discover that QVT had such high exposure to property companies (40% of their current UK portfolio). London's AIM market was the favored place to raise money for property companies from all around the world during the property boom. In this period, one hundred and sixty property companies were listed on AIM to invest in real estate in over forty different countries. Of course today the market valuations of these companies are generally only a fraction of what they were at flotation, let alone at the top of the market in 2008. All the property companies in QVT's portfolio invest outside of the UK. At first sight, this may appear to indicate that QVT are nervous about the UK property market or at least that they perceive better value elsewhere, however, it may just reflect the fact that most of the property companies that listed on AIM are focused on overseas property.
It's probably safe to assume that most of QVT's UK positions are activist to one degree or another. Information about QVT's motives and strategy towards companies is patchy but some is available via the London Stock Exchange Regulatory News Service and the financial press. Trikona Trinity Capital, an Indian property company, is one of QVT's largest positions. QVT wants Trikona to sell all its investments and return the money to shareholders. A fairly straight-forward request, but one that is potentially the kiss of death for Trikona. Trikona have responded by arguing that they would likely face legal action from their partners and the Indian government if they were to sell assets on a large scale. However, they have indicated that they will return some assets to shareholders over the next two years.
Treveria, the German real estate company, is one of QVT's newest holdings. In November, QVT called an Extraordinary General Meeting (EGM) of shareholders in an attempt to remove four directors, including the Chairman and appoint one of its own representatives. Treveria responded by pre-empting the EGM by naming Yossi Raucher as non-executive chairman replacing Christopher Lovell, the interim chairman, who remains a director. Treveria has also appointed Jeffrey Strong, a senior investment professional at QVT Financial, as a non-executive director. Following the appointments, QVT and Treveria have agreed to cancel the EGM.
QVT own 20% of South African Property Opportunities (AIM: SAPO), an AIM listed property investment company. Here QVT are in partnership with another activist Principle Capital which is run by Brian Myerson. Principle Capital is also the investment manager of SAPO via a company called Proteus Property Partners. With the support of QVT, Principle has threatened legal action unless SAPO pays out a disputed performance fee to Proteus. So far, SAPO have refused to pay. It will be interesting to see what happens as Proteus is set to have its management contract terminated in October 2010 in the wake of strategic review to help address a wide discount to net asset value.
Finally, readers may find it useful to know that some of the holdings in QVT's portfolio are also held by other hedge funds. Seth Klarman's Baupost Group and London based multi-strategy hedge fund GLG have a stake in ACP Capital (APL). Weiss Capital Management, an activist fund, has positions in CAD, CEB, and DIVA. Trafalgar, the London based long/short fund also has a position in CEB. Stephen Mandel's Lone Pine has a large 39% stake in Ishaan (ISH), the Indian property development company. See our latest article on Lone Pine's UK holdings here.
Below you'll find summaries of QVT's various positions in UK markets:
(click to enlarge)
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That sums up QVT's positions and just yesterday we also covered Louis Bacon & Moore Capital's updated UK positions. Head to our coverage on other hedge fund UK positions as well.
Thursday, January 21, 2010
Louis Bacon's Hedge Fund Moore Capital Adds To Insurance Plays
We're back with an update in our hedge fund UK holdings series and this time we're focusing on Louis Bacon's hedge fund firm Moore Capital Management. A few days ago, the London Stock Exchange announced that Moore Capital Management held 22,750,000 shares in Insurance Broker Brightside Group (LSE: BRT), or 5.5% of the company's outstanding equity. This is a brand new position for Moore. Recently, we also saw that Moore increased its holding in another UK listed insurance operator. In December 2009, Louis Bacon's hedge fund firm increased their holdings in Lancashire Holdings (LSE: LRE) from a 4% to a 5% ownership stake. They now own 8,604,520 shares. We've previously covered the rest of Moore's UK positions as well.
This past year, Moore Capital's global fund was up 20.6% as noted in our 2009 hedge fund performance numbers post. Louis Bacon comes from the legendary Commodities Corp and is one of their 'offspring' along with Paul Tudor Jones and Bruce Kovner. Moore Capital is a $10 billion global macro set of hedge funds bearing Bacon's middle name. He is a well-known trader and more importantly, a risk manager.
Bacon actually got his firm started with help from Paul Tudor Jones. When Jones stopped accepting capital for his hedge fund, he turned investors to Bacon's firm. In the past, we had seen figures that Bacon had returned 30% annually since inception in 1990. He is notable because his returns often have low volatility and a low correlation to the stock market. In Barron's 2009 hedge fund rankings, Moore came in at #33 out of 100.
Bacon learned his risk management skills at an early age in the futures markets. Whlie getting his MBA at Columbia, he used his student loan money to trade and lost it all. Clearly, he learned a lesson he would never forget. Such a large mistake has made him an impeccable risk manager. After starting his own firm, he returned 86% in his first year. He likes to identify long-term macro trends and will trade around the position in the short-term. We'll continue to pass along portfolio developments as they surface. In the mean time, you can view the rest of Moore's UK positions here.
Taken From Google Finance - "Brightside Group plc, through its subsidiaries, provides insurance broking, the provision of premium finance, the provision of medical reports, lead generation and the provision of debt management solutions. The Company operates in four segments: insurance broking; finance provider; medical reporting; and lead generation and debt management. Some of the Company's subsidiaries include Brightside Holdings Limited, David & Co. Consultants Limited, Aust Holdings Limited, Minibus Direct Limited, Group Direct Broking Limited, E Group Limited and Commercial Vehicle Direct Insurance Services Limited."
Wednesday, January 13, 2010
John Griffin's Blue Ridge Capital Reveals Short Position
Disclosures of short selling in UK financial companies by hedge funds have been few and far between during the last six months. However, we've been able to track down a short sale because we follow hedge fund disclosures in UK markets.
Yesterday, the London Stock Exchange news service revealed that John Griffin’s Blue Ridge Capital was short 0.24% of Legal and General's common shares (FTSE: LGEN) on the 8th of January. This is a rare glance into a prominent hedge fund's short book as these firms typically keep these positions closely guarded. However, when they are required to file a disclosure (as is the case here), we get an occasional taste. You can view the rest of Blue Ridge's portfolio here.
Blue Ridge is not the only hedge fund shorting Legal and General as London based hedge fund manager Meritor Capital also held a 0.37% short position on the 8th of January. Meritor are fundamental stock-pickers that place emphasis on understanding businesses at ground level and meeting regularly with company management. They support this process with retained advisers, industry consultants and field visits.
Fellow UK hedge fund firm Lansdowne Partners have also had a short position in Legal and General fairly recently as they were short 1.76% of LGEN's shares on the 11th of November 2009. See our coverage of Lansdowne's portfolio here.
Just yesterday we talked about the fact that many hedge funds took it on the chin from their short positions in 2009 and examined the common link in companies they were shorting. There has always been an aura of mystique around short selling given the high level of secrecy. So, when we finally get a chance to see what they're shorting, it's exciting. We've gotten tastes of this recently when we saw some short positions from Whitney Tilson's hedge fund T2 Partners, and in the past through Bill Ackman's short of Realty Income, and David Einhorn's short of the ratings agencies. We'll continue to reveal these positions as we find them.
Tracking Hedge Fund Positions in the UK
We had previously published a brief look at how to track a hedge fund's positions in the UK. We wanted to update that piece a bit and break it down to make it easier to understand. After all, we occasionally cover hedge fund holdings in UK markets. Recently, we've detailed how hedge fund Eton Park expanded their UK positions and you can view the rest of our UK updates here. So, let's examine how to do this:
The UK differs from the US in that disclosure is not required on a periodic basis (as in the case of disclosures required quarterly on a 13F in the US). Instead of “across the board” disclosure on a regular basis the UK system is more event driven. There are four main sets of circumstances under which investment funds and hedge funds are required to disclose long and short positions in UK listed companies.
1. Large holdings in a company
Shareholders with a substantial long position of greater than 3 per cent of a company's outstanding equity are required to disclose it. Note that this includes rights to acquire shares via derivatives at a later date such as Contracts for Difference (CFDs) or options.
Once a fund crosses above 3% of a company’s equity it has to report any further changes at 1% increments (regardless of whether it is a purchase or a sale). For example, if a fund moves from 3 to 4% of total ordinary shares or from 4 to 5%, they must disclose the change. They must also report sales, for example, from 7 down to 6% until they fall below the 3% threshold where one final filing is required to acknowledge that the fund no longer has a concentrated ownership stake.
Large shareholders in companies that trade on the main market are required to simultaneously inform the issuer and the Financial Services Authority (FSA) of changes to major holdings using a TR-1 form. Substantial shareholders in companies that trade on the exchange-regulated markets (such as AIM or Plus Markets) need only inform the issuer of changes to major holdings in that issuer's shares. Issuers must then disclose this information to the wider market via the Regulatory News Service of the London Stock Exchange.
2. Takeovers
Under Rule 8.3 of the Takeover Code if a fund holds 1% or more of the stock of the offeror or the offeree in a takeover all dealings (including derivatives) must be disclosed by no later than 3.30 pm (London time) on the day following the date of the relevant transaction. This requirement continues throughout the offer period. A disclosure table giving details of the companies involved in takeovers is available for the public to view on the Takeover Panel’s website.
If two or more hedge funds act together to acquire an interest in the securities of the offeror or the offeree company they are deemed to be a single entity and need to disclose as such. Under Rule 8.1 all transactions in the stock of the offeror or of the offeree company by the offeror or the offeree company must be disclosed by no later than 12.00 noon (London time) on the business day following the date of the relevant transaction.
3. Rights issues and short positions
Hedge funds that have a short position of 0.25% or greater in a UK listed company that is undertaking a rights issue are required to disclose it. The deadline for disclosures is 3.30 pm on the business day following the day the short position threshold was crossed
4. Financial companies and short positions
Hedge funds that are net short of a UK financial sector company are required to disclose the position if it is greater than 0.25% of the firm’s issued share capital. In addition, the fund must disclose each time it increases the short by 0.1% of issued share capital (e.g., at 0.35%, 0.45%). The list of companies deemed to be “fianancial sector companies” is available in PDF format on the FSA website .
We'll continue to cover hedge fund movements in UK markets. Click here to follow our coverage on UK portfolio updates thus far.
Further Reading
Disclosure of Contracts for Difference - Questions & Answers - Version 2 [PDF]
List! Issue No. 14 - Transparency Directive - December 2006 [PDF]
List! Issue No. 14 (Updated) - April 2007 [PDF]
Additional information on the responsibilities of major shareholders is also available.
Information about third country investment manager disclosure non-EEA investment managers. [PDF]
Tuesday, December 22, 2009
David Einhorn's Hedge Fund Greenlight Capital Unveils New Position
The London Stock Market News Service yesterday reported that David Einhorn's hedge fund Greenlight Capital has been busy yet again. Einhorn has started a brand new position in shares of F&C Asset Management (LSE: FCAM). They now own 16,450,119 shares which represents ownership of 3.4% of their shares outstanding. This is one of many positions Greenlight holds and you can view the rest of their portfolio here. For some macro insight from Greenlight Capital, check out their rationale behind storing physical gold.
Around the end of October, Einhorn's fund was up 30% year-to-date and had recouped all losses from last year. Greenlight is a $6 billion hedge fund that focuses on value investing with a focus on spin-offs and have seen solid annual returns of over 20%. To get a better idea as to how Greenlight constructs and researches their investment themes, we highly recommend checking out Einhorn's book Fooling Some of the People All of the Time: A Long Short Story. Typically, Greenlight approaches things by identifying mispricings in the markets and then proceeding from there.
Taken from Google Finance, F&C Asset Management plc (F&C) is "principally engaged in the business of asset management. F&C is an active international investor but with a client focus on the United Kingdom and Continental Europe. As of December 31, 2008, the Company had £98.6 billion of assets under management."
.Monday, December 14, 2009
Hedge Fund Eton Park Expands Its UK Holdings
Eric Mindich’s hedge fund Eton Park Capital has recently extended its holdings in the UK market. When we last checked in on their US equities activity, we saw that they had established a large Verisk Analytics position (VRSK) upon its IPO. We now see that they've been active in UK markets and wanted to update their recent maneuvers. Before proceeding you may want to check out our primer on tracking UK positions. Additionally, you can view other hedge funds' UK positions here.
Eton Park was amongst the first hedge funds to build a stake in Cadbury ahead of the announcement by Kraft that it was interested in buying the company. See also our coverage of Paulson & Co's stake in Cadbury.
| symbol | date | shares | % | |
| Cadbury | CBY | 24/09/2009 | 28570576 | 2.09 |
| 10/12/2009 | 38815867 | 2.83 |
Under Rule 8.3 of the UK Takeover Code, if a fund holds 1% or more of the stock of the offeror or the offeree in a takeover, all dealings (including derivatives) must be disclosed on the day following the date of the transaction. This requirement then continues throughout the offer period. A disclosure table giving details of the companies involved in takeovers in the UK is available on the Takeover Panel's website. Eton Park’s position in Cadbury is made up of 0.37% ordinary shares and 2.43% derivatives (probably equity swaps if we were to venture a guess).
| Burford Capital | BUR | 21/10/2009 | 7920000 | 9.9 |
Eton Park has also recently taken a stake in the new issue Burford Capital. Burford is involved in the legal sector and aims to create and manage a diversified portfolio of commercial dispute financing investments with the aim of providing shareholders with attractive levels of dividends and capital growth. In the short term, the Company intends to focus on commercial disputes in the United States and on international arbitration matters.
| Lohnro | LONR | 10/12/2008 | 40000000 | 5.24 |
| 09/12/2009 | 70000000 | 7.3 |
Eton Park has also increased its stake in African holding company, Lohnro. Taken from Google finance - Lonrho plc is a pan-African company with a portfolio of investments in infrastructure, transportation, support services and hotels. The Company's infrastructure portfolio of investments include Luba Freeport Limited (Luba) 63% holding and KwikBuild Corporation Limited (KwikBuild) 61.97% holding. Its transportation portfolio includes Lonrho Aviation (BVI) Limited (Lonrho Aviation) 100% holding. Its agriculture sector include Lonrho Agribusiness (BVI) Limited (Lonrho Agriculture) 100% holding. Lonrho's hotel portfolio include Hotel Cardoso SARL 59.04% holding plus management contract and Grand Karavia SARL (Karavia) 50% holding plus management contract and its support services include Sociedade Comercial Bytes & Pieces Limitada (Bytes & Pieces), Lonrho Springs BVI Limited (Lonrho Springs), LonZim Plc (LonZim) and Norse Air Limited.
| Daisy Group | DAY | 20/07/2009 | 12375000 | 4.84 |
| 10/09/2009 | 16250000 | 6.37 | ||
| 28/09/2009 | 18575000 | 7.27 | ||
| 10/12/2009 | 24840000 | 9.57 |
Eton Park’s Daisy Group investment is made up of 4.8% ordinary shares and 4.8% equity swaps. Tosca Fund run by Tiger Cub Martin Hughes also holds an 11.28% stake in Daisy Group. Daisy Group PLC, is a newly combined business of Daisy Communications, Freedom4 PLC and Vialtus Solutions. It is a provider of integrated voice and data services to the small-medium business market. Customers have access to a combined product set including access, hosting, voice, managed services and mobile telephony from a single customer service and billing platform. The group operates from its business centres in London and Lancashire.
If you're unfamiliar with Eton Park then here's what you need to know. Eric Mindich started his hedge fund back in 2004 with $3 billion under management with a $5 million minimum investment. Nowadays, Eton Park manages over $6 billion. Their investment strategy centers around Mindich's time at Goldman Sachs where he focused on merger arbitrage. He was quite successful and became the youngest partner in Goldman Sachs' history at the age of 27. In addition to merger arbitrage, Eton Park focuses on long/short equity strategies and even invests up to 30% of their portfolio into private investments. Eton Park's solid track record has landed them in our Market Folly custom portfolio. We created this equity portfolio with Alphaclone and it is seeing over 25% annualized returns since 2000.
That wraps up this update on Eric Mindich's hedge fund Eton Park Capital and their recent UK portfolio additions. For more on Eton Park, check out some more of their portfolio. Lastly, head over to our posts on UK positions to see what other hedge funds are investing in as well.
Friday, November 20, 2009
Hedge Fund Lone Pine Reduces UK Exposure
On Wednesday we took a look at Lone Pine’s holdings in the US and today we are going to follow that up with an update on their UK positions. We last looked at Lone Pine’s UK holdings back in August. Since then, most of the action has been in one direction: Stephen Mandel’s Lone Pine has been selling out of UK companies. There are no new positions and only one increased position to report.
Of course we don’t know why Mandel has been reluctant to make new acquisitions in the UK. However, it is worth remembering that the UK was one of the countries hardest hit by the banking crisis and one of the slowest to recover from recession despite the fact that the Bank of England has been among the most aggressive ‘quantitative easers’. The fact that a savvy hedge fund manager like Mandel is reducing his exposure perhaps does not bode well for UK PLC generally.
The tables below start with the date of the disclosure on the left (in UK format), the amount of shares owned in the middle, and the ownership percentage stake on the right.
Increased positions:
| Intertek Group Plc | ITRK | 23/07/2008 | 9920265 | 6.29 |
| | | 01/08/2008 | 12040798 | 7.63 |
| | | 04/08/2008 | 12613798 | 8 |
| | | 12/08/2008 | 14282572 | 9.05 |
| | | 17/10/2008 | 15879234 | 10.06 |
| | | 27/10/2008 | 18388766 | 11.65 |
| | | 20/11/2008 | 19138766 | 12.13 |
| | | 01/06/2009 | 18995931 | 11.99 |
Intertek (LSE: ITRK) provides testing, inspection and safety services to a range of companies involved in consumer goods, building, telecoms, autos, oil, chemicals, pharmaceuticals, mining and agriculture. It also provides trade services to public standards bodies and governments.
Closed Positions: Lone Pine reduced their holdings below 3 percent of outstanding equity in the following companies.
- Autonomy (AU)
- Michael Page (MPI)
Once a hedge fund’s position falls below 3 percent of equity it no longer has to disclose holdings in the UK. One could assume that given their pattern of selling that they have closed the positions entirely, but there's no sure way for us to verify that right now.
Decreased Positions:
| Rightmove | RMV | 25/03/2008 | 11429616 | 9.72 |
| | | 21/08/2009 | 1004087 | 8.5 |
| | | 24/08/2009 | 9051477 | 7.7 |
| | | 25/08/2009 | 7443038 | 6.3 |
| | | 26/08/2009 | 6893038 | 5.9 |
| | | 11/09/2009 | 5861376 | 4.99 |
| Ashmore Group Plc | ASHM | 14/01/2009 | 43710160 | 6.21 |
| | | 15/09/2009 | 35252236 | 5.01 |
| | | 15/10/2009 | 33062737 | 4.7 |
Unchanged Positions:
| Ishaan Real Estate | ISH | 01/07/2008 | 48532342 | 23.45 |
| | | 04/09/2008 | 56632342 | 27.35 |
| | | 28/04/2009 | 56632342 | 39.08 |
Lone Pine’s percentage position in Ishaan increased in April 09 due to a share buy-back program undertaken by company (not from an additional share purchase).
If you're unfamiliar with our new series tracking UK positions, check out our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector. In addition, we have reported on London based hedge fund managers GLC Ltd and Lansdowne Partners.
Thursday, November 12, 2009
Hedge Fund Lansdowne Partners Favors Large Caps In Developed Countries
Lansdowne Partners have been regularly rated as one of the best hedge fund managers in London. Whilst they do have global macro and long-only funds they specialize in long-short stock picking. Their flagship, the UK Equity Fund, has returned an impressive 19.37% annualized since 2001 (see table below). Additionally, we recently saw that their UK strategy fund was up 0.32% for the month of October and is now up 22.19% for the year.
| | YTD | 6m | 1y | 3y | 5y |
| Lansdowne UK Equity Fund | 22.9% | 14.0% | 24.1% | 71.4% | 161.9% |
One of the interesting things about Lansdowne is that they currently have a much more bullish outlook on the economy and equities than many other hedge funds we follow on Market Folly. Lansdowne are strongly opposed to a downbeat view and point to a number of factors that they see as positive for equities and the economy in general.
They argue that current valuations in both absolute terms and certainly relative to government and corporate bonds are compelling. They believe that it is premature to worry about growth disappointments because there are still large boosts to growth yet to come from the normalization of the inventory cycle and importantly from the lagged response to the expansive fiscal and monetary actions. In addition, they argue that interest rates are unlikely to rise for some time because the authorities are likely to want to see firm evidence of a recovery. The output gap - estimated to be approximately 4% in the developed markets - means that inflationary pressures are likely to remain muted for some time thereby extending the period that policy can remain accommodative.
In their September 2009 report, Lansdowne argue that a combination of five factors make large-cap companies in developed countries particularly attractive at the moment. Firstly, large companies have done particularly well at cutting costs during the recession, especially labor costs. Consequently, earnings (and more importantly cash flows) have been protected. Secondly, there will be a positive, lagged impact from the fall in commodity prices on input costs mostly from natural gas and oil. Thirdly, currency tailwinds will help US and UK denominated companies where their respective currencies have been weak over the last 12 months. Fourthly, stronger companies will capture market share from weaker competitors; particularly from those who have over-extended balance sheets and are financially constrained. In addition, merger and acquisition opportunities are now back on the agenda. Finally, emerging markets remain a strategically important and ever increasing focus of growth for multinational companies with strong brands.
Lansdowne say that they continue to discover a very large range of potential investment opportunities. In case you were wondering, all this bullishness is not just talk. In their October report, Lansdowne noted that their gross long exposure level was 149% of NAV, up from the previous month (it also includes a 10% short futures position). This is extremely close to the top of their stated range (150%) but even so, they were not inclined to take profits believing that further upside was achievable. Gross short positions were 72% of NAV. Compare that exposure with, for example, David Einhorn's Greenlight Capital who recently disclosed they were 99% long 59% short. Lansdowne say that they are likely to remain bullish until the authorities step back from their accommodative stance and raise interest rates, which they believe is unlikely in the short-term.
We can get an idea of the type of large-cap company that Landowne believe will prosper going forward because they detail their largest 11 holdings in their UK Strategic Equity Fund in their September letter:
Barclays, BHP Billiton, Coca Cola, Colgate, Goldman Sachs, International Business Machines, JP Morgan, Palmolive, Rio Tinto, Roche, Wells Fargo
Plenty of US large-caps there for a fund with a supposed UK focus! In terms of sector and thematic positioning from their September update, they maintained exposure to the banking and mining sectors. Lansdowne believe that the biggest exogenous threat to their world view would be 'cost push inflation' arising from the commodity markets. In order to combat that threat they own out-of-the money call options on oil and miners like BHP Billiton and Rio Tinto.
In their October letter, they note that they added to their positions in Lloyds and Barclays on weakness. To hedge this, they also added to their shorts in the insurance sector. They also boosted their position in Roche up "to a full weighting" after shares slumped around Q3 sales. They think the pharmaceutical sector is intriguing here after underperforming for many years.
Now let's turn to look at what we can learn about Lansdowne's holdings in the UK market from their regulatory filings to the London Stock Market. Our primer on understanding the UK disclosure system can be found here. Remember that there is no equivalent of the 13F form for hedge funds in the UK and generally speaking hedge funds only have to disclose long positions that are greater than 3 percent of a company's outstanding equity. It's important to recognize that the UK disclosure system provides us with a distorted view of hedge fund holdings as large-cap holdings are rarely seen because they often do not breach the 3 percent threshold but investments in mid-cap and particularly small-cap companies show up prominently. Of course this information is still useful because when a hedge fund builds a large stake in a small or medium sized company, it demonstrates a great deal of commitment to the investment thesis as such positions can be difficult to exit at speed, particularly in a down market.
| Company | Symbol | Date | Shares | % of Equity |
| Inmarsat | ISAT | 01/07/2007 | 46001346 | 10.06 |
| | | 03/01/2008 | 50958170 | 11.14 |
| | | 14/05/2009 | 55810250 | 12.14 |
| | | 02/09/2009 | 59942059 | 13.04 |
| | | | | |
| The Evolution Group | EVG | 27/04/2009 | 11305306 | 5.03 |
| | | | | |
| Henderson Group | HGG | 31/10/2008 | 45098010 | 6.22 |
| | | | | |
| Proximangen Neuroscience | PRX | 20/03/2007 | 1520270 | 7.59 |
| | | 25/11/2008 | 3156723 | 14.63 |
| | | 24/06/2009 | 14849580 | 25.92 |
| | | | | |
| Oxford Catalysts Group | OCG | 16/11/2006 | 3106609 | 8.32 |
| | | 10/10/2007 | 5174586 | 12.76 |
| | | 25/01/2008 | 5309586 | 13.09 |
| | | 20/11/2008 | 10109586 | 16.95 |
| | | | | |
| Renewable Energy | REH | 15/07/2008 | 5633166 | 8.26 |
| | | | | |
| Afren | AFR | 15/04/2008 | 47208333 | 12.83 |
| | | 07/05/2009 | 82,208,333 | 11.53 |
| | | 29/05/2009 | 78,139,283 | 10.91 |
| | | | | |
| Heritage Oil | HOIL | 03/04/2008 | 18996540 | 7.45 |
| | | 22/06/2009 | 28776161 | 10.05 |
| | | | | |
| IP Group | IPO | 08/05/2007 | 24674785 | 9.99 |
| | | 04/02/2008 | 32924785 | 13.15 |
It's interesting that Lansdowne holds a big 13 percent chunk of Inmarsat (ISAT). ISAT provides global mobile and transportable broadband communication services to maritime, aeronautical and land mobile users. Many believe that activist hedge fund Harbinger Capital is likely to make a formal offer for Inmarsat anytime soon. Harbinger currently hold a 29 percent stake in the company as we detailed in our article on Harbinger's activist positions in the UK.
Renewable Energy is a position that Lansdowne share with Paul Tudor Jones' hedge fund Tudor BVI Global. (See our article on Tudor's holdings in the UK here). Renewable Energy Holdings owns and operates windfarms in Germany and Wales. The Company’s subsidiaries are also involved in developing wave power technology and as a by-product, desalinated water. Oxford Catalysts Group PLC has close links with the University of Oxford and is engaged in the design and development of catalysts and microchannel systems. It develops technology for the production of clean fuels from both conventional fossil fuels and renewable sources, such as biowaste. IP Group helps owners of intellectual property like universities to develop commercial ventures through the formation of long-term partnerships and the management of venture funds. They focus on early-stage United Kingdom technology and pharmaceutical companies.
The holdings in Herderson Group and Evolution Group provide support for the idea that Lansdowne believe in further recovery in the financial sector. Henderson Group Plc is a United Kingdom-based company engaged in providing investment management services. The Evolution Group through its subsidiaries is involved in investment banking and also provides private client investment management.
Both Afren and Heritage are independent companies involved in the exploration and production of oil and gas. Afren has an African focus while Heritage is involved in Africa, the Middle East, Russia and South Asia.
Proximagen Neuroscience plc is focused on developing drugs for the treatment of age-related neurodegenerative disorders, including Parkinson's disease and Alzheimer's disease.
If you're unfamiliar with our new series tracking UK positions, check out our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector and London based, GLC Ltd.
Hedge Fund Paulson & Co Buys Even More Cadbury (CBY)
Literally just yesterday we touched on the fact that hedge fund manager John Paulson is betting on the Cadbury (CBY) buyout by buying shares. Well, he has just bought even more. Paulson purchased 6,395,000 more shares at a price of 759.96 pence each. This brings his total securities exposure to 26,768,256 shares. As we touched on yesterday, Paulson also has 8,116,401 shares of exposure through CFD derivatives. The hedge fund now has an aggregate ownership stake of 2.54% of the company with 34,884,657 shares represented. Here are screenshots of the regulatory filings:
(click to enlarge)
(click to enlarge)Paulson & Co has now bought shares of CBY as the price heads higher, implying that they are confident that Cadbury will receive a higher bid from suitor Kraft Foods (KFT). As always we'll continue to monitor the situation. Stay tuned this coming week as we'll be starting the next leg of our hedge fund portfolio tracking series where we'll update the arbitrage heavy equity portfolio of John Paulson's firm and many other prominent hedge funds. In the mean time, you can read up on Paulson's big bet against the US dollar.
Wednesday, November 11, 2009
John Paulson's Latest Bet: Doubling Down On Cadbury (CBY)
John Paulson's hedge fund Paulson & Co has doubled down on their Cadbury (CBY) stake. According to UK disclosures, Paulson emphatically boosted his stake in Cadbury to 2.1% of the company as he purchased 14.8 million shares at a price of 759.59 pence each in the UK market and he now owns a total of 28.5 million shares. This means he bought 112 million pounds sterling (or $187 million) worth of shares. Cadbury of course was the recent subject of a bid from Kraft Foods (KFT) to take over the company. Paulson seems to be wagering that not only will a buyout happen, but it will come at a higher bid. Kraft's stock and cash offer was for 720p while Cadbury was trading around 763p. Needless to say, it appears many besides Paulson think that given Cadbury's rejection of the initial bid, a higher bid is inevitable. We note that Paulson & Co is not the only prominent hedge fund in this play as Eric Mindich's Eton Park Capital had been buying shares in September for 800 pence each.
While hedge fund Paulson & Co has been thrust into the spotlight over the past 2 years for their bet against subprime or their more recent big gold purchase, many seem to forget or overlook the fact that Paulson's equity strategy involves merger arbitrage and this type of play is right up his alley. While we cannot verify that Paulson & Co specifically has done this, it would be pretty safe to assume that like most funds pursuing this trade, he would go long Cadbury and then short Kraft. And, as FTAlphaville points out, "the short base in Kraft - a measure of how much of its total share pool is on loan - has risen by 45 per cent in the past week. Meanwhile, utilisation - the amount of stock available to borrow that has actually been borrowed - now stands at 4.2 per cent." Clearly, the merger-arb players are out in full force.
Interestingly enough, 1.49% of Paulson's ownership stake in Cadbury is represented by securities, while 0.59% of their ownership stake is represented by derivatives, and in particular, CFD's (contract for difference). We've previously examined what CFDs are as it is unique to the UK and hedge funds often use this derivative to help establish a position in a company. This primer of course goes right along with our introduction on how to track a hedge fund's UK positions. We're expanding our portfolio tracking coverage to include stakes held in other markets and many prominent hedge funds often hold positions in UK based companies. To see what some of the largest hedge funds are buying and selling in the UK, head to our most recent post covering Moore Capital Management, Louis Bacon's hedge fund firm.
In other notable activity, Paulson also recently invested $77.9 million in insurer Conseco (CNO). This purchase comes from 16.4 million common shares as well as warrants to purchase 5 million additional shares in a new offering that was announced October 14th that will dilute current shareholders. This gives Paulson & Co a 9.9% stake in the company.
So now we wait to see if Paulson can get that higher bid he is hoping for in his most recent play. For more on John Paulson and his hedge fund, we highly recommend checking out WSJ columnist Gregory Zuckerman's new book, The Greatest Trade Ever, where he had exclusive access to Paulson in order to pen the story behind his victorious subprime bet. And reportedly, Paulson is not necessarily happy with how the book turned out. You can read our book review here.
Taken from Google Finance,
Cadbury plc "formerly Cadbury Schweppes plc is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs. On May 7, 2008, it completed the demerger of the Americas Beverages business, which became Dr Pepper Snapple Group, Inc. (DPS) following the demerger."
Monday, November 2, 2009
David Einhorn Sells More Punch Taverns (LON: PUB)
A few weeks ago, the London Stock Exchange (LSE) news service announced that David Einhorn's hedge fund Greenlight Capital has reduced its position in Punch Taverns (LON: PUB) from a 3.7% ownership stake down to 2.57%. Unfortunately, this maneuver means that we will no longer be able to see his adjustments with this position as the LSE only requires hedge funds to report their positions in companies when they hold a 3% stake or greater. So, unless Einhorn re-ups his stake in Punch, we won't see anymore movements in this regard. We don't think that will happen as Einhorn has been selling down this position over time. This has been a bit of a crowded trade per se in hedge fund land as noted colleagues D.E. Shaw & Co and Citadel Investment Group also had stakes in Punch. We simply wanted to detail this information for Market Folly readers that enjoy updates regarding various hedge funds' UK positions.
We have tracked Einhorn extensively over the past few weeks at his various investment conference appearances. You can read over his Value Investing Congress presentation where he further presented the case for gold, as well as in his appearance at the Great Investors' Best Ideas symposium. Additionally, Einhorn gave us an update to some of his portfolio positions in his most recent investor letter. All of the above provide great reading and we highly recommend checking them out.
Taken from Google Finance, Punch Taverns is "a pub company in the United Kingdom, with over 8,400 pubs across its leased and managed portfolio. The Company is engaged in the trading activities in the operation of public houses either under the leased model or as directly managed by the Company. The leased model involves the granting of leases to tenants who operate the pub as their own business, paying rent to the Company, purchasing beer and other drinks from it and entering into profit sharing arrangements for income from leisure machines. Pubs that are directly managed involve the employment of a manager to operate each managed pub and the Group receives all revenues generated by the pub and is responsible for costs."
Lastly, make sure to also check out these other resources from Einhorn's Greenlight Capital:
- The Curse of the Triple-A (short the ratings agencies)
- Greenlight stores physical gold
