Friday, October 7, 2011

Corsair Capital's Investment Thesis on Shaw Group (SHAW)

Jay Petschek and Steven Major's $749 million hedge fund Corsair Capital recently sent their third quarter letter to investors and attached a write-up of their new position in Shaw Group (SHAW). Below you'll find their investment thesis.

The hedge fund bought SHAW as shares have tumbled due to the nuclear disaster in Japan. SHAW currently trades just under $22 per share and Corsair writes,

"We believe SHAW is worth $37-$43 per share and will trade near that level over the next year. Several catalysts will drive the stock higher including reporting a simplified and cash-rich balance sheet, executing a buyback worth 30% of the current market cap (the 2nd such program in calendar year 2011), and earnings growth in FY 2012."

They also believe that if those various catalysts do not result in the stock trading higher, Shaw Group could potentially be a compelling takeover target for competitors who could use stock to finance the acquisition.

Embedded below is the letter. Email readers please click to come read Corsair's thesis on Shaw Group:

For more on Corsair, we covered their past letter where they anticipated increased market volatility as well as their investment thesis on Innophos.

Odey Add to RSM Tenon Group Position

Crispin Odey's UK based hedge fund Odey Asset Management have been adding to their position in London listed RSM Tenon Group (LON: TNO). Back in June we reported that Odey had purchased 5% of RSM Tenon's outstanding shares.

Fast forward to the recent disclosures on September 26th and October 3rd and you see that Odey have increased their position to 6.92% of RSM Tenon Group's shares initially, and then even higher to 8.19% of the company. It's clear they fancy TNO shares at recent levels.

For more from this hedge fund, you can read Crispin Odey's latest market outlook that we posted yesterday as well.

Per Google Finance, RSM Tenon Group PLC "provides a range of professional and business services. The Company has five segments: audit, taxation and advisory; turnaround and corporate recovery; risk management; financial management, and specialist tax. It provides solutions to clients that range from individuals and entrepreneurially-led owner-managed businesses to corporations and public sector organizations. In December 30, 2009, the Company completed the acquisition of RSM Bentley Jennison. Its subsidiaries include RSM Tenon Limited, RSM Tenon Corporate Finance Limited, RSM Tenon Financial Services Limited and Premier Strategies Limited."

What We're Reading ~ 10/7/11

Brand new biography on Apple's Steve Jobs [Walter Isaacson]

The future of hedge fund capital raising [FINalternatives]

Bear markets in DowJones Industrial Average 1899 - present [World Beta]

Value investing checklist [Old School Value]

Checking in on technology/media/telecom [Research Puzzle]

On hunting for value now [Distressed Debt Investing]

Is Eddie Lampert changing strategy with Sears? [Peridot Capitalist]

Clearwater (CLW): The little spin-off that could [Value Investing Letter]

Salida Capital feels pain from commodity bets [Globe & Mail]

Hedge fund mixes Ayn Rand & behavioral psych [Marketwatch]

Profile on financial author Michael Lewis [NY Magazine]

Why you shouldn't be disappointed in iPhone 4S [SplatF]

Why you *should* be disappointed in Apple's new phone [Slate]

Amazon: the company that ate the world [BusinessWeek]

The future of venture capital [Fortune]

Hedge Fund Performance Numbers: September 2011 (Updated)

During the month of September, the S&P 500 was -7.0% and it is now -8.7% for 2011. Hedge funds didn't necessarily fare too much better as a whole. The Hennessee Hedge Fund Index declined -3.7% in September as hedge funds suffered their worst quarter since the fourth quarter of 2008. However, a few funds outperformed.

The following comes from individual hedge fund investor correspondence and HSBC's Private Bank data. ***Update 10/7/11: tons of hedge fund performance numbers added below:

Lee Ainslie's Maverick Capital: Maverick Fund $1 billion
-7.91% in Sept, -16.92% ytd

Andreas Halvorsen's Viking Global
: Equities III Fund $1.6 billion
-2.19% in Sept, +0.70% ytd

Paul Ruddock & Steven Heinz's Lansdowne Partners
: (UK Equity Fund: $8 billion)
-1.59% in September, -15.16% year-to-date

Crispin Odey: Odey European
: $2.3 billion
-3.43% in September, -17.8% ytd

Mark Kingdon's Kingdon Capital
: $2 billion
-7.99% in September, -18.73% ytd

Ricky Sandler's Eminence Capital
: $2.5 billion
-2.7% in Sept, -8.77% ytd

Curtis Macnguyen's Ivory Capital
: $2.3 billion
-3.24% in Sept, -6.57% ytd

Leon Cooperman's Omega Advisors
: $1 billion Overseas Partners
-7.58% in Sept, -12.36% ytd

Jim Simons' Renaissance Technologies
: Institutional Equities $240 million
+0.76% in Sept, +24.37% ytd

Ron Gutfleish's Elm Ridge Partners
: $2.4 billion
+1.5% in Sept, -2.84% ytd

David Einhorn's Greenlight Capital
: $7.2 billion
-0.76% in Sept, -6.16% ytd

Jeffrey Altman's Owl Creek
: $4.8 billion
-7.6% in Sept, -15.62% ytd

Richard Perry's Perry Partners International
: $4.9 billion
-2.43% in Sept, -7.18% ytd

Jamie Dinan's York Capital
: $2 billion
-4.74% in Sept, -9.06% ytd

Barton Biggs' Traxis Partners
: $547 million
-3.8% in Sept, -2.11% ytd

Clint Carlson's Carlson Capital: $2.8 billion Double Black Diamond Fund
-1.09% in Sept, -2.23% ytd

Alexander Roepers Atlantic Investment Management: $445 million
-9.36% in Sept, -14.16% ytd

Wayne Cooperman's Cobalt Capital: $1.3 billion
-3.82% in Sept, -3.72% ytd

John Thaler's JAT Capital
: $1.4 billion
-3.2% in September, +30.68% ytd

Dan Loeb's Third Point (Offshore Fund)
: $4.27 billion fund AUM
-3.5% in September, +0.2% year-to-date

Bill Ackman's Pershing Square Capital Management: $5.1 billion fund AUM, $8.8 billion firm AUM
-5.7% net in September, -15.8% year-to-date

John Paulson's Paulson & Co
Advantage Fund -6% in September, -28% ytd

Paul Tudor Jones' Tudor Investment Corp: $8.3 billion fund AUM
+4.9% in Sept, +5.45% ytd (BVI Global Fund)

Bruce Kovner's Caxton Associates: $6.8 billion fund AUM
+0.28% ytd through September 30th (Limited Fund ran by Andrew Law)

Louis Bacon's Moore Capital Management: $7.6 billion fund AUM
-1.64% ytd through September 29th

Moore Capital Management (Greg Coffey's Emerging Fund): $1.5 billion fund AUM
-1.32% in September, -7% ytd

Chris Pia's Pia Capital: $215 million
-7.16% in Sept, -14.84% ytd

Brevan Howard (Flagship Fund): $24.3 billion fund AUM
+12.98% ytd as of September 23rd (run by Alan Howard)

Jay Petschek & Steve Major's Corsair Capital ~ $749 million AUM
-8.1% in September, -9.5% year-to-date

Whitney Tilson's T2 Partners
-9.5% in September, -29.6% year-to-date

*** This post will be continually updated as new numbers come in

Thursday, October 6, 2011

Hedge Fund Manager Crispin Odey's Market Outlook

Odey Asset Management's founder Crispin Odey has released his most recent market outlook. Odey is a prominent UK fund manager and he believes that equities are attractive (yielding 5-6%) with earnings yields of 20-33%.

In particular, he singles out one stock he likes: BP (BP). We've highlighted in the past how David Einhorn's Greenlight Capital likes BP as well.

While Odey is constructive on equities, it should be noted that he has maintained this stance since before the most recent market turmoil. His previous commentary from back in May said that stockpicking is still working. So with the latest downturn, it seems he's gained even more conviction that equities are the right place to be but he's surely felt some pain along the way.

Below is Odey's latest commentary:

"Equities continue to trade badly, but this is no surprise. They have disappointed for 11 years; indeed most indices are where they were 15 years ago. However in a world where the geopolitical outlook is unresolvably bad, shareholders are not only being paid to be patient by high dividend yields but also pricing in a very high margin of safety.

The example I like is BP. When BP suffered from the Macondo rig disaster, the company's market capitalisation fell by $120 billion, the company set aside $30 billion in provisions and recently announced actual claims of about $5.5 billion. Has the share price recovered the missing $114.5 billion? Of course not. Presumably investors are pricing in more Macondos and, given that they actually cost just over $5billion each, they are expecting 20 such explosions. As an investor in the shares today this gives me a great deal of protection - a margin of error. It also convinces me that the stockmarket is a better historian than it is a forecaster or a mathematician.

So why are markets so depressed? Some European markets are down c. 27% this year. Firstly this is structural. Zero interest rates have an unusual effect in Europe. Compared to the Anglo-Saxon world, Continental European banks are funded through bonds and interbank lending, not deposits. Since interbank and bond borrowing rates have not fallen below 2%, corporate loans in Europe should be at 4.5% not at 2.5%. In fact corporate loan rates have failed to rise in Europe. Lending is therefore unprofitable. Banks are shrinking their loan books. The easiest loan books to shrink are the corporate loan books and that means rights issues for indebted companies as equity replaces debt. All this depresses equities, especially those with borrowings to roll.

The equity markets now act and behave like corporate bond markets. Equities yield 5-6% and many are on earnings yields of 20-33%. They are mouth-wateringly attractive because unlike debt they do not mature.

But the worries that look down on them from on high reflect the fact that whereas Continental European banks were not exposed to the excesses of America and the UK, they are over-exposed to the excesses of Southern Europe. At some point they will need recapitalising. Rather than dreading this, the default should lead to lending rates rising in Europe, even as banks are recapitalised.

Meanwhile this crisis has brought all shares down. It has brought down UK and US bank shares, despite the fact that since 2008, they have done much to improve their balance sheets. Loan to deposit ratios have fallen by 30% to around 120%, loan margins are up fivefold, provisions have risen sharply and, thanks to retained profits and rights issues, cash equity is up fourfold. They are all strong buys for me.

It may be confusing to find someone who believes that a crisis is on its way but is also happy to buy equities ahead of the crisis. My reason is that the worries have been there for so long, the causes are so obvious and the valuations are so cheap that this is a case of buying early. For me the crisis will bring resolution and with it higher prices.

Little wonder that volumes have been exceptionally light. Despite all of this volatility the only question that clients have been asking us is 'When should we buy the market?'

In the short term everything points to the fourth quarter of this year being strong in the USA. There is a restocking cycle taking place as the effects of the tsunami recede. Quantitative 'oil' easing and commodity price falls are helping consumption growth. The fall in bond yields is feeding through to refinancing of existing mortgages that could add 1.3% to GNP.

So yet again we may be entering a period when markets do not get a Greek default and the US economy strengthens. Cyclicals which have all been sold off will rally and banks, which have led the market down, will catch a bid.

I feel a bit like Sarah Bernhardt who said 'I eat myself to feed my work.' 31st August 2011"

And for more euro-centric commentary, head to the biggest fears of 15 European portfolio managers.

Wednesday, October 5, 2011

Craig Perry & Erez Kalir's Sabretooth Capital Trim Pain Therapeutics (PTIE) Stake

Craig Perry and Erez Kalir's hedge fund Sabretooth Capital just filed a Form 4 with the SEC regarding shares of Pain Therapeutics (PTIE). Per the filing, they disclose that they sold 382,000 shares of PTIE on October 3rd & 4th, with the bulk of the sale coming at a price of $4.5025.

After their sales, Sabretooth still owns 4,263,076 shares of Pain Therapeutics. As such, they've only reduced their position by around 8%. Shares of PTIE currently trade around $4.40.

Sabretooth Capital Background

Perry and Kalir co-founded Sabretooth Capital in March 2009 with $65 million in seed money from Tiger Management's Julian Robertson. As of mid-2011, they had raised around $700 million. Sabretooth returned 26.5% in 2009 and just over 14% for 2010.

In the past we've covered Erez Kalir's presentation on MBIA (MBI) from the Ira Sohn Conference. Sabretooth is a multi-strategy firm and starts by analyzing top down macro trends and then selects individual securities from bottom-up fundamental analysis.

Prior to founding their firm, Perry was a distressed debt analyst for King Street Capital and earned his economics degree from Princeton. Kalir previously worked at Eton Park Capital and earned an MSc in biology from the University of Oxford and a degree in literature from Stanford University.

Both Perry and Kalir were featured in Institutional Investor's "2011 hedge fund rising stars." And according to II, they named their fund Sabretooth after an extinct animal because they wanted to imitate the 'dinosaurs' of the hedge fund industry (like Robertson) who returned greater than 20% annualized.

Pain Therapeutics Company Background

Per Google Finance, Pain Therapeutics is "a biopharmaceutical company that develops drugs. The Company has four drug candidates in clinical programs, including REMOXY, abuse-resistant hydromorphone, abuse-resistant hydrocodone and a radio-labeled monoclonal antibody to treat metastatic melanoma. It is also working on a new treatment for patients with hemophilia. It has collaboration agreement with King Pharmaceuticals, Inc. (King) develops and commercializes REMOXY and other opioid painkillers."

John Paulson Sells Some American Capital (ACAS)

John Paulson's hedge fund Paulson & Co just filed a Form 4 with the SEC regarding transactions in American Capital (ACAS). Per the filing, Paulson's various hedge funds sold a cumulative 4,350,342 shares of American Capital.

The majority of the sales came at prices of $7.74, $7.27, $7.09, and $6.11. Paulson's various hedge funds were selling as early as September 27th and as recently as October 4th. Shares currently trade around $6.51. While this seems like a lot, keep in mind that at the end of the second quarter, Paulson owned over 43 million shares of ACAS.

Paulson has had a rough year his Advantage Fund is -28% for the year as noted in our hedge fund performance numbers update.

Per Google Finance, American Capital is "an equity firm and global asset manager. It invests in private equity, private debt, private real estate securities and other investments, technology investments, special situation investments, alternative asset funds managed by it and structured finance investments. It invests in senior and mezzanine debt and equity in buyouts of private companies sponsored by it (American Capital One-Stop Buyouts) or sponsored by other private equity funds (Private Equity Buyouts) and provide capital directly to early-stage and mature private and small public companies."

For some of our past coverage on this manager, head to Paulson on risk arbitrage.

Tuesday, October 4, 2011

Steve Mandel's Lone Pine Capital Adds to Oceaneering (OII) Position

Steve Mandel's hedge fund Lone Pine Capital recently filed a 13G with the SEC regarding shares of Oceaneering (OII).

Lone Pine disclosed a 5.6% ownership stake in Oceaneering with 6,043,228 shares. They passed the 5% ownership threshold level required for disclosure on September 22nd.

This means they've increased their position size by a massive 1,149%. At the end of the second quarter, Mandel's firm only owned 483,693 shares.

Lone Pine Capital has done some buying during the recent sell-off. Last week we also revealed Lone Pine's new stake in Williams Sonoma (WSM). In other recent hedge fund positioning, John Thaler's firm has also been active in the markets recently. See what his JAT Capital has been buying.

Per Google Finance, Oceaneering is "an oilfield provider of engineered services and products to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology, the Company also serves the defense and aerospace industries. It is an underwater services contractor. The services and products the Company provides to the oil and gas industry include remotely operated vehicles (ROVs), built-to-order specialty subsea hardware, engineering and project management, subsea intervention services, including manned diving, nondestructive testing and inspection, and mobile offshore production systems."

John Thaler's JAT Capital Buys More Molycorp (MCP)

John Thaler's hedge fund JAT Capital has been busy buying during the recent market turmoil. In a 13G filed with the SEC, JAT disclosed a 6.0% ownership stake in Molycorp (MCP) with 5,067,129 shares as of September 30th.

This marks a 226% increase in their position size as they only owned 1.5 million shares at the end of the second quarter. Last week we detailed how JAT Capital bought Netflix in size as well. It will be interesting to see if anymore filings from Thaler's fund come through. As of September 16th, JAT's Offshore Fund was up 37.29% for the year.

Per Google Finance, Molycorp is "a rare earth oxide (REO) producer in the Western hemisphere and owns a rare earth project outside of China. The Company is in development stage. The Company focuses to be an integrated producer of rare earth products, including oxides, metals, alloys and magnets. The Company’s rare earth products are used in a range of applications, including clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems, and advanced water treatment technology for use in industrial, military and outdoor recreation applications."

Dan Loeb's Third Point Reduces Equity Exposure For Fifth Straight Month

Dan Loeb's Third Point Offshore Fund finished -3.5% for September compared to -7% for the S&P 500. Third Point sits at 0.2% year-to-date. The Offshore Fund manages just over $4 billion and has seen annualized returns of 17.6% since 1996.

Third Point Reduces Equity Exposure For Fifth Straight Month

In what has been an ongoing theme, Third Point reduced equity exposure yet again in September. Earlier in the year, we highlighted Loeb's cautious stance as he began to reduce exposure. At the end of September, Third Point was only 15.6% net long equities, compared to 17.7% net long a month prior.

Obviously such positioning has led to Third Point's outperformance. Geographically, Third Point has been net long the Americas and net short the EMEA and Asia regions. Risk management has been the name of the game for the fund this year.

In September, Loeb's largest net long exposure came in the technology sector at 8.9% and energy at 3.4%. Third Point is net short industrials at -1.3% and utilities at -0.5%.

In credit, Third Point is 15.6% net long, down from 18.5% net long in August. They continue to have the largest exposure to asset backed securities and remain short government issues.

Third Point's Top Positions

1. Yahoo! (YHOO)
2. Gold
3. Delphi
4. El Paso (EP)
5. Technicolor (multiple securities owned)

We detailed Loeb's activist investment in Yahoo when he first took the position. He also presented his bull case for YHOO at the Delivering Alpha conference.

Third Point's biggest winners last month were commodity short A, energy short basket, SanDisk (SNDK), auto suppliers short basket, and short B. Obviously they don't name their short positions but it's no surprise that many shorts were their top percentage gainers. The hedge fund's biggest losing positions last month were gold, Mosaic (MOS), Delphi, CVR Energy (CVI), and Yahoo! (YHOO).

Assuming Third Point still owns Mosaic, you have an opportunity to purchase shares at prices lower than the hedge fund. They originally bought MOS at $65 on the Cargill family secondary and then subsequently bought the dip in June (presumably around $60). MOS shares now trade around $49.