Friday, April 19, 2013

Nelson Peltz's Trian Fund Management Discloses Mondelez & PepsiCo Stakes

Nelson Peltz's investment firm Trian Fund Management today filed an amended 13F filing with the SEC for the fourth quarter of 2012.  This filing, detailing positions as of December 31st, 2012 now shows that Trian had positions in Mondelez International (MDLZ) and PepsiCo (PEP) at the end of the year.

According to the filing, Trian's position in MDLZ totaled 19,415,193 shares at the time.  Their stake in PEP consisted of 3,932,663 shares.

Mondelez (MDLZ) Stake

It is extremely likely that this is not a new position for Trian and here's why:  Mondelez is a product of the Kraft split up into Kraft Foods (KRFT) and MDLZ in Q4.  Peltz's firm had been an owner of the old Kraft entity (old ticker KFT) back in the third quarter of 2012 per their 13F from that quarter.  KFT split up into KRFT and MDLZ on October 1st, 2012.

Trian's original 13F filing from the end of December did not show a stake in either entity, so many assumed that Trian had sold completely out of anything Kraft related in the fourth quarter.  However, their 13F also indicated that "confidential information has been omitted" from the filing and was filed separately with the SEC.

Fast forward to today when they file an amended 13F and all of a sudden a stake in Mondelez shows up again.  It then becomes clear that MDLZ (as well as PEP) were the confidential positions.  

As such, Trian most likely never sold MDLZ after they received shares from the Kraft spin-off and we assume they just didn't disclose the stake in their public 13F, but filed the position separately with the SEC.  While there's a chance they could have just bought shares in the open market post-spin, that seems less likely given their past ownership of the old Kraft entity pre-spin.

This week, we also highlighted that Bill Ackman's Pershing Square also filed an amended 13F from Q4 and also revealed a Mondelez position.  Also, hedge fund Scout Capital reported a large MDLZ stake at that time as well.

New PepsiCo (PEP) Stake: Seeking to Merge Companies?

Trian's position in Pepsi, on the other hand, is a brand new stake as they previously did not own any shares.  The Daily Telegraph has speculated that Peltz might potentially have plans to attempt to merge the two companies together.

At the same time, the piece mentions that Peltz could pursue activism with PepsiCo alone, potentially pushing them to split-up just like the old Kraft entity did. 

At the time the Telegraph piece was originally published, it was rumored that Trian had taken stakes in the companies.  And today, we get confirmation of those rumors via SEC filing.  We'll have to wait and see if Peltz has any activist tricks up his sleeve.

Kyle Bass on MBS, Housing & Gold: Bloomberg Interview

We wanted to quickly highlight Kyle Bass' appearance on Bloomberg TV from last week for some of his comments on housing, the mortgage-backed securities market, gold and other topics.  The Hayman Capital founder also talked about Japan, his longstanding topic of interest.

On residential mortgage-backed securities: “That investment is working…The various concentric circles surrounding housing not getting worse, which is how we think about it. We are not expecting it to get materially better, just not to get worse. The services sectors, the new mortgage insurance companies, the things that are actually asymmetric investments you can make around the housing market not worsening are where the majority of our long side of our portfolio is.”

Just yesterday, we highlighted a piece from hedge fund Prologue Capital on MBS and the housing market which featured bullish comments on the industry as they see a recovery happening.

Bass mentioned playing mortgage servicers and these related bets have been popular amongst hedgies.  Our Hedge Fund Wisdom newsletter in the past has flagged that many funds have been active in shares of Ocwen Financial (OCN) and the like.

Turning to other positions Bass might potentially be involved with, Hayman disclosed an ownership stake in Realogy (RLGY) at the end of the fourth quarter.  The residential brokerage house completed its IPO during Q4.

On the future of Fannie and Freddie: “I have no clue…We decided to just exit, thinking about them when you meet with both sides of the aisle, they both want a bullet in their head. Typically when that happens you get a bullet in your head. The second thing we were thinking about, if you remember there was a proposal to start raising the g-fees. There is a way for the U.S. Treasury to get paid back all of the money they've pumped into Fannie and Freddie if they start raising g-fees."

On gold: “We have always had a position in gold. When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other then you should maintain a position.”

Embedded below is Bass' latest Bloomberg TV interview where he talks about many other topics:

For more on this hedge fund manager, we've also posted up Bass' short of Japanese Government Bonds.

What We're Reading ~ Hedge Fund Links 4/19/13

Summary of Viking Global's Q1 letter [Institutional Investor's Alpha]

Breaking into the hedge fund world is harder than before [The Economist]

SEC hedge fund ad rule no closer to finalization [Marketwatch]

Japan as hedge fund opportunity [AllAboutAlpha]

Dan Loeb simultaneously solicits, betrays pension funds [Rolling Stone]

Paulson's Advantage fund stung by plunge in gold [Reuters]

Scalable strategies should follow long only equities example and cut fees [COO Connect]

Global hedge fund assets top $2.2 trillion as big firms dominate [BCA Research]

Ranking the best sell-side stockpickers [WSJ]

Och-Ziff nets $2 billion trade [WSJ]

JANA Partners statement at Agrium annual meeting [Yahoo Finance]

Tiger Management partners with Delaware firm [Evestment]

Energy hedge funds caught out in the cold on natural gas bet [WSJ]

Onetime hedge fund giant Stark Investments winding down [JS Online]

Bloomberg integrates live Twitter feeds with its financial platform [Bloomberg]

Meet Britain's wealthiest hedge fund chiefs [The Guardian]

Global private equity report 2013 [Bain & Company]

Thursday, April 18, 2013

Prologue Capital on the US Housing & MBS Markets

Today we present some interesting commentary on the mortgage backed security (MBS) and US housing markets from hedge fund Prologue Capital.  Prologue is a $2.1 billion global macro fixed income manager that focuses on inflation-linked investments. 

Their latest commentary features thoughts from portfolio manager Noah Estrin and Chief Economist Tomas Jelf and they believe that the housing market will shift from a headwind to a tailwind.

Prologue writes that,

"A modest increase in home prices from current levels will translate into a large swath of credit impaired borrowers being able to refinance, significantly increasing mortgage supply. However, the doves at the Fed will be reluctant to step away from the assistance they are providing the economy until they are 100% certain that the recovery can stand on its own."

Prologue sees housing starts "increasing by around 60% to 1.5 million in the next 2-3 years, which brings it in line with natural rate of household formation."  They also highlight a shift in housing-related employment which is growing at an accelerated pace.

You can read the entirety of their thoughts below, but suffice it to say that they feel the "positives outweigh the negatives" in the US housing market and that Spring has sprung.

Embedded below is Prologue Capital's commentary on the MBS market and US housing market:

East Coast's Q1 Letter: How an Idea Goes Through Their Investment Process

Christopher Begg's East Coast Asset Management is out with their first quarter letter for 2012.  Entitled "The Art of Fugue," the letter details how an opportunity goes through their investment process and they also provide an update on their portfolio.

Investment process is always a work in progress, so it's interesting to hear how other investors refine this and what they incorporate into their approach.  On East Coast's process, Begg writes,

"Once an investment idea is sourced, the idea is put through an initial checklist and if it has merit it will ultimately be categorized as a compounder, a transformation, or a workout. Next, the investment idea will go through two stages of due diligence – two individual fugues, both in six parts. In each six-part stage we always begin and resolve with our subject, or royal theme, which is a perspective on compounding."

We've highlighted East Coast's investment process before, but their latest letter breaks down the six things they look at (in search of quality of the business):

- Competitive advantage
- Pricing power
- Market opportunity
- Capital itensity
- Economics
- Management

Then eventually they look to answer 4 questions:

1. Does the investment have an attractive expected rate of return? (IRR)
2. Does the investment have a sufficient margin of safety?
3. Do we understand the critical data points that will drive the success and intrinsic value of the business?
4. Do we understand first cause, or why the investment may be mispriced?

Begg then applies the above to a new holding they initiated in the quarter so you can follow along with their investment process to see how they think about everything.  It's certainly a useful exercise and some of you may be able to guess the position.  Embedded below is East Coast's Q1 letter:

For more on investment process, be sure to head to East Coast's letter on transformation investments.

Blum Capital Partners Reduce Position in Career Education

Richard Blum's hedge fund firm Blum Capital Partners has filed an amended 13D and various Form 4's with the SEC over the past few days regarding their stake in Career Education Corp (CECO).  According to the filings, Blum has disclosed a 16.1% ownership stake in CECO with 10,803,834 shares.

This marks a decrease of around 19% in their position size since the end of 2012 when they owned over 13.3 million shares.  The latest 13D amendment was made due to portfolio activity on April 12th.

Looking at Blum's Form 4's, we see that they've been selling from April 4th through the 13th at prices ranging from $2.1 to $2.18.

It's also worth mentioning that Blum owns another large stake in the for-profit education space: ITT Educational (ESI).  As of the end of 2012, this was an even larger position for them, though they were out selling some shares in the fourth quarter according to their last 13F filed with the SEC.

The for-profit education sector has been under scrutiny from some time by regulators and has been shorted by numerous hedge funds as student loan debt has grown rapidly over the past few years.  Back in 2010, Steve Eisman laid out a bearish view on the sector in his presentation: subprime goes to college.

Per Google Finance, "Career Education Corporation ((CEC) through colleges, schools and universities that are part of the CEC family, offers education to a diverse student population of approximately 100,000 students in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. The Company has approximately 90 campuses that serve these students are located throughout the United States and in France, the United Kingdom and Monaco. It offers doctoral, master’s, bachelor’s and associate degrees, diploma and certificate programs. It institutions include, among others, American InterContinental University (AIU); Brooks Institute; Colorado Technical University (CTU); Harrington College of Design; INSEEC Group (INSEEC) Schools; International University of Monaco (IUM); International Academy of Design & Technology (IADT); Le Cordon Bleu North America (LCB), and Sanford-Brown Institutes and Colleges."

Wednesday, April 17, 2013

What We're Reading ~ Analytical Links 4/17/13

A new site aggregating conference call transcripts []

Intel (INTC): Anatomy of a tech value trap [Reformed Broker]

Why equity long/short investing is not dead [HFIntelligence]

Sticking to a plan in the face of emotional volatility [Abnormal Returns]

Rare interview with Liberty Media's (LMCA) John Malone [CNBC]

Jeremy Grantham on how to play resource scarcity []

Aereo has TV networks circling the wagons [NYTimes]

The death of value investing [Business Insider]

Thermo Fisher (TMO) nears deal for Life Technologies (LIFE) [Reuters]

On Dish Network's (DISH) bid for Sprint Nextel (S) [Bloomberg]

Interview with Markel's (MKL) Tom Gayner [GuruFocus]

Diabetes in Mexico: eating themselves to death [The Economist]

Top 5 websites capturing larger share of real estate traffic [Inman]

As big investors emerge, Bitcoin gets ready for close-up [Dealbook]

Ken Heebner's Interview on Consuelo Mack's WealthTrack

Ken Heebner is the founder of Capital Growth Management and he manages the CGM Focus Fund, among other actively managed mutual funds.  He has put up big numbers some years, but he also was hit big during the financial crisis.  However, his long-term numbers beat the market (10 year and 15 year performance) and put him in the top 1% of his peers.

He sat down with Consuelo Mack on WealthTrack and talked about the themes he's seeing these days and how he's playing them:

Resurgence In Housing = Big Theme

Heebner's big theme in the US is housing.  He says, "I think it's the single most important factor causing economic activity and the stock market to surprise on the upside."

He notes that after a large drawdown in prices during the financial crisis, housing starts declined as homebuilders cut back.  As such, demand has grown while supply was largely stagnant.  As such, supply needs to catch up with demand and home prices can head higher until supply catches up.

As a result of this, Heebner also sees consumer confidence rising due to improved personal balance sheets which can obviously translate into increased consumer spending.

However, he doesn't necessarily think homebuilder stocks offer the best value as they're well off their lows and the general perception is more favorable for the industry nowadays.  The time to really load up on shares was when the majority of people were pessimistic.

His Outlook For Banks

Other themes he's tracking include industry consolidation and corporate profit margins.

He points out that 5 major banks have almost 50% of deposits and this consolidation hasn't been seen in quite some time.  Additionally, Heebner highlights the low P/E ratios many banks trade it.  He also feels that business opportunities for banks are presenting themselves and they should have some solid pricing power.

In particular, he highlights Morgan Stanley (MS) and Goldman Sachs (GS), noting that they can see P/E multiple expansion and that half of the earnings from MS come from wealth management.  He also points out the negative sentiment surrounding MS in particular.  We've highlighted Dan Loeb and Third Point's pitch on Morgan Stanley as well.

Of the industry, Heebner says, ""I look for situations where I think the fundamentals are a lot better than everyone else thinks they are.  I wish there were more of them.  I'd say the big investment banks are in that category today."

On Running a Concentrated Portfolio & Cutting Losses Quickly

Heebner likes to focus on companies where the risk/reward is very skewed in his favor.  While there's a lot of companies he looks at possibly owning, he says he wants to place the most capital on the companies he feels best about.  He asks, "Why hold the ones that aren't as good?  The side effect is volatility that exceeds everyone else's portfolio."

A lot has been made of Heebner's high turnover.  This, he says, is partly due to the fact that he likes to cut losses quickly.  Many great investors over time have highlighted the importance of managing losses.

Embedded below is the video of Ken Heebner's interview with Consuelo Mack on WealthTrack:

Steve Mandel's Lone Pine Capital Raises Lululemon (LULU) Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of Lululemon Athletica (LULU).  Per the filing, Lone Pine has disclosed a 5.01% ownership stake in LULU with 5,632,431 shares.  This marks almost a 17% increase in their position size since the end of 2012. 

The 13G was required due to portfolio activity on April 5th.  Recently, Lululemon has seen a bit of controversy as customers were complaining about yoga pants that were too-sheer (i.e. they were see-through or somewhat transparent).  Shares dropped from $70 down to as low as $61.60 on the news but have since rebounded back to $70.  It's likely Lone Pine was buying somewhere in this sell-off.

Steve Mandel was recently listed as one of the top 10 highest paid hedge fund managers of 2012.

Per Google Finance, Lululemon Athletica "manufactures, distributes and sells technical athletics and yoga apparel."

For more on this hedge fund, we've highlighted some of Lone Pine's other portfolio activity.

Odey Asset Management Reveals Epistem Holdings Stake

Crispin Odey's UK firm Odey Asset Management has disclosed a new position in London listed Epistem Holdings (LON:  EHP). Due to trading on the 12th of April, Odey hold 5.02% of Epistem's voting rights. It appears that the Odey UK Absolutue Return Fund, managed by James Hanbury, is the main holder of the position with 4.2% of voting rights. 

Per Google Finance - "Epistem Holdings Plc is a holding company. The Company is engaged in  provision of services to the biotechnology and pharmaceutical industries, covering pre-clinical  testing and gene biomarker and diagnostic services and the development of novel therapeutics for  partner companies. The trading activity of the Company is principally undertaken in the subsidiary  undertaking, Epistem Limited. The Company operates in three segments: Contract Research  Services, Personalized Medicine and Novel Therapies. Contract Research Services provides pre-  clinical testing services. Personalized Medicine specializes in molecular measures of biological effect  and point of care molecular diagnostic testing. Novel Therapies is discovering key regulators of  epithelial stem cells."

You can read about other recent portfolio activity from Odey here.

ValueAct Capital Discloses Invensys Position

Highly respected activist, Jeffrey Ubben’s ValueAct Capital, has disclosed a new position in London listed Invensys (LON: ISTS).  Due to trading on April 9th, ValueAct hold 7% of Invensys’s voting rights. 

Other notable investors in this company include Marathon Asset Management, who have a position in Invensys of 4.94% which they disclosed back in March 2012. 

Per Google Finance – “Invensys plc is a global technology company. The Company operates in  three divisions: Invensys Operations Management, Invensys Rail and Invensys Controls. Invensys  Operations Management, which is a technology, software and consulting business that creates and  applies technologies to enable the operation of industrial and commercial operations, such as oil  refineries, fossil fuel and nuclear power plants, petrochemical works and other manufacturing sites.  Invensys Rail, which provides software-based signalling, communication and control systems that  enable the operation of trains in mainline and mass transit networks worldwide. Invensys Controls,  which designs, engineers and manufactures products, components, systems and services used in  appliances, heating, air conditioning/cooling and refrigeration products across a range of industries  in residential and commercial markets. In November 2012, the Company had sold its rail business to  Siemens AG.”

For more from this hedge fund, late last year we posted up Jeff Ubben's presentation on Moody's and CBRE Group.

Tuesday, April 16, 2013

Free 35 Page Report on Family Office Investors (PDF)

Richard C. Wilson, CEO of the Family Offices Group has created a 35 page report on family office investors that you can download for free here:

Family Offices are a growing investor segment for all types of alternative investment funds including hedge funds.  At the same time, both single and multi-family offices are typically very private and relatively hard to learn about as a investor base.  Our educational report helps you learn the fundamentals of family offices for free, to help spread education and understanding of this area.  Right now family offices are being started on a daily basis all over the world and in 10 years from now the industry will be three times as large in terms of assets under management.  It is important for every fund manager to gain an understanding of this investor type now, before they are left behind on this global trend.

As you may already know, the Family Offices Group is the largest association of family office professionals in the world with 60,000 global members.  They provide live events, family office data (, a bestselling book, and their free to download family office report.

Monday, April 15, 2013

Bill Ackman's Pershing Square Discloses Mondelez Position

Bill Ackman's hedge fund firm Pershing Square Capital Management just filed an amended 13F with the SEC regarding their portfolio as of the end of 2012.  In it, they add a new holding entry: Mondelez International (MDLZ). 

As of December 31st, Pershing Square reports owning 5,978,214 shares.  This is a small position (worth around $179 million) compared to the rest of Pershing's portfolio, but is still worth mentioning as it's a new disclosure.

Last year, Kraft (former ticker KFT) split up into Kraft Foods (new ticker KRFT) and Mondelez International (new ticker MDLZ).  KRFT houses Kraft's North American grocery business and is seen as a steady cashflow generating, dividend income-type stock.  MDLZ, on the other hand, is seen as the growth engine, housing the snacks business with international exposure.

Pershing Square has not disclosed a position in KRFT and only has revealed their stake in the post-split shares of MDLZ.

Ackman Owned Kraft in the Past

This will not be the first time Ackman's hedge fund has had exposure to a Kraft entity.  In fact, he even published a presentation on Kraft back in 2010.  Interestingly, Pershing Square owned Kraft shares before the split but sold their entire stake in the former Kraft entity in the second quarter of 2012.   Ackman dumped shares sometime between March 30th and June 30th.

What's unclear, however, is if Ackman re-bought into the old Kraft entity before the split and received his MDLZ shares that way, or if he simply bought shares in the open market after the split was complete.  Regardless, he owned MDLZ shares at the end of 2012 and has just now revealed this via an amended 13F filing.

Other Hedge Funds That Own Mondelez

After the Kraft split, we've seen some hedge funds take large positions in the emerging markets-focused snack maker.  At the end of 2012, James Crichton and Adam Weiss's hedge fund Scout Capital was one of the largest institutional owners of MDLZ with over 27.5 million shares.  This was their largest position at the time, though there's no way to know if it still is.

Additionally, Nelson Peltz's firm Trian Fund Management has reportedly taken a stake in Mondelez (as well as PepsiCo) on speculation that he was possibly trying to merge the two entities together.  The Daily Telegraph reported that Peltz had spent $2 billion on shares of both companies.

However, it is definitely worth mentioning that back in the fourth quarter of 2012, Peltz's investment vehicle had sold completely out of its stake in MDLZ (as they did not disclose a position in their Q4 13F filing).  So while Peltz could have reversed course since then, he did not report ownership of a MDLZ stake as of December 31st.

About Mondelez

Per Google Finance, Mondelez is "is a maker of chocolate, biscuits, gum, candy, coffee and powdered beverages. The Company consists of the global snacking and food brands. Mondelez International's portfolio includes several brands, such as Cadbury and Milka chocolate, Jacobs coffee, LU, Nabisco and Oreo biscuits, Tang powdered beverages and Trident gums. The Company’s products include chocolates, cookies, gums, beverages and crackers. Alpen Gold is a chocolate brand in Russia. Alpen Gold is available in chocolate bars, boxed chocolates and creamy, mouth-watering pralines. Its markets include Poland, Russia and Ukraine. Bubbaloo is a gum brand sold in more than 25 countries and three different continents, including India, Mexico, Portugal and Spain. Belvita are breakfast biscuits made with wholegrain, cereals and fiber. It is sold in Belgium, France, Netherlands, United Kingdom and the United States."

For more on Pershing Square, head to our coverage of Bill Ackman's other positions.

Jeff Saut on Equity Investor Sentiment and Gold: Weekly Commentary

Market strategist Jeff Saut's weekly commentary focuses on his awe of the stock market rally.  He writes,

"The “buying stampede” is at a legendary 70 sessions and quite frankly I have never seen anything like  this in 42 years in this business and more than 50 years of watching the markets."

Also worth pointing out is the fact that Saut met with hundreds of individual investors last week and found that most find the stock market's rally as 'artificial' and think another crash will come because of it (equity mutual fund inflows have increased this year though).

Even more intriguing, however, is the latest sentiment survey from the American Association of Individual Investors which shows a huge drop in sentiment (from 35% bullish down to 19% bullish), even while the market hits new all-time highs.  Typically, you see the opposite (investors become bullish during peaks and bearish during troughs).

Saut also opines a bit on gold after it's seen quite a drastic fall over the past few days which you can read in his embedded below commentary:

You can download a .pdf copy here.

For more from this strategist, check out his previous commentary on how we're due for a pullback.

Top 10 Highest Paid Hedge Fund Managers of 2012

Institutional Investor's Alpha is out with their annual ranking of top earning hedge fund managers.  Here's the list:

Top 10 Highest-Paid Hedge Fund Managers of 2012

1. David Tepper (Appaloosa Management): $2.2 billion
2. Ray Dalio (Bridgewater Associates): $1.7 b
3. Steven Cohen (SAC Capital): $1.4 b
4. Jim Simons (Renaissance Technologies): $1.1 b
5. Ken Griffin (Citadel): $900 million
6. Eddie Lampert (ESL Investments): $750 m
7. Stephen Mandel (Lone Pine Capital): $580 m
8. Leon Cooperman (Omega Advisors): $560 m
9. David Shaw (D.E. Shaw): $530 m
10. Dan Loeb (Third Point): $380 m

Tepper finds himself atop the list after a solid 2012, returning around 30% after fees.  Lee Cooperman's firm also turned in great numbers last year (up around 28%) as did Ken Griffin, whose Citadel returned over 25%.

Of the managers listed, over half make a solid portion of their investments via equity strategies (though Appaloosa also focuses on distressed and Third Point also dabbles in mortgages).  Two managers listed are primarily quant funds (RenTec, D.E. Shaw).  Eddie Lampert's earnings are largely tied to Sears (which his hedge fund owns a large stake in) and shares rallied in 2012.

II Alpha ranks all the way up to the top 25 managers and you can view the full list here.