Jeff Shen on Asian Markets: Sohn San Francisco Conference 2018

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Jeff Shen of BlackRock who talked about the Asian market.


Jeff Shen's Sohn San Francisco Presentation: Asian Market

Co-CIO, Systematic Active Equity at BlackRock.  Talked about China capital markets more generally.  China is second largest equity market in the world (after US).  It is very liquid but a lot more retail investors versus more developed equity markets.  ~85% of trading volume comes from retail investors.

China equity markets are opening up to a broader investor base given MSCI decision to include Chinese companies.

Uses machine learning and big data to generate conclusions about the Asian market.  Big data + big market = big alpha.


Be sure to check out the rest of the Sohn San Francisco 2018 presentations.

Mark McKenna Long Cigna: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Mark McKenna of BlackRock who pitched a long of Cigna (CI).


Mark McKenna's Capitalize For Kids Presentation: Long Cigna

•    It is a vertical merger
o    Vertical integration. Reduce costs, increased access, integrate an experience, intensify experience
o    Transformative experience
o    Old media telco -> phone, PC, TV, Content all different and silo’do    Current media telco -> content, TV, phone, network, PC, content, all completely integrated, leading to a superior experience
•    Early days in healthcare transformation that should follow media’s lead
o    Liquid, large cap, 40-80% upside in NTM
o    Healthcare today: Everything is disparate. Doctor, pharmacy, MRI, Hospital, etc all silo’d
o    Healthcare going forward: all integrated and information shared etc
•    Cigna, Express Scripts deal. Additive thru integration
•    Cigna - health Network
o    Dentist, Doctor, Hospital, MRI - Medical Expertise
o    Cigna doesn’t take risk, but for a self-insuring company, they manage the rest of the networks, management, etc
•    Express Scripts - PBM network
o    Formulary
o    Pharmacy

•    No communications between the two for 30-60 days
•    Integrates experience
o    Expansive data set
o    Fully aligned incentives (Shouldn’t be writing more scripts)
o    Increased patient touchpoints and deeper health interventions
o    Total cost of care reduction and better patient outcomes
•    Value creative for Cigna shareholders
o    Cigna EPS 2021 from $18 —> $2.50 post deal
o    Mostly cost synergies, but $2 / share of revenue synergies, which is a conservative estimate
o    Thinks its very likely these are realized
•    Carl Icahn hates it
o    Price
o    Regulatory risk
o    Competitive disruption
o    Post-Anthem margins and customer retentions
o    Value destructive
•    BlackRock lead a behind the scenes campaign between shareholders and ISS
o    BR got the deal thru
•    30-40% recovery even if doesn’t happen, from recovery of share price + 15% share repurchase


Be sure to check out the rest of the presentations from Capitalize For Kids 2018. 

Rick Reider Long Emerging Markets Debt: Invest For Kids Chicago Presentation

We're posting up notes from the Invest For Kids Chicago Conference 2017.  Next up is Rick Reider of Blackrock who pitched a long of emerging markets debt.


Rick Reider's Invest For Kids Chicago Presentation: Long Emerging Markets Debt

“Getting income the new-fashioned way”.  Huge, extraordinary demand for income; buy emerging markets debt – hard to find it elsewhere.  Aging populations, lower growth will drive more demand for income.  Tens of trillions of supply-demand imbalance for income.  Would growth will follow the demographics.  Rates may stay low for a long time, especially ECB and BoJ (China, India, USA are a little better).  China is the world’s demand growth driver – up to 40% of world growth is China.  26 of the world’s 27 largest economies are growing right now – rare and extraordinary.

A good capital spending cycle is underway and that bodes well for 2018.  There has been no deleveraging – private debt now on public balance sheets.  A rate increase is daunting – central banks can’t let rates rise in the next five years or else the debts become overwhelming.  Technology is deflationary, although wage pressure is slowly building in developed economies (not in EM).

Emerging market valuations are still attractive: real rates + inflation + credit (CDS) framework shows value.  Equilibrium in energy markets has led to very low volatility in inflation – that stability in emerging markets is a new paradigm.


For more from this event, check out the rest of the presentations from Invest For Kids Chicago 2017.

Jeff Ubben & Paul Hilal: Future of Shareholder Activism Panel at Reuters Live

At the Reuters Live Newsmaker Event, a panel on The Future of Shareholder Activism featured Jeff Ubben of ValueAct Capital and Paul Hilal of Mantle Ridge and they were later joined also by Zach Oleksiuk of BlackRock and Richard Brand of law firm Cadwalader. 


Jeff Ubben (ValueAct Capital)

He said "The last fat pitch was financials in summer of 2016.  We're very late cycle."  He's seen some activity that's concerning to him where companies are just doing silly deals or allocating tons of money to stupid things.  He says the markets are loving it, but he's not.  He says he's had to be "Mr. No" in board rooms which is the kind of thing he has to do at tops, whereas at bottoms he needs to tell people to buy.  Ubben's got $3 billion in cash right now (manages $16 billion) and is clearly cautious.

Thinks Morgan Stanley's (MS) earnings will go from $2.50 to $4.50.  They've sold some shares but still own it.  Sounds like he only sold because shares have gone up so far so fast.

"One of the hardest things to do is refresh a board."  "The hedge fund activist is putting us on a very awful path.  These are guys with 1 year money and want 1 year returns.  The hedge fund activist is a big problem."

Thinks activist investing should be its own asset class.  You've got private equity with 10 year lockups, hedge funds mainly with 1 year lockups, so perhaps activist investors could slide in at 4-5 years.

Ubben also noted that he thinks large cap activist plays are 'treacherous' with high PEs and then not a lot of growth.  Argues that so much money flowing into alternatives has inflated things.  "Everything about Trump I think is inflationary."

"It's uncomfortable for directors to talk to shareholders" due to regulations (Reg FD).  "Boards are just ... ugh." Thinks this is a 'young' business (i.e. younger people have the energy to do the legwork) and doesn't think he'll be the portfolio manager of ValueAct in five years.  For more on this fund, we've highlighted recent ValueAct portfolio activity here.



Paul Hilal (Mantle Ridge)

Prior to founding Mantle Ridge, Hilal worked at Bill Ackman's Pershing Square.  Has a 5-year lockup at his fund with over $1 billion with a vehicle designed to hold 1 company.  Purposefully moved away from an annual payment structure and he gets paid at the end of the lockup if he's done his job and created value.

Argues longer lock-up helps when dealing with management as he's not just in for a quick hit.  He's been working with railroad CSX (CSX).  Hilal notes that "(Trump) likes the thought of a manufacturing renaissance here."  If a railroad can be a facilitator then that will be welcome by the administration.  Thinks it's very useful for companies to hear from various types of shareholders: hedge funds, institutional investors, etc. 

Talked about the rules around disclosing activist positions (i.e. 13D filings etc).  Thinks there's a decent balance now.  Seemed to think potentially moving disclosure requirements down to a 1% threshold would be difficult as shares can move against you.

Thinks it's useful for Directors of companies to go on a 'listening tour' to hear what people think about the company first.  It's in the company's interest to attract smart investors to give input. 



Zach Oleksiuk (BlackRock)

"We are skeptical of directors who are focused on a single issue or a single thesis."  Notes there's a lot of different types of activists in terms of style and quality.  Thinks there will be more investor focus on environmental and social issues going forward, especially if the issues impact the business.



Richard Brand (Cadwalader) 

Settlement outcomes should be driven by two things: what's right for the company (shareholder value) and the relative leverage of the parties.  The opinions of large institutional shareholders matters a lot.  Thinks there will be a convergence of private equity style and activist style investing in the future.  Also argued hedge funds could start to buy companies (cites Elliott Management, Carl Icahn).  And then private equity investors could start behaving more like activists. 

Rick Rieder's Presentation at Invest For Kids Chicago 2013

Next up in our notes from Invest For Kids Chicago 2013 is Rick Rieder of BlackRock.


Rick Rieder's Presentation at Invest For Kids Chicago

•    21 years at Lehman; Fixed income analyst hall of fame
•    Upside value of FI is muted to say the least
•    Talk on convert – fundamental value of significant proportion
•    Investment regime is changing
•    2003 to 2007 – leverage built up
•    2008 to 2013 – Fed saving system
•    Rebooting system back to “2003 or 2004”
•    Growth in the next few years has exogenous for moderate growth for next 2 to 3 years
 •    Expect moderate growth framework for next few years
•    Low rate framework
•    Buying a lot of agency mortgages
•    Can re-lever US balance sheets
•    Cost of equity versus BBB yields is very wide
•    Investors are forcing CEOs to return capital
•    Dividend to CapEx has also growth so ST growth for equity price but LT underinvestment
•    Need for interest income in market yet not enough assets so investors are forced out the rick curve to equities
•    Converts provide upside convexity, income, and the ability to leverage volatility(options are priced cheap due to volatility being held on the Fed’s balance sheet)
•    Likes DR Horton, MGM, and Ford converts
•    Also works in Europe & Asia 


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Notes From SALT Conference Risk Panel: Falcone, Sprott, Rieder & Ivascyn

At the Skybridge Alternative Conference (SALT) in Las Vegas yesterday, a panel on risk featured Harbinger Capital's Phil Falcone, Sprott Asset Management's Eric Sprott, Blackrock's Rick Rieder, as well as PIMCO's Daniel Ivascyn. The talk was entitled, "Risk On, Risk Off: How to Generate Profits in a Macro Driven World."


Phil Falcone of Harbinger Capital Partners essentially referenced his Lightsquared venture when he made comments regarding investors being too fixated on liquidity.  He argues that people are passing on solid long-term opportunities because they want access to their capital.  The Harbinger man believes regulation has hurt the free market.

He also went on to say that because of the market's risk on/risk off mentality, there are many who aren't even paying attention to fundamentals out there.  The manager labeled the market one of the most difficult to time investments.


Eric Sprott of Sprott Asset Management is yet again pounding the table on gold due to the problems in Europe.  He also commented on the "post-Lehman" world and mentioned that there can't be liquidity events as that could bring down the whole system.


Rick Rieder talked about how investing strategies are shifting from beta to idiosyncratic. He also believes that contagion isn't as big of an issue in Europe.


Daniel Ivascyn stressed the importance of aligning the right vehicle with the investment opportunity.  Long term opportunities need to be placed in the right structure, he says.


For more notes from the SALT Conference, check out:

- Identifying opportunities in emerging markets with John Burbank

-  Notes from panel with Kyle Bass, Dmitry Balyasny & Steven Tananbaum


- Barry Rosenstein, Leon Cooperman & Joel Greenblatt's panel on stocks






The above was compiled from notes sent in along with help from live tweets from: @ldelevingne , @pdmckenna ,  @AttainCapital & @realrobcopeland

St. Joe Receives Inquiry From SEC, BlackRock Increases Stake

Since The St. Joe Company (JOE) is now a battleground stock (Bruce Berkowitz versus David Einhorn), it's only fitting that we continue our coverage of the name. Just yesterday, some interesting developments arose that we wanted to highlight.

First, JOE revealed in an 8-K filed with the SEC that the company is the subject of an SEC "informal inquiry into St. Joe's policies and practices concerning impairment of investment in real estate assets."

SEC Inquiry

Shares of JOE plunged almost 10% in after-hours trading yesterday on this news. Market Folly readers will of course recall that Greenlight Capital's David Einhorn is short JOE. His bearish thesis centers largely around the company needing to take impairments and writedowns, the exact issue the SEC seems to be looking into.

The 8-K went on to say that, "St. Joe intends to cooperate fully with the SEC in connection with the informal inquiry. The notification from the SEC does not indicate any allegations of wrongdoing, and an inquiry is not an indication of any violations of federal securities laws."

Einhorn has garnered a reputation as a successful short-seller and it might not be too much of a stretch to suggest that his involvement has piqued the SEC's interest. After all, Einhorn had correctly identified problems at both Allied Capital and Lehman Brothers in the past and profited from his short positions. You can read about his short-selling battle in his book, Fooling Some of the People All of the Time.

BlackRock Boosts Stake

In a separate development involving St. Joe, we also saw an updated 13G filed with the SEC by BlackRock. The money manager has disclosed a 12.59% ownership stake in JOE with 11,668,299 shares, boosting their collective position. This disclosure was made due to activity on December 31st, 2010.

This development is interesting because it brings another large institutional player into the ring. Previously, the main notable JOE long was Bruce Berkowitz's Fairholme Capital, who owns almost 29% of the company. However, Berkowitz is currently in a standstill agreement and can't purchase more shares. Instead, he has joined the company's board. BlackRock's position increase marks a second vote of confidence on the long side of the trade.

Battleground Stock

So now that Berkowitz has BlackRock for company, the two major shareholders will square off against David Einhorn and a bevy of other short-sellers, including Whitney Tilson's T2 Partners, among many other hedge funds who have undoubtedly not disclosed their position (yet). With word of the SEC's informal inquiry, the short sellers have delivered another potential blow to JOE longs. What comes out of the inquiry, though, remains to be seen.