Highfields Capital Trims Silver Run Acquisition Stake

Jonathon Jacobson's hedge fund firm Highfields Capital has filed a Form 4 with the SEC regarding shares of Silver Run Acquisition Corp II (SRUN). 

Per the filing, Highfields sold over 3.24 million shares of SRUN on September 29th at a price of $10.17.  After this transaction, they were left with a position of over 8.25 million shares.

Silver Run Acquisition II is a private equity backed oil and gas play led by a former executive of Anadarko Petroleum.  Recently, in August, the company announced it was merging with Alta Mesa and Kingfisher Midstream to create a $3.8 billion company.

Jon Jacobson's Sohn Conference Presentation: Short Digital Realty Trust (DLR)

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jonathon Jacobson of Highfields Capital.  He presented "The Illusion of Yield."  His pitched the short case on Digital Realty Trust (DLR).  


The Illusion of Yield

Jacobson said money market assets are in decline. Individual investors fled mutual funds, and slowly, but surely individuals are tiptoeing back to the market. They are buying high-yield bond funds and dividend stocks.

"Low risk" such as REITs, pharma/healthcare, Utilities, Telcos, even blue chips. He showed how health care is up 18% ytd, Utilities 18%, staples 16%. Very rare for this to happen in a bull market. This shows that investors are buying high dividend "safe" stocks. "All dividends are not created equal"

AT&T (T) beware: wireline a melting ice cube, wireless becoming competitive. Short: Linn Energy (LINE). Half of cash flow is from hedging gains.


Short Digital Realty Trust (DLR)

Short idea: Digital Realty Trust (DLR). $9B market cap, trades at 18x AFFO (adjusted funds from operations), 4.6% dividend yield. Fundamentals deteriorating, commodity business without barriers to entry.

CAPEX higher than company represents, dividend not sustainable. Stock worth about $20/share, not the $65 it's trading for. Cloud-based competition is coming in- Google (GOOG), Amazon.com (AMZN), and Microsoft (MSFT).

Rents at new data centers are down 20% since 2006. Spent $967M on CAPEX, claim only $22M of it was maintenance capex. This doesn't square. It's actually more like $413M/ year over time. So on $1B on revenue, cost of maintenance capex is more like 40%, not 2% This makes a huge difference- it implies they are only making 87c/share, not $3.12/share.

With a 4% yield on this 87c, you get a $19 stock. Replacement cost as estimated by the company is $18/share.  With no barriers to entry, increasing competition, prices dropping, why should you pay 3x book value for this business? Keep issuing secondary shares to fund ongoing operating cash shortfall, still doing acquisitions to mask what is happening.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

Highfields Capital Discloses Liberty Ventures Stake

Jonathon Jacobson's hedge fund firm Highfields Capital just filed a 13G with the SEC regarding shares of Liberty Ventures (LVNTA).  Per the filing, Highfields now owns a 5.8% ownership stake in LVNTA with 1,482,738 shares.

This is a brand new position for the hedge fund and the filing was made due to portfolio activity on September 12th.  Liberty Ventures is a tracking stock that was created in August to track certain assets of Liberty Interactive (LINTA).

LVNTA shares track Liberty's ownership interests in various entities such Expedia, TripAdvisor, and many more companies.  Shares of LINTA, on the other hand, track the businesses of Liberty such as home shopping network QVC.  Shareholders of LINTA received LVNTA shares in the tracking stock separation.

Liberty Rights Offering

It's unclear if Highfields acquired some of their LVNTA shares via the LINTA spin or not.  Highfields did not disclose a LINTA stake at the end of Q2 in their most recent 13F filing, but they could have easily purchased shares before the split. 

This is important mainly because Highfields' trading activity date on their SEC filing matches the date of Liberty Ventures' rights offering commencement.  Yahoo Finance has an explanation of this:

"On August 9, 2012, in connection with the creation of its new Liberty Ventures tracking stock, Liberty Interactive distributed subscription rights to purchase share of Series A Liberty Ventures common stock (each, a Series A Right). Each whole Series A Right entitles its holder to subscribe, at a per share subscription price of $35.99, for one share of Series A Liberty Ventures common stock pursuant to a basic subscription privilege, and also entitles the holder to subscribe for additional shares of Series A Liberty Ventures common stock pursuant to an oversubscription privilege.  The rights offering will commence on Wednesday, September 12, 2012, and will expire at 5:00 p.m., New York City time, on Tuesday, October 9, 2012, unless extended by Liberty Interactive Corporation"

The rights offering commenced on September 12th and trades under symbol "LVNAR."  It will expire at 5pm EST on October 9th (unless extended by Liberty). 

We've previously covered other portfolio activity from Highfields here.

Highfields Capital Boosts Carter's (CRI) Stake, Shifts CoreLogic (CLGX) Stake to Passive Investment

Jonathon Jacobson's hedge fund firm Highfields Capital recently filed two 13G's with the SEC on Carter's (CRI) and CoreLogic (CLGX).

Carter's (CRI)

Per the filing, Highfields Capital has disclosed a 5.5% ownership stake in Carter's with 3,270,163 shares.  The filing was made due to portfolio activity on June 4th.

This marks almost an  85% increase in their position size in the name since the end of March. It also moves up Highfields as one of the top holders of the stock in addition to the likes of Viking Global and Matrix Capital.  Just a few months ago, we highlighted how Viking raised its stake in Carter's.

Per Google Finance, Carter's is "a branded marketer of apparel for babies and young children in the United States. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh. Its Carter’s brand provides apparel for children sizes ranging from newborn to seven. OshKosh brand provides its line of apparel for children sizes newborn to 12. Its Carter’s, OshKosh, and related brands are sold to national department stores, chain and specialty stores and discount retailers."


CoreLogic (CLGX)

The second filing is a 13G from Highfields on CoreLogic indicates they have a 7.6% ownership stake in the company with 8,149,719.  This stake is unchanged from their last filing and the main reason they've filed is because their stake has shifted from an activist stake (with a previous 13D filing) to now a passive one (13G filing).

The hedge fund has withdrawn its nominees to the company's board after the company itself nominated three new directors and the chairman agreed to step down this year.  It appears as though the fund was mainly seeking members with more relevant business experience and it looks like they've achieved that.

Per Google Finance, CoreLogic is "a provider of property, financial and consumer information, analytics and services to mortgage originators and servicers, financial institutions and other businesses, government and government-sponsored enterprises. CoreLogic’s data, query, analytical and business outsourcing services help its customers to identify, manage and mitigate credit and interest rate risk. It offers its customers a databases of public, contributory and data covering real property and mortgage information, judgments and liens, parcel and geospatial data, national coverage eviction information, non-prime lending records, credit information, and tax information, among other data types."


About Highfields

Jacobson founded Highfields in 1998 after previously serving as the senior equity portfolio manager at Harvard Management Company. Highfields is an $11 billion value-oriented firm that doesn't want to swing at every pitch, but rather just the fat ones where they can hit home runs.  We've previously highlighted Jacobson's thoughts on whether there's alpha in asset allocation.


For more on this hedge fund, you can read Highfields' thesis on one of their top holdings: Sallie Mae here.

Hedge Fund Panel: Is There Alpha In Asset Allocation? (Och, Mindich, Singh & More)

We're moving along in coverage of the hedge fund panels that recently took place. Yesterday there was coverage of key takeaways from the event and the "Case For Global Equities in 2010" from a panel of prominent long/short equity hedge fund managers. Additionally, there was a hedge fund manager panel on the global investment landscape in 2010.

Next up are the thoughts of Eton Park's Eric Mindich, Highbridge Capital's Glenn Dubin, Highfields Capital's Jonathon Jacobson, Och-Ziff Capital Management's Daniel Och, and TPG-Axon's Dinakar Singh from the panel on:

The Art of Multi-Disciplinary Investing: Is There Alpha In Asset Allocation?

Overall, the panelists thought that multi-strategy was the best fund format to take advantage of all the attractive opportunities. They debated as to whether there would be further consolidation in the hedge fund industry, but agreed that if regulation becomes too onerous that more funds will close and managers will run their own capital. Larger funds are more aptly suited to provide the increased transparency that investors are requiring now. There was a consensus that letting fund managers focus on investing rather than administration was essential and this favored larger funds.


Daniel Och (Och-Ziff Capital Management): Och's outlook focused on a bottom-up basis where he noted that this is an extremely attractive period overshadowed by macro risks. He notes that interest rates are likely to rise and that we should expect a similar experience as in 1993-1994 when we saw global quantitative easing (i.e. a bumpy ride of up's and down's but overall a good environment for investors).

On the topic of hedge funds, Och felt that an alignment of interests and incentives at a firm is crucial to success. He favors multi-strategy because it allows access to many more research and deal flow resources. One interesting note on firm culture is he wants an environment where people talk about how they can be better, not how good they are. Regarding hedge fund consolidation, he thinks it is talked about too frequently and that in 5 years time there will be ample smaller firms finding success. Och Ziff's master fund was up 23% for 2009 as noted in our hedge fund performance numbers post. Their Asia master fund was up 33.6%.


Eric Mindich (Eton Park Capital): Mindich's market outlook focused on the deleveraging that is taking place. He said that this creates opportunity on a micro basis even though there are headwinds and signaled that merger arbitrage will pick up. Mindich also noted that there has been a reduction in prop capital that has allowed Eton Park to capitalize on new opportunities as hedge funds provide this transitional capital now. Eton Park is a part of our custom Market Folly portfolio that is seeing over 25% annualized returns, created with Alphaclone. In our recent portfolio coverage of Mindich's firm, we noted that Eton Park expanded its UK holdings.


Dinakar Singh (TPG-Axon Capital): Singh's outlook focused on the fact that there is still policy risk, as well as funding and China risk. That said, he thinks that in the next 6-18 months that investors will underestimate the industrial improvements in America (TPG-Axon is currently finding many attractive opportunities there). He also noted that rates will go up over time and they will use credit to hedge equity. Lastly, the global world is more challenging than ever to invest in and that the alternative industry needs to be proactive in terms of regulation. They are not going to focus on every strategy, as they know when to say 'pass' on certain strategies.


Jonathon Jacobson (Highfields Capital): Jacobson reminded everyone of the old adage that investing is a marathon, not a sprint. The easy money has been made and markets are now more fairly priced. He thinks that the US is the most attractive geographic region and that the large cap, high quality names are the cheapest plays. This is sentiment we've seen out of many prominent hedge funds now. Bill Ackman & hedge fund Pershing Square recently started a large Kraft (KFT) position and is one of the many examples. The "high quality names are cheap" meme was echoed on the long/short equity panel we covered yesterday.

Highfields doesn't want to swing at every pitch, but rather just the big ones where they can hit home runs. They have 70 employees (25 investment professionals) and they like to keep the firm smaller. They note that the barriers to entry in the hedge fund industry are higher than in the past as investors want more transparency, counter-party management, and there will be a higher regulatory environment. This obviously favors larger funds that have the resources to let the investment team focus on the investments and the back office team focus on administrating.


Glenn Dubin (Highbridge Capital): Dubin's outlook centered on two major assumptions: that we will be in a churning economic environment for a while and that the last two years have been dominated by beta. He thinks 2010 will be more focused on alpha and that the amount of money allocated to event-driven strategies is the lowest he's seen in a while. Highbridge sees attractive returns there and also finds Asia very interesting. In terms of hedge fund culture, Highbridge says culture is critical and they spend a lot of time on interviews as they want team-players. Lastly, turning to the topic of investing in hedge funds, he said that allocators have to focus on the risk/reward of investing with experienced versus newer managers.

This wraps up the "Is There Alpha in Asset Allocation?" conversation. Head to the overview of the conference, the post on the long/short equity panel, as well as coverage on the global investment landscape in 2010. Check back tomorrow for summaries of the remaining hedge fund panels.