SALT Conference Notes 2016: Griffin, Cooperman, Burbank, Chanos & More

The Skybridge Alternatives Conference, better known as the SALT Conference, is taking place in Las Vegas this week.  It's a multi-day affair with many speakers on a broad range of subjects.  We've condensed notes into primarily finance/investing thoughts from various hedge fund managers and investors below.


2016 SALT Conference Notes


Ken Griffin (Citadel):  Talked about how he built Citadel and the importance of culture at an organization.  'Avoid marrying a strategy' and instead focus on building a platform with the best people.  Business really taught him how to delegate and manage people.  On finding good talent: you've gotta be able to sell them on why they should leave and come to you.  You have to go out and find that talent instead of waiting for them to come to you.  The ones that 'knock on your door' aren't the best.  One interesting quote:  "Who is the number five manufacturer of personal computers?  Who cares?  We're in a more and more winner take all world."


Leon Cooperman (Omega Advisors):  He talked about a trend of investors moving from active to passive strategies and says that hedge fund performance can't really justify the fees these days, so fees need to come down.  He said that long-term (i.e. 'permanent') capital is doing good because they don't have to worry about lockups (citing Warren Buffett).  The other winner has been quant strategies.  Pitched the stock First Data (FDC) which recently IPO'd.  Says he's got around ~20% of his fund in structured credit at the moment.  Reiterated his belief that conditions for a recession are not present (a concept he's talked about for a while now).  Thinks the bubble is in fixed income.  Government bonds are a bad idea.  Likes Tetragon Financial, yields 7%, dividend coverage of 4x.  Buying a stock trading at half of book.


Kyle Bass (Hayman Capital):  Implied that investors need to lower their return expectations over the next few decades (5% global real return expectation).  Also agreed that fees for funds need to come down.  Says it's much harder to maintain investors than it is conviction.  Thinks we're in the early part of '07 in terms of credit/equity markets.  Says a hard landing in China is happening as we speak. Argues that China credit system is one of the biggest macro imbalances, something has to give sooner rather than later.  Hong Kong real estate is collapsing.


Roslyn Zhang (China Investment Corp):  Sovereign Wealth Fund.  Disappointed with hedge fund performance.  Compared Chinese retail investors to hedge fund herding.  Criticized those betting against the Chinese Yuan.  Argued that China's economy is still strong and that all of the building is due to the massive population; supply can be absorbed.


Sam Zell (Equity Group Investments):  Cost of regulation has gone up around 5x over the last decade.  Have been big investors in Brazil, Far East, Mexico. 


Ty Wallach (Paulson & Co):  Thinks specialty pharma stocks are oversold.  Specifically pointed out Valeant Pharmaceuticals (VRX) bonds.  Bought at 80cents on the dollar and says the co still has $10bn in equity value.  Could sell one of the many companies they've acquired if they need to cover debt payments.


Jeff Smith (Starboard Value): Activist investor.  Says settled with Yahoo (YHOO), put four new members on the board.  Notes the parts of the company are worth more than where its trading.  Core biz with $4bn in revenue, huge stake in Alibaba, Yahoo Japan, add it all up and it's more than the current market cap.  Said 'we're friendly but no one describes us as passive.'


Scott Ferguson (Sachem Head Capital):  Sold out of Zoetis (ZTS).  We noted how Pershing Square was also selling ZTS recently.  Ferguson was the one that brought the idea to Ackman to begin with (he used to work at Pershing).  Talked about how to change leadership and achieve things on behalf of investors: "Money's a great way to effectuate things" i.e. severance for getting rid of a CEO.  Says things are easier for activists these days and companies are more likely to engage. 


Clifton Robbins (Blue Harbour Group):  Activist investor.  Owns 10% of Investors Bancorp (ISBC), says it's trading at a discount to peers.  Also talked about Xilinx (XLNX), a net-cash semiconductor play; says they have some ideas as to how to utilize the balance sheet.


Michael Lewis (Author of Flash Boys and The Big Short):  Said he was surprised that both Moneyball and The Big Short were made into movies.  Said Christian Bale was dead-on with his interpretation of Michael Burry after just spending some hours with him.


Richard Chilton (Chilton Investments): Sherwin Williams (SHW): makes premium paint and coatings.  Says the company's purchase of Valspar was years in the making and they can repay the price with free cashflow in about 5 years.  Thinks there's a lot of synergies and margin overlap.  SHW does higher margins in paint/consumer and VAL does better margins in industrial coatings.  "You can't buy paint online."


John Lykouretzos (Hoplite Capital):  Takes a bit of an issue with the 'oligopoly' theme of airlines, saying it's still a competitive industry with margin pressure.  Bearish on the industry.  Main threats: excess capacity, union labor wage hikes, and of course higher oil prices.  Says that low cost carriers (LCC's) have basically destroyed the chance for legacy airlines to become a true oligopoly.  Thinks American Airlines (AAL) is the most compelling short play there.  Has some of the highest costs & exposure to rising oil.  High leverage.  Weakest FCF generation of the group.  Thinks that Southwest Airlines (LUV) can still add capacity even at higher oil prices (~$80 or so) and still generate high IRR.


John Burbank (Passport Capital):  Says China won't let outside companies 'win' especially Facebook.  "It's a hard place to win if you're not Chinese."  (While he didn't mention it, just look at Amazon's failed venture there as well).  Burbank owns Tencent (700.HK) with short Chinese Renminbi as partial hedge.  Thinks it isn't as much of a crowded trade as Facebook (FB) is.  His slide also said "Short FXI: Hedge out 'Old China' country-specific risk with China large cap ETF."


Jim Chanos (Kynikos Associates): Still short Cheniere Energy (LNG), calling it a 'pipe dream' and very expensive to peers.  Trades at 11-12x EV/EBITDA using "base case" 2021 EBITDA of $2.1bn.  Peers trading between 5-7x 2020 EBITDA.  Also commented on Alibaba (BABA) saying their accounting is dubious and that you don't really know what they're earning, calls it some of the most questionable he's ever seen. Chanos also recently talked about some of his short positions at the Sohn Conference.


For other recent hedge fund manager thoughts, head to our notes from Sohn Conference New York 2016.

Kyle Bass on Wall Street Week

Anthony Scaramucci and Gary Kaminsky's rebooted Wall Street Week continues their run of impressive guests with Kyle Bass of Hayman Capital joining them this time around.

Their discussion started by talking about taking the leap of starting your own firm and Bass' play on the housing crisis.

They also talked about how excess capacity fueled by debt has now led to oversupply of various things, which has led to deflation.

Bass feels strongly that China is going to "dramatically devalue its currency" and walked through his thoughts on China in-depth.

Embedded below is the video of Kyle Bass' interview on Wall Street Week:



For previous interviews from this show, head to Wall Street Week's episode with Point72's Doug Haynes.

Kyle Bass' Hayman Capital Increases NMI Holdings Position

Kyle Bass' hedge fund firm Hayman Capital has filed a 13D and Form 4 with the SEC regarding its stake in NMI Holdings (NMIH).  Per the 13D, Hayman now owns 12.5% of the company with over 7.37 million shares.

The Form 4 indicates Hayman was out buying on August 5th - 7th at prices between $8.25 and $9.21.  In total, they purchased 1.875 million shares.

We also highlighted some other recent buying from Hayman Capital.

Per Google Finance, NMI Holdings is "provides private mortgage guaranty insurance (MI) in the United States. The Company's primary insurance subsidiary, National Mortgage Insurance Corporation (NMIC), is a MI provider on loans purchased by Fannie Mae and Freddie Mac (collectively the Government-sponsored enterprises or GSEs). The Company's reinsurance subsidiary, National Mortgage Reinsurance Inc One (Re One), provides reinsurance to NMIC on certain loans insured by NMIC. NMIC's residential mortgage insurance products primarily provide first loss protection on loans originated by residential mortgage lenders and sold to the GSEs and on low down payment loans held by portfolio lenders. NMIC offers two principal types of MI, primary and pool. The Company offers two types of primary mortgage insurance products to its customers, flow and non-flow."

Kyle Bass's Hayman Capital Shows Eco-Stim Solutions Stake

Kyle Bass' hedge fund firm Hayman Capital has filed both a 13G and Form 3 with the SEC regarding shares of Eco-Stim Energy Solutions (ESES).  Per the filings, Hayman now owns 17.1% of the company with over 2.1 million shares.

This is a newly disclosed position for the hedge fund.  The filing was made due to activity on July 10th.

For more from this investor, head to Kyle Bass' thoughts at the SALT conference.

Per Google Finance, Eco-Stim is "an early stage technology-driven independent oilfield services company. The Company provides well stimulation, coiled tubing and field management services to the upstream oil and gas industry. The Company is focusing on the active shale resource basins outside of the United States using its technology to differentiate its service offerings. The Company’s operation is in Argentina, a shale resource basin as measured by technically recoverable reserves. The Company may also explore opportunistic acquisitions or joint ventures with established companies in target markets. EcoStim expects to provide well stimulation services based on contractual arrangements. The Company plans to generate revenues from chemicals and proppants that are consumed while performing well stimulation services. The Company expects to provide coiled tubing and other well stimulation services. EcoStim enters into arrangements to provide field management services."

SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

At the Skybridge Alternatives (SALT) Conference in Las Vegas, the best ideas panel featured top hedge fund managers giving their top stock picks.  Here's a summary:


SALT Conference Best Ideas Panel: Chanos, Bass, Burbank, Cooperman, Karsch

Jim Chanos (Kynikos Associates):  Short oil integrators.  Specifically, short Royal Dutch Shell (RDS), doesn't like the merger with BG.  Short Chevron (CVX) as well due to their liquefied natural gas (LNG) challenges.  He also summed up Brazil's Petrobras (PBR) by saying they're "lying, cheating and stealing."  Also check out Chanos' SALT interview we posted earlier.


Kyle Bass (Hayman Capita): Long Perrigo (PRGO).  Doesn't think they get bought out by Mylan, but thinks someone else acquires them.  "We're short enough pharma."  Bass' separate new fund has been challenging pharma patents and says the industry is ridiculous as prices of drugs have spiraled out of control.  He gave the example of Mylan's (MYL) epipen drug specifically.  Says 13% of the company's revenue comes from this drug (which came off patent back in the 1950's).


John Burbank (Passport Capital): Long NCB AB, a Saudi Arabian banking play.  "The banking giant you've never heard of in the country you're too scared to invest in."  He says the vast majority of deposits don't pay interest due to Sharia Law so they'll be in a good position when rates rise.  Harps on the fact that outsiders are going to be able to invest in Saudi and by 2017 90% of investors will own some part.  "All the risks are already known in Saudi."  This isn't a new theme from him as Burbank has pitched Saudi investments in recent years.


Lee Cooperman (Omega Advisors): As he has been for a while now, he again advised reducing fixed income exposure.  He also said to go short on any rally if you're adventurous. His stock picks were the same as his Sohn Conference picks: ACT, AER, C, DOW, GM, GOOGL, PCLN.


Michael Karsch (Hunter Peak Capital): Long NOS SGPS, a Portuguese cable/wireless provider.  Biggest cable play and #3 wireless provider in the country, a hidden gem.


For more from the SALT conference, check out Dan Loeb's talk.

Kyle Bass' Hayman Capital Ramps Up Energy XXI Stake

Kyle Bass' hedge fund firm Hayman Capital has filed a 13G with the SEC regarding their stake in Energy XXI (EXXI).  The first filing shows that Hayman now owns 5.08% of the company with over 4.77 million shares.

This marks an increase of 1.77 million shares since the end of the second quarter.  The filing was made due to activity on September 30th.

Per Google Finance, Energy XXI is "an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico. The Company is engaged in the acquisition, exploration, development and operation of oil and natural gas properties onshore in Louisiana and Texas and offshore in the Gulf of Mexico."

Kyle Bass on Global Outlook Pitfalls and Opportunities

Hayman Capital's Kyle Bass recently gave a talk at the Dallas Fort Worth CFA Society for the Texas Investor Summit entitled "Global Outlook Pitfalls and Opportunities For 2014."  In it, he walks through monetary policy and the various scenarios that could unfold and their effects.

In the presentation, he touches on three main topics: the US and tapering, Japan and quantitative easing, as well as emerging markets and slowing growth.

Embedded below is Hayman Capital's .pdf presentation:





You can watch the video of his presentation by clicking here.  You can view recent portfolio activity from Hayman here.


H/T to ValueWalk for finding the video.

Hayman Capital Ramps Up Nationstar Mortgage Holdings Stake

Kyle Bass' hedge fund firm Hayman Capital has filed a 13G with the SEC regarding its stake in Nationstar Mortgage Holdings (NSM).  Per the filing, Hayman has disclosed they own 5.3% of the company with over 4.75 million shares.

This is an increase of over 3.67 million shares since the end of 2013.  The filing was required due to activity on March 13th.

Shares of NSM and other mortgage servicers like Ocwen Financial (OCN) have dropped this year as non-bank servicers have started to come under scrutiny from regulators.

Per Google Finance, Nationstar Mortgage Holdings is "a non-bank residential mortgage servicer with a range of services across the residential mortgage product spectrum. The Company’s clients include national and regional banks, government organizations, securitization trusts, private investment funds and other owners of residential mortgage loans and securities. It is a partner of financial organizations, including government-sponsored enterprises (GSEs) and other regulated institutions."

For more on this manager, head to an interview with Kyle Bass from House of Money.

Steven Drobny's New House of Money: Interview with Kyle Bass

Steven Drobny, previous author of The Invisible Hands: Hedge Funds Off the Record as well as Inside the House of Money, is coming out with a new book.  His new title, The New House of Money, continues his ongoing series of interviews with top hedge fund managers.

He'll be releasing a new chapter each month and the first chapter features Kyle Bass of Hayman Capital.  We've embedded the chapter below and you can access it at their website:




Be sure to check out Drobny's other great books as well interviewing notable hedge fund managers:

- The Invisible Hands: Hedge Funds Off the Record

- Inside the House of Money

Kyle Bass Long General Motors, Exits J.C. Penney Equity: Interview

In an interview with Bloomberg Television, Hayman Capital's Kyle Bass reveals that he's long General Motors (GM) and has exited his equity stake in J.C. Penney (JCP) but retains his debt position. 

The hedge fund manager also talked about Herbalife (HLF), noting that it generates significant cashflows and no debt.

He originally thought JCP could move higher with a turnaround from new management, but what he got wrong, he said, was the vendors and perception changing so quickly.  He's still long credit but doesn't own equity in the company.

Bass thinks GM can trade 40% higher in the next 18 months.  He says it's a catalytic time to be investing as the Treasury finally exits its stake and the company can initiate shareholder friendly actions.

The Hayman founder also said he didn't see anything interesting in US banks, but he would be betting against European banks, especially as a hedge against other European bets.  Bass mentioned he likes Vodafone (VOD).

Embedded below is Bass' interview with Bloomberg:



For more from this hedgie, head to Kyle Bass' macro debate with John Burbank.

Kyle Bass' Hayman Capital Discloses PennyMac Mortgage Investment Trust Stake

Kyle Bass' hedge fund firm Hayman Capital has filed a 13G on shares of PennyMac Mortgage Investment Trust (PMT).  Per the filing, Hayman has disclosed a 5.1% ownership stake in with 3,570,000 shares.

The filing was required due to activity on September 27th and marks a new disclosure.  Earlier this summer, we noted that Omega Advisors and Bridger Capital took stakes in PennyMac Financial Services, the company whose subsidiary manages PennyMac Mortgage Investment Trust.

Per Google Finance, PennyMac Mortgage Investment Trust is "a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The Company is a real estate investment trust (REIT). The Company operates in two segments: investment activities and correspondent lending. The correspondent lending segment focuses on the purchase for resale of newly originated mortgage loans. The investment activities segment focuses on mortgage assets that are acquired and held for investment purposes. The Company’s primary investment objective is to maximize the value of the mortgage loans that it acquires, a substantial portion of which may be distressed and acquired at discounts to their unpaid principal balances, either through loan modification programs, special servicing and other initiatives focused on keeping borrowers in their homes, or, when necessary, through timely acquisition and liquidation of the property securing the loan."


For more on Hayman, we recently posted up Kyle Bass' macro discussion at the Alpha Hedge West conference.

Alpha Hedge West Conference Notes 2013

We're posting up notes from the 2013 Alpha Hedge West Conference that just took place in San Francisco.  There were numerous panels discussing various topics and summaries are available by clicking each link below:


Notes From the Alpha Hedge West Conference

- Macro Discussion: John Burbank & Kyle Bass on China, Europe, Japan, Argentina & More

- Navigating the Macro & Interest Rate Environment:  Bruce Richards (Marathon Asset)

- Best Ideas Panel:  Kurt Billick (Bocage Capital), Peter Lupoff (Grayco Alternative), Worth Gibson (Forest Hill Capital), Paul Twitchell (Whitebox)

- State of the Hedge Fund Union: Jason Huemer (Visium), Bruce Richards (Marathon), Philip Weingord (Seer Capital) 

- Condition of the Consumer & Challenges for Investors as Economy Expands: Joseph Brusuelas, Senior Economist, Bloomberg & Kristin Bentz, PMG Venture Group 

- On Hedge Fund Seeding: Rachel Minard, Jeffrey Cozad, Basil Williams, Jonathan Miles

- Opportunistic Credit Roundtable: Emanuel Friedman (EJF Capital), Andrew Springer (Marathon Asset), Ronnie Jaber (Carlyle Group), Avery Kiser (Neuberger Berman Alt)

- The Role of Volatility: Michael Schmanske (Glenshaw Capital), Christopher Cole (Artemis Capital), Zem Sternberg (Lake Hill Capital), Joe Reynoso (Reynoso Asset)

- Structured Credit: Richard d'Albert, Christopher Hentemann, Amin Majidi, Rajesh Agarwal

- Dynamic Investment Panel:  John Claisse, Joy Xu, Andrew Karsh

- Next Generation of Hedge Fund Managers: Michael Sedoy, Neal Shah, Valtura Capital, Mike Keough, John Rende

- Venture Capital Panel: Where Are They Investing And Why? Pat Grady, Chris Schultz, Ron Suber, David Girouard

John Burbank & Kyle Bass Macro Discussion at Alpha Hedge West Conference

Next up in our series of notes from the Alpha Hedge West Conference is the panel featuring a macro discussion between John Burbank of Passport Capital and Kyle Bass of Hayman Capital.  They touched on China, Argentina, Japan, and many other topics.  Below is their dialogue and JB = Burbank's comments and KB = Bass' comments.


John Burbank & Kyle Bass' Macro Discussion: Alpha Hedge West

KB> First part of taper will be easy.  Fiscal drag of moving Fed Funds from 0% to 3% will be large. 

JB> Does not think Fed policy changes unemployment.  Labor in China first, now technology have a great impact on unemployment.  Firms don't want to hire.  Structural unemployment issues will persist most of our lifetimes.  JB is shifting into equities.  Likes equities with good governance and high quality business.  Not bullish on GDP or global economy or US economy.  Credit got crowded last year.  Equity just getting started.  Companies have gotten very lean and efficient.  Emerging Markets (EM) have been struggling.  That was due.  Development Markets (DM) will outperform EM.  Not that US economy is great, just that US is quality.  As EM people grow, they will want more DM goods, not EM goods.

China

KB> Not investing in China now.  "Univestible" due to banks and shadow banking systems.  Staying away from India too.  Branded luxury and quality did well post crisis.  China has not adjusted from command and control.  Appears Chinal will work, but he think it won't (success is illusory at this point).  Sees restructuring.

JB> His portfolio has turned on its head since 2000 with the exception of internet companies.  Everything in China is rising.  EM and most commodities went up on the industrialization of China.  Won't happen again.  Short the mining companies.  Those businesses have bad economics except when times are really good. Chinese internet companies are winning over US internet companies in China because the Chinese government won't let the Chinese companies lose to US ones.  Internet companies in China at new highs are the ones you probably want to own.  Short EM and Mining.

Why does Bass like Argentina?

KB> People don't understand what is happening there.  Lots of things there are fixable.  Leadership in control has "issues" :).  Energy has been an issue, but recently there have been major energy findings that will change that.  2 years from now, he thinks there will be a new President in October 2015 and pro business people will be running things to take advantage of vast prairies of nature resources.  Argentina's problems can be fixed in 2 years.  Now is the time to start investing.  Sees 50% upside in the sovereign debt.

JB> Would not play Argentina's equities.  Tough betting on turnarounds.  Does not believe in value.  Believes in mispriced growth.  Kyle might be right about Argentina.

KB> "When I'm Right."

Burbank: Long Saudi / Short Russia 

JB> Likes Saudi...though their neighbors are a problem.  He is one of the best informed US investors re: Saudi.  95% of investors in Saudi are local traders. 

Moderator> Is there an opportunity for a paired trade with Saudi?

JB> Short Russia.  Saudi has been crushed.  Instead of easing, they tightened.  They've lagged.  No one wants to invest there.  Aramco would be the largest company in the world by a factor of 10 if it were a public company.  Saudi is like a 1990s EM story in a time capsule.  Dollar rally would crush EM.  Mining gets crushed without rise in commodities.  In '03 and '04 most wouldn't invest in EM.  Now they can't be talked out of investing in EM.  San Francisco is the opposite of EM.  EM has high volumes of low skilled labor.  SF has relatively high concentrations of high skilled labor.  Most people don't understand tech.  Transformational tech requires less capital than ever.  This means lower margins for others.  EM not capable of embracing technology.  SF is impervious to risks like weak GDP, interest rates, etc.  Tech has been camoflauged by rising prices everywhere.  New tech is where you want to be.  Those are "safe" strangely enough.  Investors don't even like to travel to SF.  That will change in the next 3-5 years.

Moderator> Are early stage private companies better investments for tech?

JB>Want to own "Venture Debt".  Low risk.  Even low tech does well.  Innovation premium starting to be revealed.  Want to just be in top 5 or 6 venture funds.  Look for services.  Google is 300B market cap.  Facebook & Twitter.  Not that many tech hedge funds.

Japan

KB> US Recapped.  EU is 3.5x more leveraged than the US.  At some point, debt will matter.  Has always eventually mattered the last 2000 years.  When debts are 24 times revenues you are finished, it is just a matter of when.  Hopes he is wrong.  More he looks, the more he thinks it will happen.  Sees it happening the next few years.  Avoid Europe.  US is 4.5x debts to revs.  Japan is 24.

JB> Dollar is better than Yen or Euro.  Better chance for dollar to rally than market is pricing in.  Chart of S&P to EM tracks closely to dollar chart.  Similar to US in late 90s.  Not because of strength, but due to quanlity and governance in US compared to elsewhere.  Likes Quality in US then betting on low quality of EM.  Believes in multi-year trends until something reaches consensus.  Then you have reversion to mean.

How should mutual funds feel about Macro risks?

KB> If I were long only, I would not be able to sleep at night.  A Japan crisi could not be contained.  It would have huge impacts.

JB> Joke: mutual fund managers happy as long as they beat the benchmark.  This is an era where you want to own the best.  In Silicon Valley it is like winner take all.  Not enough premium on best of breed.

KB> During the Tequilla crisis, Mexican equities down 90%, even with 10x appreciation, you just break even.

Be sure to check out the rest of our summary of the Alpha Hedge West Conference.

Kyle Bass Discloses J.C. Penney Stake; Perry Buys Some of Ackman's Shares

If you aren't tired of hearing about J.C. Penney yet (JCP), here's even more hedge fund activity in the name:

Kyle Bass Starts J.C. Penney Stake

First, a 13G filed with the SEC has revealed that Kyle Bass' Hayman Capital owns a 5.2% stake in J.C. Penney (JCP) with over 11.4 million shares. This is a brand new position for the hedge fund as they did not own any JCP at the end of the second quarter.


Perry Buys Ackman JCP Shares 

Recently, we highlighted how Richard Perry's hedge fund Perry Capital had taken a position in JCP.  Well, they've since added to that position.  We also flagged how Bill Ackman was exiting his JCP stake and as it turns out, Perry was one of the buyers, purchasing 3 million shares at $12.90.  They now own around 8.62% of the company

This whole JCP saga will make for a very interesting investing/business school case study one day.

Paulson & Co Adds to Dex Media Stake, Kyle Bass Discloses His DXM Position

John Paulson's hedge fund firm Paulson & Co filed an amended 13D and a Form 4 with the SEC regarding shares of Dex Media (DXM).  Per the filings, Paulson has disclosed a 13% ownership stake in DXM with 2.23 million shares.

This marks an increase of around 19% in their position size, up from the 1.87 million shares they owned at the end of April. The new disclosure was required due to portfolio activity on May 14th.

Dex Media is the combination of the former Dex One (former ticker DEXO) and Super Media (former ticker SPMD) entities.  They recently merged and reorganized.  Paulson previously owned shares of both and as such received shares of the merged company.


Kyle Bass' Hayman Capital Discloses DXM Stake

Hedge fund Hayman Capital also owns a large stake in DXM and founder Kyle Bass presented the case on Dex Media at the recent Ira Sohn Conference.

Today we get a sense as to how big Bass' equity position is in the newly combined company. Per portfolio activity on April 30th, Bass' Hayman Capital filed a 13G with the SEC on Dex Media and revealed a 9.7% ownership stake in DXM with 1,664,636 shares.

Bass also previously held shares in both Dex One and SuperMedia and as such received shares in the newly combined entity, Dex Media.

Per Yahoo Finance, Dex Media "engages in the publication and marketing of directories, which include Yellow Pages and White Pages in the United States. The company also offers Internet-based telephone directory and database marketing services." 

Kyle Bass' Sohn Conference Presentation on Dex Media (DXM) & Japan

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Kyle Bass of Hayman Capital.  He presented the bull case on Dex Media (DXM), the newly formed entity after Dex One and SuperMedia merged and restructured.  He also touched on Japan again.


Long Idea: Dex Media (DXM)

Bass likes the former Yellow Pages play.  Combined destroyed $25B since 2006, since spun from VZ. Print yellow page ads have dropped at a 15% CAGR since 2002. SuperMedia and Dex One merged, two of the worst performing restructurings. Print is declining 18% per year ad infinitum, but Digital is growing 22%. Digital should be bigger than Print by 2016. Total revenue will flatten out, from $2.3B now to $2.0B. Could be $700M of EBITDA, debt looks attractive.

Sales team approach customers to run their online presence. Bank debt creates company at 2x EBITDA. IRR is in the 30s if it gets re-fi'd in next year. DXM, with more actual digital revenue than pure-play peers, trades at a cheaper multiple. $3.2B of debt on $2B Rev, $700M EBITDA, but FCF pays down debt. Equity is a tiny sliver, only $180M. Equity could go up 300% with a 3x multiple. Yes, fraught with risk, but bank debt is worth par. Equity is very small.


On Japan

He still believes they will have a full bond crisis in next few years. 10 Finance ministers in last 10 years.

For more on this manager, we've previously highlighted Kyle Bass on MBS, housing and gold.


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

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.

Kyle Bass: Short Japanese Government Bonds (Invest For Kids Chicago)

Next up in our notes from Invest For Kids Chicago is Kyle Bass of Hayman Capital.
 
•    Casual observation from Bass: He has heard the same sentiment as Zell that uncertainty is massive and they are buying tail protection from billionaires across the world
•    Hayman is a global event-driven fund which is 90% long in short duration things like mortgage backed securities etc.
•    Bass sees convexity in pricing and “all the convexity of world is in Japan.”
•    The next 18 months will set the stage for the Japan
•    Central banks have replaced traditional intermediaries – that is why global volatility is so low
•    Availability heuristic - people can only process data from readily available data
•    Accepting the logical conclusion is detrimental to many factors of our life


Bass: Short Japanese Government Bonds

•    3 false axioms of Japan

o    (1)  Can Japan run a current account surplus to self fund?  Bass says no.
o    (2)  Bank of Japan is not buying debt. Bass says false.  Monetization is occurring.
o    (3)  Retail investors will actually be able to hold all the debt.

This is largely in-line with what Bass presented at the Great Investors' Best Ideas conference recently as well if you want further thoughts from him.


For the rest of the hedge fund presentations from the event, head to notes from Invest For Kids Chicago.

Kyle Bass on SuperMedia Debt & Japan

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is Kyle Bass from Hayman Capital.

Bass mentioned that 90% of what he owns is in bonds (he has a ton of RMBS/subprime exposure).  He joked that he's constantly a contrarian since many other speakers at the event expressed disdain for bonds (though to be fair, the others were negative on treasuries, not RMBS).  He presented two ideas:


SuperMedia Debt

Before presenting his ideas, Bass noted that he pulled an 'audible' so this idea wasn't as in-depth.  Bass points out that bankruptcy wiped out billions for the company and that the debt trades at 66 cents while equity has fallen into obscurity.  He notes it's paying a 20% coupon and he thinks it's worth par in 2-3 years.  He also pointed out how SuperMedia is trying to merge with fellow competitor DexOne.


Bass: Don't Own Japan

Bass said that there's 80-200 trillion in global debt. In 18 months Japan will structurally fall apart.  "There's no chance at Japan repaying their debt."

He says psychology is important so look at anchoring bias.  It's important to think about how others think about debt.  Japan's debt to GDP is the worst in the world.  Their debt is 25x their revenues.  (David Einhorn was checking out Bass' slideshow).


Bass said there's 3 axioms that are actually false:

1. Positive current surplus, Japan not self-funding:  This is flat false he says.

2. Bank of Japan not monetizing the debt: Bass says they're already buying 2/3rds of the bonds today.

3. Retail investors will always support JGB's: Bass says Japan has a secular population decline.


We highlighted how in the past Bass has said that Japan would be selling more adult diapers than kids' ones and that's now the case.  He also pointed out how the country is having "adult diaper fashion shows."

He also illustrated how Japan is trying to sell JGB's by showing advertisements of a schoolgirl band selling them and sumo wrestlers pitching JGBs.

Touching on the Softbank/Sprint deal since it was mentioned earlier in the panel by Lee Cooperman, Bass noted that Softbank paying 20 billion yen to buy broken telecom is Softbank exporting yen as investors are starting to flee the currency.

Bass says that Japan has one of the "largest structural fiscal deficits in the world."  He doesn't know when exactly this collapse happens as this could go on for a few years?  He notes the timing on this sort of thing is very hard to peg, but it will "absolutely happen."

He wrapped up talking about playing options on this scenario because if it happens, you get paid a ton.  But in the mean time while you wait for it to happen, you only lose a little (we assume he's referring to price put options on Japanese JGBs, a trade he's talked about in the past).  For more on this manager, we've also recently posted up Bass on Europe and how he's investing.


For the rest of the presentations, head to notes from the Great Investors' Best Ideas conference.

Kyle Bass on Europe & How He's Investing Now: Interview

Continuing coverage of hedge fund appearances from the Barefoot Economic Summit, we also wanted to highlight Kyle Bass' interview on CNBC.  The Hayman Capital founder touched on Europe and how he's positioning his portfolio.

Bass noted that global money printing has made it a difficult investing environment.And regarding Europe, he says that:  "You will still see the European dominoes fall, I don't think there's any way around it."

Bass then elaborated that:

"The world sits in a place where it hasn't ever been before.  It's the largest peace-time accumulation of debt in world history ... The reason it's so difficult for us to understand what the playbook looks like going forward: we've never been here before."


Bass Long RMBS

As to how you invest given this worldwide mess, Bass says: "in our portfolio we have more than half our portfolio invested in subprime and Alt-A bonds." 

He thinks housing is going to flatten out (not going up anytime in the near future, but not going down either).  He feels you still have to flush out the shadow inventory (which he argues is still high).

As to how else he's positioned his portfolio:

"In our portfolio, we actually own what we call event-driven situations in either credit or equity and the way that we hedge our kind of the corpus of our portfolio is - the Black Scholes model of options pricing dramatically misprices optionality at secular turning points.  So there is enormous convexity in various areas of the world and we can spend just a small amount of capital and have enormous convex positions.  And I believe all the convexity in the world is in Japan."


On Investing "Not To Lose Money"

If you're approaching investing with the mentality of simply not losing money, Bass argues you need to own producing assets, something that's "nailed down."  He cited apartments, oil wells, and gas wells as examples.

When prodded about gold, Bass said he simply views it as a surrogate currency and doesn't think the gold standard will return anytime soon.  He still thinks you should own it among all the other currencies, but he doesn't know what percentage allocation is appropriate.



Embedded below is the video of Bass' interview:



Earlier today we posted John Burbank's interview from the same summit where the Passport Capital founder said he was negative on the US economy.