The Morning Brief: Pershing’s Ackman Moves Into Fannie and Freddie

Pershing Square Capital Management’s William Ackman has moved on to his next activist target. The New York hedge fund manager disclosed Friday he owns nearly 9.9 percent of the common shares of Fannie Mae and nearly 9.8 percent of Freddie Mac. In a regulatory filing, he said he acquired most of his shares since October 7 by exercising stock options. The hedge fund said it is inspired by Fairholme Capital Management’s proposal late Wednesday to acquire the insurance businesses of Fannie Mae and Freddie Mac. Fairholme and other hedge funds have been big buyers of Fannie and Freddie’s preferred stock.

Scout Capital Management ., the hedge fund firm founded in 1999 by James Crichton and Adam Weiss, cut its stake in Tim Horton’s Inc. to 4.4 percent from 5.5 percent. Earlier this week, Tim Horton’s, an aggressive buyer of its own stock, announced it would repurchase 2.12 million shares under one or two private agreements. The stock is up 40 percent this year. In June we reported the two principals fired off a letter to the board of directors asserting Tim Horton’s could boost its stock price by 65 to 105 percent if it followed the hedge fund’s blueprint for boosting value. The company seemed to have heard them. In August the board approved a $900 million increase in debt to be used to repurchase stock. In October it entered into a one-year, $400 million revolving bank facility, to provide interim financing. The company also opened 13 restaurants in the U.S. during the quarter. In August Scout gave up on its activist battle with DineEquity Inc., reducing its stake to 4.2 percent. By the end of the third quarter it had cleared out its entire position. Still, while Scout is trimming its stake, the folks at Tim Horton’s should not relax for too long. In the third quarter, the stock was one of the biggest new positions taken by activist Mick McGuire of Marcato Capital Management, who learned his trade working at William Ackman’s Pershing Square Capital Management.

Ricky Sandler’s Eminence Capital, which owns 9.8 percent of The Men’s Wearhouse Inc., said in a regulatory filing that it is seeking to call a special meeting of shareholders to vote on a number of bylaw amendments with the goal of eventually being able to remove directors “without cause” before the next annual meeting after the company failed to reach a merger deal with Jos. A. Bank Clothiers Inc. by Thursday’s deadline. “Eminence Capital believes that by allowing yesterday’s deadline to expire, the Board has confirmed that it is not committed to exercising its basic fiduciary duties to shareholders and is satisfied with the status quo,” the New York hedge fund stated in a regulatory filing. “In light of the Board’s actions, we are forced to launch this initiative that will give shareholders the opportunity to effect important corporate governance changes at Men’s Wearhouse.” Under Texas law the special meeting may be called by holders of at least 10 percent of all of the shares of Men’s Wearhouse entitled to vote at the special meeting. On November 4, Men’s Wearhouse put out a statement saying it rejected the $48 per share buyout offer, asserting “the proposal significantly undervalued Men’s Wearhouse and its strong prospects for continued growth and value creation, and was not in the best interests of Men’s Wearhouse or its shareholders.” Sandler also lambasted the company for governance changes implemented last month by the board, including the imposition of a super-majority vote for shareholder amendments to the bylaws and implementation of a poison pill with a 10 percent threshold.

The Credit Suisse Hedge Fund Index rose 1.59 percent in October, putting it up 7.03 percent for the year. Long-short equity is the best performer, up 13.55 percent, while -- no surprise -- dedicated short bias funds are taking a beat, down, on average by 23.21 percent.

The hedge fund industry topped $2 billion in assets in September, according to BarclayHedge and TrimTabs Investment Research. Hedge funds brought in $4.1 billion more in assets than was redeemed in September, the third straight month of net asset growth, according to the report, which is based on data from 3,340 funds. Altogether, the industry has received a net $51.6 billion in 2013. This compares with an outflow of $2.6 billion during the same period last year. On the other hand, funds of hedge funds suffered a net outflow of $2.6 billion in September, and have only experienced net inflows in two of the past 24 months.

The average emerging markets hedge fund rose 2.5 percent in October and is up 4.7 percent for the year to data, as measured by the HFRI Emerging Markets Total Index. Total capital invested in emerging markets hedge funds rose to $161 billion.

Shares of Allison Transmission Holdings Inc. rose another 1.72 percent to $26.09 and are up more than 12 percent since Jeffrey Ubben’s ValueAct Capital boosted its stake to 9.9 percent on Monday.

Shares of Herbalife surged nearly 5 percent to $69.05. On Thursday, a number of hedge fund managers disclosed new or substantially increased stakes in the multi-level marketer of nutrition and health supplements, including retired hedge fund manager Stanley Druckenmiller; Richard Perry’s Perry Corp.; Kyle Bass’ Hayman Capital Management L.P.; Scout Capital Management, founded by James Crichton and Adam Weiss; PointState Capital, founded by several former Duquesne Capital investment pros, and Kenneth Griffin’s Citadel Advisors.