Here is another reminder about the risks investing in speculative markets that don’t have a long history of stability. Chicago-based industry tracker Hedge Fund Research reports that its HFRI EM: Russia/Eastern Europe Index lost 9.7 percent through the first four months of this year. This is the worst decline since the index lost 10.5 percent in May 2012. This means hedge funds are suffering their second huge drop in these shaky markets in the past three years. Yet total capital invested in all emerging markets rose to $175.6 billion in the first quarter, the seventh straight quarterly record.

Inflows into emerging Asia, Middle East and Multi-EM (emerging markets) offset performance based asset declines in Russia and Latin America, according to HFR. The HFRI Emerging Markets (Total) Index, a broad-based composite of emerging markets hedge funds across all regions, lost just 1 percent year-to-date through April. Russia-focused funds represent about 15 percent of the index composition.

“Investors in emerging markets hedge funds typically have a tolerance for volatility and expectation of high returns; those investing in funds focusing on exposure to Russia and Eastern Europe categorically have the highest tolerance for volatility, which was imperative through the first quarter in which the political, secular and economic uncertainty associated with Russian capital markets and Ukraine reached extreme levels,” said Kenneth Heinz, president of HFR, in a press release. “Historically, sharp drawdowns in EM and Russian exposure are typically followed by strong performance recoveries.” Good luck waiting for it.
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Valeant Pharmaceuticals International raised its hostile offer for Allergan for the second time in a week. The aggressively acquisitive drug giant, which teamed up with Pershing Square Capital Management on the bid, raised the cash portion of its offer to $72 per share from $58.30. Otherwise, it kept its earlier offer of 0.83 of a Valeant share, bringing the total value of its new offer to about $179.25 a share. The new proposal also includes a contingent value right valued as much as $25 a share if Allergan meets certain sales goals for its experimental eye drug Darpin.
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Tom Sandell, chief executive of Sandell Asset Management, which is locked in a proxy fight with Bob Evans Farms, fired off a letter to the company’s board. Sandell expressed unhappiness that the food service company’s lead independent director, Michael Gasser, sent a letter to the eight independent director nominees proposed by Sandell inviting them “to a hastily-convened and unorthodox round of individual questioning” by Gasser and “certain other” directors at the company’s headquarters, Sandell wrote.

Sandell asserted that Gasser appears to be attempting to “inappropriately subvert the director nomination process,” calling this action as “particularly troubling.” Sandell also expressed dismay that the company did not attempt to contact his firm to discuss “a constructive solution” and that after a year the board has not shown “the slightest inclination” towards reaching an amicable resolution.
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In other activist news, Starboard Value sold another 660,000 shares of Calgon Carbon, reducing its stake to 4.9 percent. As a result, the New York activist fund no longer must report sales of the shares of the water-purification company. In November Starboard called on the company to buy back stock. In March 2013 Calgon added two independent directors to its board, including one backed by Starboard.
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And in yet more activist news, Donald Drapkin’s New York–based Casablanca Capital issued a press release calling on Cliffs Natural Resources to eliminate the “proxy put” threat disclosed in the mining company’s proxy. Casablanca explains in the letter that the election of a majority slate of new directors proposed by Casablanca could trigger a change of control under the indenture governing Cliffs’ senior notes. This could potentially require the company to repurchase the notes.

Casablanca says that Cliffs “failed to make clear” that the current directors could easily defuse the proxy put simply approving Casablanca’s nominees. “The board has implied a willingness to put the company’s very existence at risk, employing brinksmanship with the company’s liquidity in an attempt to preserve its current seats,” Casablanca stated in the release. Casablanca also asserted that chairman James Kirsch and Gary Halverson, Cliffs’ president and chief executive, should no longer serve as executives.
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Boston-based Adage Capital Partners disclosed that it established a 1.2 million share passive stake — or 6.45 percent of the total outstanding — in Agile Therapeutics, a women’s health specialty pharmaceutical company.