The Morning Brief: Highlights from Delivering Alpha

It was supposed to be a debate between legendary investor Carl Icahn and BlackRock CEO Larry Fink on shareholder activism at Wednesday’s Delivering Alpha conference. But it quickly devolved into a slugfest, with Icahn verbally pummeling Fink from the moment he started talking. Icahn called Fink’s open letter, written earlier this year to corporate CEOs urging them not to buy back stock just to satisfy activists, a “sales pitch for BlackRock” and then blamed the world’s largest asset manager for low yields on high-yield bonds.

Icahn called BlackRock “an extremely dangerous company” for selling liquid products (exchange-traded funds) that are tied to high-yield bonds, which he says are too illiquid. At one point, Icahn talked about an idea for a cartoon in which Fink and Federal Reserve Chair Janet Yellen are driving a high-yield “party mobile” off a cliff. The punch line? “They’re going to hit a black rock.”

Fink fruitlessly tried to steer the conversation back to activism several times, then took a few jabs himself, at one point snapping, “Carl, I don’t tell anybody what to own.” CNBC anchor and moderator Scott Wapner finally brought the pre-cocktail-hour showdown to a close, quipping, “Lord knows I need a drink.”


One of the main reasons people look forward to Delivering Alpha is to see what big new trades the industry’s market movers are going to unveil. This year did not disappoint, with New York–based activist firm Starboard Value revealing that it’s taken a stake in department store chain Macy’s. CEO and founder Jeffrey Smith, fresh off a victory in his long campaign against Darden Restaurants, said during the Best Ideas panel he thinks that shares of Macy’s are worth $125. (The stock jumped 4 percent during Smith’s presentation and finished the day up 8 percent.)

Smith said the company has the potential to unlock value from its strong credit card business, operational improvements and — a recurrent theme for Smith, and indeed for his fellow activist panelists — its real estate. Smith, who wants Macy’s to spin off its property holdings into a real estate investment trust, said that the company has $21 billion worth of real estate and that its iconic Herald Square location is worth $4 billion alone.


Smith’s fellow panelists echoed the real estate theme with their investments. Thomas Sandell said he has taken a stake in furniture chain Ethan Allen, saying that the company has a strong brand name, quality furniture and valuable real estate holdings — none of which are reflected in the current market value. The Sandell Asset Management Corp. founder and CEO said the company is an ideal candidate for a private equity buyout. But co-moderator Jim Cramer pointed out that furniture stocks are notoriously cyclical and raised the question of what would happen if the company were loaded up with debt just in time for a downturn.

Corvex Management founder and CEO Keith Meister also beat the real estate drum, once again touting American Realty Capital Properties, saying that the accounting scandal that rocked the company is behind it and that the new management team is much better qualified to run it. Meister alluded to Smith and Sandell’s presentations, saying that corporate CEOs are thinking “much more progressively” abut using their real estate assets to finance their balance sheets — which benefits ARCP, a real estate investment trust.


One of the more lively moments from the morning sessions occurred during the panel discussion on global opportunities amid upheaval in China, Greece and elsewhere. Perry Capital founder Richard Perry came out strongly bullish on Puerto Rico, which recently said it is unable to pay back $72 billion of debt. Perry called Puerto Rico “The 51st state” and that there are constitutional guarantees it will repay its debt. He also said it is mischaracterized in the press and is not facing a Detroit-style exodus. But J.P. Morgan Asset Management CEO Mary Callan Erdoes sharply disagreed, saying the population is indeed decreasing and that this raises questions of who will pay for the debt.


Elliott Management Corp. founder Paul Singer is not known for his boundless optimism. So it’s probably no surprise that in his lunchtime keynote, Singer once again sounded alarms about the global economy and the effects of quantitative easing and perennially low interest rates. He also expressed fears about contagion from a China crash, calling it “way bigger than subprime.” At least Singer is self aware, acknowledging his reputation as an arbiter of doom and gloom. “You may wake up smiling,” he said. “I wake up saying, ‘What’s it going to be today?’’’


Leda Braga is by far the most successful female hedge fund manager in history, having built up her quantitative funds at BlueCrest Capital Management into a multibillion-dollar operation that was spun out into its own firm, Systematica Investments, last fall. So what advice can Braga offer to women in the heavily male-dominated hedge fund industry? In short, lean in. Braga said that her former bosses at BlueCrest hired her when she was 34 weeks pregnant, joking that they claimed they didn’t notice during the interview process. She also said she never felt guilty leaving her son in childcare while she went to work. It’s good for him that she didn’t: Systematica now manages $9.5 billion.


Another year, another awkward embrace for Pershing Square Capital Management’s William Ackman. This year’s conference kicked off with a panel from Delivering Alpha veterans Nelson Peltz (founder of Trian Fund Management) and Ackman, whose bro-hug with Peltz was reminiscent of last year’s very awkward embrace with longtime foe Carl Icahn. Unlike Icahn and Ackman, however, this year’s duo found some common ground. Both Peltz and Ackman said they avoid technology companies, and Ackman also touted Fannie Mae, which Peltz professed to like even though he didn’t know much about its business. In any case, if Ackman watched the day’s final panel — which was broadcast live on CNBC — he was undoubtedly relieved to have shared the stage with Peltz and not Icahn.