The Morning Brief: Tepper Goes Activist on TerraForm Power

David Tepper’s Appaloosa Management has taken a rare activist position. Several weeks after the Short Hills, New Jersey hedge fund firm denied it owned shares in crumbling alternative energy provider SunEdison, Appaloosa disclosed it has a significant investment in TerraForm Power, a subsidiary of SunEdison. Formerly known as SunEdison Yieldco, TerraForm holds a portfolio of wind and solar assets. Appaloosa said in a regulatory filing Wednesday that it owns 9.25 percent of the shares of TerraForm and senior notes.

Tepper initially revealed the investment in the company on Tuesday, when he made public a letter he sent on November 25 to the board of directors of TerraForm Power. In the letter, Tepper lambasted recently announced changes to the management team and board members and questioned several deals. He also made accusations of conflicts of interest between TerraForm and SunEdison. Tepper criticized the company’s July announcement that it plans to acquire the Vivint Solar portfolio of residential rooftop assets, calling it “an unfortunate departure” from TerraForm’s business model to focus on a “high quality portfolio of fully-developed wind and solar power assets that were supported by long-term power purchase agreements with large, investment-grade corporate counterparties.”

Tepper called the homeowner market “weaker counterparties” that offer a higher risk profile. He also questioned TerraForm’s financial relationship with SunEdison regarding a separate deal. Shares of TerraForm surged about 33 percent on Tuesday, but retreated 0.44 percent on Wednesday. SunEdison rose 2 percent on Wednesday and is up 11.6 percent in two days, closing at $3.56.

___

As more results come in for November, the month is shaping up as a mixed one, depending upon the strategy. For example, William Ackman’s New York-based Pershing Square Holdings, managed by New York-based Pershing Square Capital Management, said it lost 2.3 percent last month, extending its loss for the quarter to 9.4 percent. As a result, the mostly long-only hedge fund (although it does have its infamous short position in Herbalife) is now down 20.8 percent for the year. This is roughly in line with the hedge funds managed by David Einhorn’s New York-based Greenlight Capital.

Daniel Loeb’s Third Point Offshore, which is more of a multistrategy fund these days, lost 0.2 percent in November and is down the same amount for the year. About two-thirds of the fund’s long exposure is to long-short equity strategies, while credit accounts for a little more than one-third of long exposure. It is managed by New York-based Third Point.

___

New York multistrategy giant Och-Ziff Capital Management reported that its OZ Master Fund rose 0.29 percent in November. As a result, it is now essentially flat for the year. The OZ Asia Master Fund rose 0.59 percent last month, boosting its gain for the year to 7.29 percent, while the OZ Europe Master Fund rose 0.75 percent in November and is now up 5.43 percent for the year. The publicly traded firm also said that assets under management were $44.6 billion as of December 1, a net increase of about $200 million from the previous month.

___

Another hedge fund firm is returning money to investors. New York-based Seminole Management said it will give back $400 million, noting “the game has changed” for its trading strategy, according to the Wall Street Journal, citing an investor letter and a firm representative. The firm managed about $3 billion at the beginning of 2015. The Seminole Offshore fund was down 6.72 percent for the year through November 20, according to the HSBC database. It was up 11 percent last year and more than 23 percent in 2013. The firm, founded by Michael Messner and Paul Shiverick, cited a variety of factors for its disillusionment, including electronic traders, the growth in passive investing and central bank policies, according to The Journal.

___

The Credit Suisse Liquid Alternative Beta Index declined by 0.63 percent in November, cutting its gain for the year to 0.69 percent. The Managed Futures strategy led all strategies last month, gaining 2.08 percent, and is now up 4.28 percent for the year. The Long/Short Equity strategy is the top performer for the year, up 7.30 percent.

Related