The Morning Brief: Texas Pension Reshuffles Hedge Fund Investments

The Texas County & District Retirement System in Austin is the latest pension fund to redeem some of its hedge fund investments. However, unlike other investors, it is not reducing the total amount of money allocated to hedge funds in general. Rather, it is just reshuffling its commitments.

The Texas portfolio plans to redeem $760 million from five hedge funds but reallocate the money among the 23 remaining hedge funds in its $6.2 billion hedge fund portfolio, according to pionline.com, the website for Pensions & Investments. Specifically, it is redeeming its $223 million allocation from York Capital Management, whose York Capital fund was down 4.9 percent for the year through September, according to the report. The Texas pension also plans to redeem from Archipelago Partners, Ascend Partners Fund II, Brevan Howard Asset Management’s flagship macro fund and Asia-focused multistrategy manager LIM Advisors.

The retirement plan already has made seven new commitments to hedge funds this year, including $150 million to Sound Point Credit Opportunities Fund on November 1. On the same day it also allocated $50 million to the Canyon Value Realization Fund, according to the pension plan’s website.

___

Marcato Capital Management’s Richard (Mick) McGuire III has taken his fight with Buffalo Wild Wings to its franchisees. The activist hedge fund manager sent off a letter on Tuesday informing these operators of the casual dining restaurants about his plans for improving the company’s stock price, assuring them that “returning to a predominantly-franchised business model and putting franchisees first are key components of our proposal.”

He stresses that under his plan, franchising will be “the top priority” for the company — not company-owned units — and that markets and territories currently reserved for future corporate development should be made available to franchisees. McGuire also tells them he wants the company to focus on capital allocation and business spending in order to maximize returns on invested capital.

“We are concerned that capital allocation discipline and ROIC (return on invested capital) have deteriorated in support of corporate growth at any cost,” the letter adds. “We believe that our recommendations would improve the valuations of franchisee networks and transaction dynamics in favor of franchisee growth.” McGuire also says he is pushing for the board of directors to include directors with “real restaurant operating experience and with financial acumen.” McGuire also invites the franchisees to visit his new website, www.WinningAtWildWings.com.

___

Bob Evans Farms said in a regulatory filing that it is evaluating “all options to create shareholder value” and is working with J.P. Morgan “to review and evaluate potential opportunities for value creation.” However, the restaurant and food service company adds there is no formal timeline for completing the review and there is no certainty the review “will result in a particular outcome.” Activist hedge fund firm Sandell Asset Management, which has an 8.1 percent activist stake in the stock, applauded the announcement, adding it will halt its pursuit of a consent solicitation seeking shareholder approval of “a precatory proposal advocating increased transparency.”

The hedge fund has repeatedly called on the company to break into two separate independent businesses, Bob Evans Farms Foods and Bob Evans Restaurants. In its statement, Sandell stressed that until now the company hadn’t even identified its financial advisors, leading to skepticism in the investment community over the company’s commitment to enhance shareholder value.

“With this greater transparency, it is our belief that Bob Evans may now be able to reach a broader universe of potential partners as it continues to evaluate options to create shareholder value,” Sandell adds.

Related