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Morning Brief: Hedge Fund Investors Sell on Strength

Investors pulled $2.9 billion from hedge funds in October even as the industry produces its best performance in years.

So much for the strong stock market rally. Investors redeemed $2.9 billion from hedge funds in October, according to a new report from eVestment. The net outflows come as hedge funds are poised to post their best year since 2013 amid a rip-roaring bull market in stocks. Equity funds alone suffered nearly $3 billion in redemptions last month, though their flows are still up $15.16 billion for the year. Despite redemptions, total industry-wide assets grew to a record $3.253 trillion thanks to performance gains. Net flows to hedge funds for the full year are also still up, by $33.26 billion. Altogether, 54 percent of funds lost assets from redemptions in October, similar to September, according to the eVestment report. Managed futures saw an increase in assets for the first time in four months.

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Arby’s Restaurant Group agreed to acquire Buffalo Wild Wings in a deal valued at $2.9 billion, or $157 per share. This is roughly a 10 percent premium to what Marcato Capital Management had paid for a bulk of its shares one-and-a-half years ago, according to a regulatory filing at the time. Arby’s, which is privately-held, is majority owned by affiliates of Roark Capital Group, a private equity firm that focuses on investing in restaurant, retail and other consumer sectors. Marcato, which owns about 6.4 percent of BWW shares, has entered into an agreement to vote in favor of the transaction. Earlier this year, Mick McGuire III’s Marcato won three seats on the board of Buffalo Wild Wings in a proxy fight. However, until recent rumors of the deal surfaced, the stock had been down around 30 percent. Shares of Buffalo Wild Wings surged 6.3 percent Tuesday to close at $155.60. Marcato International is up about 16 percent for the year through mid-November.

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Little known bank activist Lawrence Seidman has identified a new target. The Parsippany, New Jersey-based hedge fund manager, who specializes in shaking up small local banks, disclosed that he owns 6 percent of FSB Bancorp, Inc., the bank holding company of Fairport Savings Bank, which conducts business from its main office in Fairport, New York and four branches. In a 13D filing, Seidman said he bought the stock because it was undervalued. He also said on November 22, he had a phone call with Kevin Maroney, the chief financial officer and chief operating officer of FSB. Maroney is slated to become president and CFO on January 1, 2018. During the phone call, Seidman said he suggested the company continue to accelerate its buy-back program and consider a special dividend. The pair also discussed “different ways to maximize shareholder value and agreed to keep an open dialogue in the future,” according to the filing.

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Ari Glass’s Boothbay Fund Management disclosed it owns nearly 6 percent of Big Rock Partners Acquisition Corp., a blank check company formed to do a deal in the senior housing and care industry in the United States.

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Shares of Snap Inc. jumped 4.1 percent to close at $13.61, its highest price since early November, when it had reported disappointing earnings results. At the end of the third quarter, Tiger Cub Coatue Management, a Snap investor when the parent of Snapchat was private, remained the second largest shareholder. The stock is also a significant holding of three other funds with roots to Julian Robertson, Jr.’s Tiger Management: Glade Brook Capital Partners, Tybourne Capital Management HK, and Valiant Capital Management. However, another early investor, Stephen Mandel, Jr.’s Lone Pine Capital, liquidated its stake in the third quarter.

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