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Morning Brief: Tiger Grandcub Shutting Firm to Run for Governor

David Stemerman is closing his Conatus Capital Management in spite of strong performance this year as he prepares to explore a run for governor of Connecticut.

  • By Stephen Taub

Another relatively well-known hedge fund is shutting down — but this time it is apparently not for recent performance reasons. David Stemerman is planning to close down his firm, Conatus Capital Management, and return 95 percent of the capital to investors by late December, according to Bloomberg, citing a letter the firm sent to clients.

Stemerman is concerned about the growing income inequality in his home state, Connecticut, and wants to do something about it by running for governor on the Republican ticket, according to the report. “Connecticut – home to my family and business – is in crisis,” he reportedly wrote. “I am deeply concerned that a small number of people in our state are thriving while many are struggling to make ends meet. I do not claim to have all of the answers, but as an outsider with a fresh perspective, I believe that I can bring a different approach.”

Connecticut voters will select their next governor in November 2018. Stemerman is what’s known as a Tiger Grandcub because he previously worked for Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital. Mandel, of course, is one of the original Tiger Cubs, having previously worked for Tiger Management.

Stemerman launched Conatus in 2007. Conatus’ flagship long-short fund, Conatus Capital Partners, has produced mixed results. It was up 18 percent this year through August, according to Bloomberg. However, as we previously reported, it dropped 6.55 percent last year, its second loss in three years. But in the other three years out of the past five, the fund climbed by double-digits.

Earlier this year, Conatus raised about $40 million for Conatus Capital Opportunities Fund, a specialty fund designed to solely focus on disruptive technologies in media consumption. It is up 24 percent this year, according to Bloomberg. This was the firm’s second new fund in two years. In 2015 it launched a long-only fund, Conatus Long Opportunities Overseas Fund.

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ValueAct Capital bought another 6.75 million shares of private equity giant KKR, boosting its stake to 8.9 percent. It bought an equal number of shares on nine different days between September 6 and September 18, paying roughly between $18 and $19 per share.

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Morgan Stanley raised its price target on hedge fund favorite Apple from $182 to $194 and lifted its 2018 earnings estimates following the launch of the new iPhone. The investment bank was impressed that Apple can raise prices without hurting demand, citing what it calls an aspirational brand, high customer loyalty and weaker U.S. dollar. “Apple is an aspirational brand offering high quality, innovative products at a premium price,” the investment bank adds in a research note. “As a result, the company escapes the typical trend of declining prices that drive demand for other devices.” At the end of the second quarter, Apple was the fifth most widely-held stock among hedge funds (along with Bank of America), with at least 136 investors, according to Goldman Sachs. The stock is also among the top-ten holdings of at least 38 hedge funds.

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Credit Suisse downgraded its rating on hedge fund favorite Time Warner from outperform to neutral but raised its estimates, citing the fact the media giant’s deal to be acquired by AT&T is close to receiving regulatory approval.

“In the U.S., we believe it would be difficult for the DOJ (Department of Justice) to block the transaction on antitrust grounds given its vertical nature and the precedent from Comcast’s acquisition of NBCU,” the investment bank explains in a note, adding that the stock currently trades at a 5 percent discount to the current value of the AT&T offer. At the end of the second quarter, Time Warner was the ninth most widely-held hedge fund stock with 112 holders. No doubt at this point most of the investors are playing the stock as a deal arbitrage investment.

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