This content is from: Portfolio

The Morning Brief: Hedge Fund Investors Are Becoming Tough Negotiators

Hedge fund investors are getting tougher on the hedge fund firms with which they invest. According to a new survey from Barclays, about three-quarters of investors said they successfully negotiated preferential terms with managers.

“Investors have been able to negotiate more aspects of the terms governing the relationship with their hedge fund managers,” the survey notes. “They are seeing greater engagement form mangers in addressing both ‘traditional’ touch points, such as reduced fees for longer locks or larger tickets, as well as the ‘non-traditional,’ such as hurdle rates or limits on pass-through expenses.”

Specifically, 60 percent of investors reported that some or most of the time, they got lower fees in exchange for a longer lockup. Half of investors said that some or all of the time they were able to secure hurdle rates.

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The survey also found that investors are more upbeat about hedge funds…sort of. Barclays expects about $300 billion in gross allocations to hedge funds across various strategies this year. However, the investment bank stresses that most of the new allocations will come from redemptions from other hedge funds, rather than new money flowing into the industry. Last year, hedge funds suffered just their third-ever year of net redemptions. Barclays’ tempered optimism reflects the results of its recently conducted survey, which found that 48 percent of 350 investors said they plan to allocate money to hedge funds in 2017. This compares with just 33 percent who signaled this intention in last year’s survey.

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Shares of Tribune Media jumped 3.3 percent on Wednesday, to close at $34.82, after Jeffrey Smith’s Starboard Value disclosed it owns nearly 5.8 million shares of the media company, or 6.6 percent of the total shares. The hedge fund firm disclosed in a regulatory filing that it began building its position in the final week of December. Starboard revealed in an earlier filing that it owned two million shares at the end of 2016.

In its Tuesday evening 13D filing, Starboard used standard language to note the shares are undervalued and “represented an attractive investment opportunity.” So far, it has no plans for the company to unlock this value. This silence, however, will no doubt change. The company, which has a $3 billion market capitalization, owns or operates 42 television stations and has a digital and data segment.

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Shares of Bristol-Myers Squibb rose 1 percent, to close at $55.33, on reports that Carl Icahn bought a stake in the drug giant and thinks the company is a good takeover target. The reports follows the company’s Tuesday announcement that it will add three new directors and would repurchase $2 billion worth of stock as part of a settlement with activist hedge fund firm JANA Partners.

BMS said in a press release that since JANA became a shareholder in the fourth quarter of 2016, members of the board and management have held discussions with the investor “to better understand their views.” Tuesday’s appointments follow those discussions.

“These three new independent directors will add valuable industry knowledge and fresh perspectives to the Board, and shareholders stand to reap a substantial benefit from the company’s sizable investment in its undervalued shares,” says Barry Rosenstein, founder and managing partner of JANA, in the press release announcing these moves. “These are two very positive developments for all Bristol-Myers Squibb shareholders.”

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Viking Global Investors established a stake of 1.142 million shares in Calithera Biosciences, or 7.8 percent of the clinical-stage pharmaceutical company that focuses on developing small molecule drugs directed against tumors. The investment is passive.

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Joseph Edelman’s Perceptive Advisors nearly doubled its stake in Zogenic to 1.355 million shares, or 5.46 percent of the total outstanding of the company developing therapies for central nervous system disorders. Perceptive specializes in smaller capitalization stocks in a large variety of health care companies.

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