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The Morning Brief: ValueAct to pay $11m in DoJ Settlement

San Francisco-based activist firm ValueAct Capital Management has agreed to pay $11 million to settle with the Department of Justice over its purchase of more than $2.5 billion worth of voting shares of oilfield services companies Haliburton and Baker-Hughes, which the government alleged violated disclosure rules.

In April, the DoJ filed suit against ValueAct, claiming that the firm held discussions with management at both companies, which had been planning to merge, in violation of the Hart-Scott-Rodino Act. The law, which is meant to allow the government to block potential deals that may violate antitrust rules, requires investors to alert regulators when they are buying more than $78.2 million of a company’s stock. Investors taking a passive stake of less than 10 percent are exempt from the rule.

People familiar with ValueAct said it had not intended for the positions to turn activist, though this eventually happened at Baker Hughes, according to a Wall Street Journal report. The government blocked the planned merger of Baker Hughes and Halliburton earlier in the year on antitrust grounds. “ValueAct acquired substantial stakes in Halliburton and Baker Hughes in the midst of our antitrust review of the companies’ proposed merger, and used its position to try to influence the outcome of that process and certain other business decisions,” said Renata Hesse, head of the Justice Department’s Antitrust Division, in a statement announcing the settlement. “ValueAct was not entitled to avoid the HSR requirements by claiming to be a passive investor, while at the same time injecting itself in this manner.”

ValueAct said it agreed to pay the record fine to avoid potentially paying an even stiffer penalty down the road, according to a Wall Street Journal report. “ValueAct Capital fundamentally disagrees with DOJ’s interpretation of the facts in connection with our investments in Halliburton and Baker Hughes,” the firm said in a statement. “However, due to the sudden and unanticipated 150 percent increase in the potential penalties associated with alleged Hart Scott Rodino violations effective August 1, we felt we had no choice but to resolve this case as quickly as possible. We are pleased to have come to a resolution to this litigation that will not impact our business or strategy going forward.”


A new Credit Suisse survey of hedge fund investors finds that despite bad performance — and a handful of institutional investors ditching them altogether — hedge funds remain popular with investors. Credit Suisse’s Mid-Year Survey of Hedge Fund Investor Sentiment, which polled 200 respondents representing nearly $700 billion in hedge fund investments, found that 73 percent of investors said they would make allocations to hedge funds in the second half of the year. And while 84 percent of respondents said they redeemed from hedge funds in the first half of he year, 82 percent plan to reinvest that capital with other hedge fund managers.

“Despite some outflows from the hedge fund industry last year, most institutional investors appear to be staying the course and intend to recycle the vast majority of capital back into other hedge funds,” said Robert Leonard, global head of capital services at Credit Suisse.

Of those who redeemed, 63 percent cited underperformance or style drift at specific managers, rather than dissatisfaction with the industry as a whole. Of those who plan to reinvest, 60 percent said they will do so opportunistically, depending on strategy or manager performance. The top three most popular strategies that investors are considering allocating to in the second half are equity long-short, equity market neutral and global macro.


Wilshire Associates said its Wilshire Liquid Alternative Index gained 0.36 percent in June, outpacing Chicago-based hedge fund tracker HFR’s HFRX Global Hedge Fund Index, which added 0.20 percent over the same period. Wilshire’s liquid alternative multistrategy index returned 0.34 percent, while its liquid alternative equity hedge index fell 0.68 percent. The firm’s best-performing liquid alt index by far was its global macro index, which returned 2.31 percent in June.


Shares of copper producer Freeport McMoRan surged nearly 11 percent on Tuesday, to close at $12.90. The stock’s gain coincided with a rise in copper prices, which gained for three straight days, according to a Reuters report. At the end of the first quarter, former hedge fund manager Carl Icahn was the company’s largest shareholder, with about 8.3 percent of the shares. Other hedge fund holders at the end of the first quarter included Tiger Cub Discovery Capital Management, based in South Norwalk, Connecticut, and macro giant Caxton Associates, based in New York.


That’s gotta hurt: A big short position for Sahm Adrangi’s New York-based Kerrisdale Capital, a $400 million hedge fund in New York, went against the firm on Tuesday. Shares of Sage Therapeutics, a Cambridge, Massachusetts-based biopharmaceutical firm, surged more than 37 percent on Tuesday after the company announced that its drug for postpartum depression showed positive results in a mid-stage study. The shares closed at $46.21. Adrangi is one of few fund managers to publicly disclose his short positions. Adrangi announced in late March that he was shorting Sage, which currently does not have any drugs on the market, saying that one of its expermiental drugs, to treat a neurological disorder, would likely fail late-stage tests. Kerrisdale returned 17 percent last year, according to Reuters.

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