This content is from: Portfolio

The Morning Brief: Bridgewater, Perry’s Fortunes Diverge

Call it a tale of two hedge fund firms. Both are headed by members of Alpha’s Hedge Fund Hall of Fame, and both are suffering losses this year in their flagship funds. However, one of them was able to recently raise money from investors who think better days are ahead, while the other is suffering major outflows due to the lousy performance.

On one hand there is Bridgewater Associates, the world’s largest hedge fund firm. According to the Financial Times, the Westport, Connecticut firm has raised $22.5 billion after opening its funds to outside money for the first time in seven years. The paper said Bridgewater made this move due to the launch of a new strategy and a decline in assets because of losses in its Pure Alpha strategy. We recently reported that through September 5, Pure Alpha II had lost 9.4 percent for the year, while Pure Alpha was off by 6.1 percent. Raymond Dalio founded Bridgewater in 1975. It launched its actively managed Pure Alpha macro strategy in 1991, its All Weather risk parity strategy in 1996 and its Optimal Portfolio, which is a combination of the two strategies, in February 2015.

Going in the opposite direction is Richard Perry’s Perry Capital, an event-driven firm that has been around for 28 years. According to Bloomberg, the New York firm, which has been losing money since 2014, has lost 60 percent of its assets. It was down to $4 billion as of the end of August, compared with $6.4 billion at the beginning of the year and nearly $10 billion at the beginning of 2015, according to Alpha’s Hedge Fund 100 ranking. Perry’s hedge funds declined 3.4 percent in 2014, 12.6 percent last year and another 2.6 percent this year through July.

Perry is the latest among a number of well-known hedge fund firms to suffer major redemptions in the past year amid an investor revolt against lousy performance and high fees. Others include Tudor Investment Corp. and Brevan Howard Asset Management.

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Shares of Perrigo Company surged 7.45 percent, to close at $95.23, after New York activist firm Starboard Value disclosed it owns 4.6 percent of the Dublin, Ireland-based drug company and fired off a letter calling on it to make changes to “reverse the trajectory of poor operating and financial performance.”

Starboard stresses that Perrigo’s stock is “deeply undervalued” and that there are “significant opportunities” to boost shareholder value. It also laments Perrigo’s decision in April 2015 to reject Mylan’s takeover offer for cash and stock worth $205 per share. This was more than a 25 premium at that time and at current market prices 88 percent more than Perrigo’s closing stock price on Friday.

“Management and the Board went to great lengths to oppose this proposed combination, spending more than $100 million in advisor fees relating to its defense, and promising shareholders that their standalone strategy would produce more value than the transaction given the robustness of Perrigo’s future prospects,” the letter laments. “Since that time, results have gone decidedly in the wrong direction, and management’s promises have been woefully unfulfilled.” Starboard does stress that Perrigo has a strong franchise with valuable assets.

In response, Perrigo says in a statement it will carefully review the letter “and looks forward to a constructive and productive dialogue with Starboard — as we do with all of our shareholders — while we execute on a number of strategic and operational initiatives.” The company also states it “reiterates its commitment to disciplined execution; transparency with its shareholders, customers, and employees; and, above all, to delivering value for its shareholders.”

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Baupost Group made significant changes to at least three of its sizable U.S. stock holdings on August 31. All of the disclosures were made in separate 13G filings, which suggest these investments are passive. Of course, equities are just a part of the portfolio of the eclectic, Boston-based hedge fund firm headed by Seth Klarman. At the end of the second quarter, however, Baupost did boost its U.S. equity portfolio from $6.9 billion to $7.4 billion, its largest equity exposure in its history.

In June, U.S. equities accounted for 26 percent of the $28.5 billion the firm was managing at the beginning of the year. In the first half of the year, Baupost, which also may invest in mortgage securities, debt and private companies, was up 4 percent.

In one of the filings over the past few days, Baupost said it boosted its stake in PBF Energy by about 50 percent, to more than 15.7 million shares, or more than 16 percent of the total outstanding of the large refiner and marketer of unbranded petroleum products.

On the other hand, the hedge fund firm said it cut its stake in SunEdison Semiconductor to 2.37 million shares, or 5.6 percent of the total outstanding shares of the chip maker.

Baupost also slightly decreased its stake in Innoviva to nearly 17.4 million shares, or 15.4 percent of the biopharmaceutical company. In January it had changed its name from Theravance.

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