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The Morning Brief: Hedge Funds Get a Reprieve
April and the first half of May are shaping up as a rebound period for some hedge funds that fell into a hole in the first two or three months of the year. Several funds have used the recent period to sharply pare early large losses or get back into the black. Of course, six weeks is a short period of time, especially for hedge fund managers who despise being tracked quarterly, let alone monthly. Still, it is important to hedge funds fearful of quarterly redemptions to get back into profitable territory.
So, for example, Odey European, the hedge fund run by Crispin Odey’s London-based Odey Asset Management, is up about 7.8 percent this month through May 13, paring its loss for the year to less than 27 percent.
London-based Horseman Capital Management’s Horseman Global Fund, which has been among the better performing hedge funds over the past few years despite being heavily net short, is up 6.1 percent or so this month through May 11, and is now back in the black. The fund is up less than 1 percent for the year-to-date.
In addition, several funds that lost money last year and the first quarter of 2016 moved into the black in April. Greywolf Capital Overseas Fund, managed by Greywolf Capital Management, a Purchase, New York–based firm founded by former Goldman Sachs executives Jonathan Savitz and James Gillespie, gained 3.2 percent last month. As a result it is up 1.2 for the year after losing more than 14 percent last year.
Canyon Value Realization Fund moved into the black last month. The multi-strategy fund managed by Los Angeles-based Canyon Partners rose 1.9 percent in April and is now up 1.6 percent for the year. The fund lost 1.5 percent last year.
Of course, this could all change by the end of the month.
Ares Capital Corporation announced plans to acquire American Capital in a deal involving business development companies (BDCs). This is good news for Paul Singer’s Elliott Management Corp., the largest shareholder of American. In a regulatory filing, the New York hedge fund manager said it would vote its shares in favor of the merger. However, it also hedged its bet. According to the filing, Elliott and American also agreed that if the deal falls apart, American will appoint four individuals to the board, one selected by Elliott and three mutually agreed upon by the company and the hedge fund firm, to replace four incumbent directors. In addition, the new directors will be appointed to certain “appropriate” committees “promptly” following their appointment. Under their agreement, American also will reimburse Elliott up to $3 million in expenses, whether or not the merger deal goes through.
Hound Partners boosted its stake in Infoblox to more than 3.6 million shares, or 6.2 percent of the maker and seller of network control systems. At the end of the first quarter, Hound was the eighth-largest shareholder. With the additional shares, it appears to now be the third-largest investor in the stock. Redwood City, California–based Dorsal Capital Management was the fourth-largest shareholder at the end of March, according to regulatory filings.
Shares of volatile Valeant Pharmaceuticals International fell about 4.6 percent on Monday, to close at $26.21. On Monday new chief executive Joseph Papa told investors at the UBS Global Healthcare Conference that the drug maker plans to cut its debt by at least $1.5 billion this year alone. Altogether the company has $30 billion in debt. Papa said he plans to sell non-core assets to pay off some of the debt.