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The Morning Brief: Elliott Sets Sights on Lifelock

Elliott Management Corp. has identified a new activist target. The New York hedge fund firm headed by Paul Singer disclosed it owns 8.8 percent of Lifelock, a Tempe, Arizona-based identity theft protection company. In a fresh 13D filing, the hedge fund firm asserts the stock is undervalued and has initiated a dialogue with management and board of directors about “opportunities to enhance shareholder value.” Elliott stresses “there is material upside” from the company’s stock price on May 20 of $12.19 per share, the day before it started to significantly buy shares.

Since then, the stock has surged more than 23 percent. They rose another 4 percent or so in after-hours trading on Thursday. The rest of the regulatory filing contains typical boiler-plate statements, including that Elliott has no present plan or proposal for the company. Elliott did not own any shares of Lifelock at the end of the first quarter, so there was no way for investors to predict this activist position. New York-based Okumus Fund Management is the largest shareholder with 9.76 percent of the shares.

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Does this portend the future of fees or is this just an isolated period in time? HFR reports that the average hedge fund launched in the first quarter charged a 1.48 percent management fee. This was roughly in line with the industry average of 1.5 percent but down from the 1.6 percent that new funds charged in 2015. However, the average incentive fees for new funds in the first quarter came in at 18.5 percent. This was significantly up from 2015, when new funds charged an average of 17.75 percent. This could suggest that in the future, investors will be willing to pay a higher incentive fee in exchange for a lower management fee. This combination would put more of the manager’s skin in the game and provide the manager with a less predictable flow of fees.

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The average gain in the first quarter among hedge funds that performed among the top 10 percent was 12.1 percent, according to a new report from HFR. The bottom 10 percent of performers posted an average loss of 13.2 percent during the period. This works out to a performance dispersion of 25.3 percent. This is narrower than the recent past. According to HFR, over the past four quarters, the top 10 percent performers were up 16.3 percent, while the bottom 10 percent declined, on average by 26.4 percent, for a dispersion of 42.7 percent. The dispersion for calendar 2015 was 45.4 percent.

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Shares of Valeant Pharmaceuticals International plummeted another 5.24 percent on Thursday, closing at a new low price of $22.42. The stock is now down nearly 25 percent from its recent high of just two weeks ago, when the stock looked like it was beginning to rally. On Wednesday Barclays told clients in a note that while it still sees value in many of the drug maker’s core assets, it asserted that “valuing the equity is a challenge since there is still work to be done.”

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Shares of Bob Evans Farms fell another 3 percent or so one day after they plunged 9 percent following the casual dining chain’s issuance of weak guidance.

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