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The Morning Brief: Another Defection from Chanos’ Kynikos

More woes for James Chanos, the New York short-selling specialist. Bloomberg reports that the Philadelphia Board of Pensions and Retirement investment committee yanked its $25 million investment in his Kynikos Opportunity Fund. According to minutes from its April 30 meeting, the pension fund noted that the fund was down 4.68 percent in April after gaining .89 percent in January, 0.77 percent in February and 1.84 percent in March. The pension fund observed that Kynikos “made a pretty significant bet shorting China,” and “find companies they believe have accounting problems or financial distress in their balance sheets.” However, these companies’ stocks instead “went up in value significantly.” In the minutes, Brad Woolworth, the pension fund’s chief investment officer, said he would have stuck with Kynikos if this was the first time this had happened. However, he reportedly said, “This is the third time that we’ve had that conversation and that staff has spent a long time discussing this manager.” Ouch! We earlier reported that Kynikos had $2.5 billion in assets as of February 27, 2015, down significantly from $4 billion last year and more than 60 percent lower than the $6.5 billion the firm reported managing at the start of 2012.

At the May SALT conference, Chanos made a bearish case for a handful of energy stocks. He said he was short Royal Dutch Shell and Chevron, repeating previous assertions that big oil companies have poor fundamentals, are spending too much on dividends and stock buybacks and are funding shareholder goodies with borrowed money. He also said they didn’t have much in the way of reserves. Chanos also criticized Shell’s plan to acquire BG Group for $70 billion, asserting that two of BG’s businesses that investors have liked in the past don’t look promising — the liquefied natural-gas business and its minority stake in Brazil’s Petrobras.

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The Philadelphia pension fund also agreed to partially redeem its investment in Emerging Sovereign Group, according to the minutes. The fund, headed by J. Kevin Kenny, Jr., is one of the original seeds of Julian Robertson, Jr.’s Tiger Management. In 2011 private equity firm The Carlyle Group bought a 55 percent stake in the firm.

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Paul Singer’s Elliott Management has taken an activist stake in South Korea-based Samsung C&T, which owns a wide range of businesses. The New York hedge fund owns 7 percent of the company, which the New York Times notes has become a takeover target of Cheil Industries, a South Korean company that the paper says serves as the Samsung Group’s main holding company. According to the paper, Elliott said in a statement the offer “significantly undervalues Samsung C&T and that the terms are neither fair to nor in the best interests of Samsung C&T’s shareholders.” The Times also quotes Elliott saying in a Korean regulatory filing that it bought the stock “for the purpose of participating in management.”

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The Barnegat Fund rose 2.5 percent in May, trimming the loss for the year to 2.6 percent. The $669 million fixed-income, relative-value hedge fund has posted a 17.5 percent annualized return since its 2001 inception.

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Kenneth Griffin’s Chicago-based Citadel increased its stake in Ruckus Wireless more than seven-fold, to 4.7 million shares, or 5.4 percent of the total outstanding of the maker of wireless networking equipment.

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