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The Morning Brief: SEC Chair Knocks Hedge Funds on Compliance

Securities and Exchange Commission Chairman Mary Jo White says the regulator found several compliance problems with hedge funds during recent examinations. In a speech Friday to the Managed Funds Association, White said examiners were concerned that some hedge fund advisers may have used marketing materials that included back-tested performance numbers, portable performance numbers and benchmark comparisons without key disclosures. They also discovered disclosure problems. For example, White said the SEC is concerned some hedge fund advisers may not be adequately disclosing that are allocating profitable trades and investment opportunities to proprietary funds rather than client accounts “in contravention of existing policies and procedures.”

White stressed that the SEC was able to discover these situations because of The Dodd-Frank Act, which gave it the ability to see a much more complete picture thanks to details about an adviser’s activities and relationships now contained in the form ADV. “The Commission and the public now have census information about private fund advisers and private funds,” she stressed in her speech.

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Nelson Peltz’s Trian Partners is off to a very strong start in the fourth quarter. It is up 8.23 this month through October 9. As a result, the New York-based activist fund manager is back in the black, up 2.17 percent for the year. It helped that Trian’s new large activist stake in General Electric surged nearly 15 percent during the partial October period.

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Highbridge Capital Management co-founder Glenn Dubin has made another sizable donation to his alma mater, the State University of New York-Stony Brook. The retired hedge fund honcho, who along with co-founder Henry Swieca attended the Long Island university, pledged $5 million — with the hope that it will be matched — to build a $10 million indoor training center, according to Newsday. Dubin and his wife Eva earlier donated $4.3 million for the Dubin Family Performance Center, a strength and conditioning facility.

Dubin previously donated $1 million to Stony Brook to create the Glenn Dubin Endowed Scholarship Fund, offering scholarships to students from the Washington Heights section in New York City, where he and his former partner Swieca grew up. The fund is particularly focused on students from P.S. 132, where he attended elementary school. Dubin graduated from Stony Brook with a B.A. in economics in 1978 and was a member of the football and lacrosse programs.

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Finally, a strong rally day for the embattled shares of Valeant Pharmaceuticals. The hedge fund favorite surged more than 5 percent. However, the stock is still down more than 30 percent since early August.

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On the other hand, SunEdison, the alternative energy company that is also favored by many high-profile hedge funds, lost another 4 percent or so, short-circuiting its own brief rally. It is down more than 70 percent since mid-July.

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Yum Brands surged 4 percent after the fast-food giant named Keith Meister of New York-based Corvex Management to its board of directors.

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The Credit Suisse Hedge Fund Index declined by 1.41 percent in September after falling by 2 percent in August. For the year, it is down 0.58 percent. Not surprisingly, the best-performing strategy for the year so far is dedicated short, up nearly 7 percent. The worst performer for the year-to-date is event driven, down 4.07 percent for the year after losing 3.44 percent in September and 2.81 percent in August.

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Duquesne Family Office — the family office of Stanley Druckenmiller — took a stake of 1.6 million shares, or 6.4 percent, of Pure Storage, the data storage company that went public earlier this month.

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