The Morning Brief: Paul Singer Walks Away from an Asian Confrontation

The day before his pyrrhic victory over Argentina, Paul Singer walked away from a battle with Oversea-Chinese Banking Corp., the second-largest lender in Southeast Asia. A filing with the Hong Kong stock exchange shows that on July 29 Singer’s hedge fund firm, Elliott Management Corp., sold its entire 7.8 percent stake in Wing Hang Bank of Hong Kong, just before the bank received a $5 billion offer from OCBC, based in Singapore, to buy the bank and take it private. Singer had built up the stake in Wing Hang over the month of July, apparently in an effort to force OCBC to raise its price. But Elliott sold the shares at the price OCBC had offered. So much for holding out for a higher price, as activists like Singer often do when they know that a company is a takeover target. Nor will he be collecting on his Argentine debt holdings that soon; now that the country is in default it will have to restructure its debt yet again.

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In June we reported that William Ackman’s Pershing Square Capital Management was leading the pack in performance for the first half of 2014. Now it’s official: Pershing Square was the top performing hedge fund for the period, up 23.97 percent year-to-date through July 15, according to the latest Hedge Weekly bulletin from HSBC Alternative Investment Group.

However, the fund was down 1.1 percent from July 1 to 15. And now Ackman has a lawsuit on his back. Allergan Inc., the pharmaceutical company he wants Valeant Pharmaceuticals International to take over, contends that the two are acting as a single entity to evade securities laws. On August 1 Allergan and its attorneys, Wachtell Lipton Rosen & Katz, filed a 51-page complaint with the SEC that tells the whole saga of how this takeover attempt came to be — from Allergan’s point of view, naturally — and it’s a fairly riveting read. Allergan alleges that Valeant, “while styling itself as a traditional pharmaceutical manufacturer, has turned its back on the conventional drivers of long-term profitability – successful research, development and sales – in favor of aggressive expansion, cost-cutting and short-term value maximization.” As for Ackman, the suit claims his interest in Allergan “comes on the heels of several recent high-profile stumbles, including…ill-fated bets against health supplement distributor Herbalife and retailer J.C. Penney Co. “

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Richard (Mick) McGuire, the former William Ackman protégée who runs the $3 billion activist hedge fund Marcato Capital Management in San Francisco, is the latest activist investor to push a company to take advantage of the tax inversion laws. McGuire has hired the investment bank Houlihan Lokey to try and pressure U.S.-based hotel chains to save on taxes by buying the U.K.-based InterContinental Hotels Group, the Wall Street Journal reports. Marcato owns a stake of about 4 percent in InterContinental, and McGuire has already pressed Holiday Inn to look into a deal. The controversial law allows a U.S. company to buy a foreign company, then, by setting up domicile where that company is based or even in another foreign country, pay a lower tax rate than the 35 percent that corporations in the U.S. are expected to pay.

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Harvard Management Company has announced that Michael Ryan, a former hedge fund manager, will become HMC’s first head of public equity in September. HMC, which manages Harvard University’s $32 billion endowment, may be under some pressure to boost its participation in the public equity market. About 11 percent of the endowment’s portfolio is allocated to U.S. equities, while about 16 percent is in private equity. At the Institutional Investor and CNBC-sponsored Delivering Alpha conference in July, outgoing HMC president and CEO Jane Mendillo said she believed in diversification and had “no regrets” about the balance even though it had meant missing out on some bull market earnings — to which panel moderator Kelly Evans of CNBC asked Mendillo, “is that why you’re leaving?”

Ryan co-founded the global long-short hedge fund JAI Capital Management in 2009 but it was shut down two years later. Most recently he was the founder and chief investment officer at the New York investment management firm MDR Capital Management.

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The $159 billion private equity firm Apollo Global Management is starting a hedge fund that will bet against U.S. high-yield bonds, the Wall Street Journal reports. Apollo reportedly began trading for the Apollo Credit Short Opportunities Fund in November, using internal capital, and began fundraising this month. John Zito, the firm’s head of U.S. opportunistic credit, is managing the fund.

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