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The Morning Brief: Investors Pull Money from Hedge Funds for Second Straight Month

Investors redeemed more money from hedge funds last month than they allocated new money, resulting in a small net outflow of $2.9 billion, according to data tracker eVestment. Performance gains offset this shortfall. As a result, total assets in the hedge fund industry remained essentially flat, at $3.02 trillion.

October was the second straight month of net outflows, the first back-to-back net decline since mid-2012, according to the report. In addition, eVestment reports that investor sentiment towards equity strategies was negative for the second straight month in October, confirmed by a $2 billion net outflow. Altogether, investors have yanked $6 billion from equity funds in the past two months alone. However, before that they allocated $105.5 billion since June 2013.

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Shares of PetSmart, a target of New York-based activist hedge fund firm Jana Partners, surged more than 6 percent, partly on a Reuters report that buyout firms KKR & Co. and Clayton, Dubilier & Rice were planning to jointly offer more than $7.5 billion for the pet supply retailing chain. Reuters also reported that Jana, which owns 9.8 percent of the stock, is mulling a proxy fight.

Meanwhile, several investment banks raised their price targets on PetSmart after the company disclosed cost reduction plans that were larger than expected. However, they mostly maintained their Hold or Neutral recommendations. Credit Suisse lifted its target to $75 from $65 and raised its estimates for 2014 through 2016.

“These efforts should support the stock here and may help preserve the company’s cash flow,” the bank states in a note sent to clients on Wednesday. “However, more important, we would continue to look for progress on the strategic steps to address the fundamental challenges impacting the top line.” UBS raised its price target to $77 from $71.

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The BlueTrend fund, managed by London-based BlueCrest Capital Management, rose another 0.62 percent in the first two weeks of this month, through November 14, lifting its gains for the year to 13.30 percent. The computer-driven macro fund also released its monthly report for October, when it gained 1.88 percent, telling investors it made money in three of the seven broad sectors in which it trades. The strongest sector was bonds, while the biggest loser was equities. In fixed income, it did especially well in long positions in bonds and short interest rates.

“Positioning benefited as prices rose in the first half of the month, and a gradual reduction in exposure then helped protect these gains as bond prices fell during the second half,” the October letter states. The report also says a “long bias” in equities was quickly reduced, noting the decline in equity prices in general in the first half of the month. For a short while the fund’s equity book was net short, but this changed quickly when the markets rallied later in the month, the report states. Commodities lost money as all three of its sectors were in the red. On the other hand, currencies made money thanks to a “number of small contributions from individual markets,” specifically from shorts in both the euro and Japanese yen.

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Alan Howard’s BH Macro Ltd., a so-called discretionary macro fund that is driven by human decision-making, rose about 0.59 percent in the first half of the month, through November 14. The fund, which invests substantially all of its assets in the Brevan Howard Master Fund, managed by London-based Brevan Howard Asset Management, is now down just 0.26 percent for the year, as it desperately tries to avoid its first-ever losing year.

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Kynikos Associates’ James Chanos said he is shorting Sotheby’s, citing what he called a forthy art market, according to Reuters. “I am not here to bury the art market, I am an art collector myself,” Chanos reportedly said at the Sohn Investment Conference in London. “But I do think that there are inherent risks in this sort of cyclical business.”

Kynikos was managing $4 billion as of the end of February, according to a regulatory filing. This was down from $6 billion at the beginning of 2013, according to Alpha’s annual Hedge Fund 100 ranking of the 100 largest hedge fund firms.

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The East Harlem Tutorial Program broke ground on a $30 million East Harlem Education Center, which will provide STEM and Robotics labs, wellness facilities, a gym, and music and performance spaces. Among its earlier donors: Renaissance Technologies founder James Simons and his wife Marilyn.

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