The Morning Brief: Hedge Fund Assets Climb Ever Higher

Total capital invested in the global hedge fund industry rose by $94 billion to $2.51 trillion at the end of the third quarter, according to the latest data from Chicago-based industry tracker Hedge Fund Research. This was the fifth-straight quarterly record. Investors allocated over $23 billion of net new capital to hedge funds in the third quarter, with the rest of the increase resulting from performance. As is usually the case, most of the new money flowed into the bigger firms. Investors allocated $18.7 billion of new capital to firms with more than $5 billion in assets under management, while $3.6 billion of capital was allocated to firms with less than $1 billion.

Sandell Asset Management bought an additional 435,000 or so shares of Bob Evans Farms, bringing its total stake to more than 1.73 million shares, including options to purchase 386,500 shares, or 6.5 percent of the total outstanding. Last month, Thomas Sandell, chief executive of the New York-based hedge fund firm, said he had retained proxy solicitation firm MacKenzie Partners and may initiate a consent solicitation to allow shareholders to seek change at Bob Evans. In a letter sent to the board of the food service and retail company last month, the investor expressed concern over the board’s “lethargic approach to taking action to enhance shareholder value” following its recent meeting. He also recapped his three-pronged plan for the company.

Shares of Herbalife fell 4.81 percent to $72.75 on Friday, even though on Thursday the multi-level marketer of nutrition products said Carl Icahn has no intention of selling any of his stock now that his agreed upon lock-up period has expired. Of course Friday’s decline came one day after the stock hit its all-time high.

The British government continues to crack down on wealth, promising to close tax loopholes enjoyed by hedge fund managers. Chancellor George Osborne said he would impose rules designed to prevent managers from abusing the partnership structure, which enables them to avoid or defer some income tax, according to Reuters. Some observers speculate hedge fund managers will move their operations to other countries on the Continent.

Sears Holdings is trying to pull another rabbit out of its bag of tricks in an attempt to boost its stock price. On Friday, the struggling retailer announced plans to spin off its profitable Lands’ End business through a distribution of shares. It is hard to imagine why this is a good move without further details. It is not selling shares, so Sears gets no cash. And it is one of its best performing units at Sears, so once the spinoff is completed Sears won’t enjoy the benefits of Lands’ End’s success. Last year Sears spun off Sears Hometown & Outlet Stores, raising $346.5 million from a rights offering, and another $100 million from a cash dividend. However, no word whether Lands’ End will do the same. On Friday, Sears stock dropped 3.78 percent, to close at $48.09.

Shares of J.C. Penney fell another 8.59 percent, to $8.09, after the ailing retailer disclosed that the Securities and Exchange Commission asked for information related to Penney’s liquidity, cash position, and debt and equity financing, as well as the company’s surprise September 26 stock offering. According to some reports, the company publicly assured it did not need cash one day before it announced the stock offering. The retailer said it is cooperating with the regulator.

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