This content is from: Portfolio

The Morning Brief: Hedge Fund Leverage Climbs to More Than $1 Trillion

The largest hedge funds had more than $1 trillion in borrowings along with $1.47 trillion in net assets at the end of the fourth quarter, according to a report compiled from the newly collected confidential data provided to the Securities and Exchange Commission. The data came from a report issued by the SEC’s Division of Investment Management to Congress drawing on data provided by money managers who run private funds with at least $150 million of assets, the threshold required to register with regulators under the Dodd-Frank Act, according to Bloomberg.

The managers in the report ran 823 hedge funds that met the $500 million threshold for providing more detailed reporting, according to the report. The report also shows that 27 percent of the $1.47 trillion in net assets could be liquidated within one day, 53 percent could be liquidated in a week or less and 71 percent would take no more than a month to unload, according to the managers’ reports. Also, 15 percent of assets would take more than six months to sell. Also interesting, the report found that investors holding 7 percent of the $1.47 trillion could withdraw in a day while another 24 percent could redeem within a month.


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Add actor George Clooney to the long list of people whom Third Point’s Daniel Loeb has irked. In an interview with Deadline.com, Clooney called the activist manager, who is pressuring Sony to boost its stock by spinning off its entertainment assets, “a carpet bagger, and one who is trying to spread a climate of fear that pushes studios to want to make only tent poles.”

Clooney said in an interview that Loeb is scaring studios and forcing them to make decisions from fear. “Why is he buying stock like crazy if he’s so down on things?” the actor asks. “He’s trying to manipulate the market. I am no apologist for the studios, but these people know what they are doing. If you look at the industry track record, this business has made a lot of money. It creates a lot of jobs and is still one of the largest exporters in the world. To have this guy portraying it that Sony management is the bad stepchild and doesn’t know what it is doing and he’s going to fix it? That is like Walmart saying, let me fix your town, putting in their store, strangling all the small shops and getting everyone who worked in them to work for minimum wage with no health insurance.”

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Meanwhile, Loeb’s Third Point Offshore Fund gained 2.9 percent in July, bringing its gains for the year to 15.9 percent, according to its July letter to investors. Virtually all of the gains came from its long-short equity book, which has the largest net exposure at 40 percent. Its credit book has nearly a 29 percent net exposure.

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Daniel Och’s OZ Master Fund, run by his firm Och Ziff Capital Management, posted a 1.06 percent gain in July, bringing the conservatively managed fund’s gains for the year to 7.60 percent. The OZ Europe Master Fund netted 1.64 percent in July and 6.66 percent for the year. The publicly traded hedge fund firm also saw assets grow by $600 million in the past month, to $36.7 billion, thanks to both new money coming in from investors and performance gains.

“We again demonstrated our ability to protect capital through effective asset allocation and exposure management in response to the volatile market environment globally in late May and June,” said Och, chairman and chief executive of Och-Ziff, in a press release. “We maintained the returns we generated in the first part of the year and extended that performance as market conditions became more constructive in July.” The firm also reported distributable earnings of $77.5 million for the second quarter, up 15 percent from the comparable period a year ago. Although the results beat consensus estimates, the stock dropped nearly 1 percent, to $11.39.

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London-based Man Group said its total funds under management stood at $52 billion at the end of June, down $5 billion from $57 billion at year-end. The firm said it brought in $6.5 billion in new money, but this was more than offset by $11.5 billion in redemptions.

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The Credit Suisse Liquid Alternative Beta Index was up 1.67 percent in July. The index, which tries to reflect the performance of the overall hedge fund industry, is up 3.91 percent for the year. The long-short equity strategy was the strongest performer in July, rising 3.61 percent. However, the merger arbitrage liquid index is faring the best through the first seven months of the year, rising 5.84 percent.

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BlueMountain Capital Management nominated two candidates to the board of director of Taro Pharmaceutical Industries. They would serve for three years on the Israeli company’s staggered board. “It is our belief that there exists a significant ongoing opportunity to create shareholder value at Taro through, among other best practices, refining of its business strategy, evaluating an optimal capital structure and the use of Taro's growing cash balance, implementing more robust capital markets and shareholder communications, and ensuring that all strategic options are considered on an arm's length basis,” Blue Mountain stated in a press release.

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Davidson Kempner Capital Management disclosed it owns a 6.15 percent passive stake in Silver Eagle Acquisition Corp., a special purpose acquisition company that went public on July 30. The SPAC is led by media executives Harry Sloan and Jeff Sagansky.

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Steve Cohen’s SAC Capital has recently filed a flurry of 13G’s, which are used to announce passive investments of at least 5 percent of a company's outstanding shares. It said it owns 5.2 percent of Foster Wheeler, a global engineering and construction conglomerate; 5.4 percent of Blue Nile, an Internet jeweler; and 5 percent of Health Net, a managed healthcare company.

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