A prominent hedge fund manager who attended the meeting Monday between key White House staffers and a handful of Wall Streeters and business leaders says the Obama administration is willing to make a big compromise to reach a deal over the looming fiscal cliff once Republican politicians agree to raise revenues. Bruce Richards, co-founder of Marathon Asset Management, says the Democrats are willing to put $1.4 trillion in entitlement cuts on the table. This is much more of a concession than any Democrat has spoken about in public since the recent wrangling over the so-called fiscal cliff began after the election. “I don’t think they want to put it in print,” Richards said on Bloomberg TV Tuesday morning. “They can’t be seen as selling out their constituents.” Richards said Democrats are willing to propose the entitlement cuts if Republicans are willing to raise taxes, perhaps bringing back the highest rate to 39.6 percent, which Richards said he does not think most Republicans would object to. How is Richards, a credit specialist, playing the budget talks? He thinks that if in two weeks there is no deal, the S&P 500 will drop to 1350 and the yield on high yield bonds would drift up by 50 to 75 basis points (nearly one percentage point). That would create a buying opportunity, he asserts.
Avenue Capital’s Marc Lasry, who also attended the White House meeting and is a longtime supporter of Democrats and the Clintons, told Bloomberg he is confident a deal will get done. “We all know taxes have to go up,” he said. “It is kind of hard to say you’ll do all these things without more revenue.” In the meantime, Lasry says investors should have 20 percent in cash so they can buy assets that other people must sell before year-end. He is also confident about the investment environment for next year, assuming there is some sort of deal. He expects a rally in stocks and for credit to surprise on the upside.
Netflix shares surged more than 14 percent on Tuesday, but no thanks to Carl Icahn. The film distributor announced an exclusive deal to distribute Disney movies on television, which enticed investors to bid up the shares from $76 to $86.65. On October 31, Icahn took nearly a 10 percent stake in the video subscription company, urging it to merge with a tech giant. One week later the company adopted a shareholder rights plan to make it tougher on Icahn or some other investor to make an unwanted takeover offer. In this case, it seems like the poison pill worked as its proponents say it was designed to do.
Also on Tuesday, Icahn said in a regulatory filing he was dropping his bid to buy truck maker Oshkosh after just 22 percent of the shares were tendered to his offer. “We have said in a number of communications to shareholders since the outset of this tender offer that we would not extend our offer unless at least 25% of the outstanding shares are tendered in the offer,” he stated in the filing. Oshkosh earlier rejected his $3 billion hostile takeover offer and instituted a poison pill to help fend off the billionaire investor.
The Oklahoma Police Pension & Retirement System has shifted $31 million from two hedge fund-of-funds to four individual hedge funds. The four hedge funds are AKO Capital and Tremblant Capital Group, which specialize in long-short strategies, and activists Trian Partners and Cevian Capital.
