market folly

Moore Capital Management’s London Listed Holdings

Thanks to a reader's help, we're now cruising along nicely in our hedge fund portfolio tracking series: UK holdings edition. We've already covered Lone Pine Capital's UK positions, Lone Pine's recent movements, Sprott Asset Management's defensive UK portfolio, as well as Citadel's positions. Today we’re going to take a look at the UK holdings of legendary macro investor, Louis Bacon. In particular, we will focus on those investments that Bacon has made through the London Stock Exchange (LSE) and London’s Alternative Investment Market (AIM). Before proceeding, we recommend checking out our informational preface on tracking a hedge fund's UK positions. And now, onto the good stuff:

Bacon lives in London and in a recent interview with Absolute Return and Alpha he said that living in London gave him a broader perspective on a variety of countries. He also noted that the London time zone allows him to be well prepared for the US trading day. Bacon’s flagship investment vehicle is the Moore Macro Fund but he also operates the more regionally focused and smaller, Moore Europe Capital Management. In April of last year, Bacon hired talented portfolio manager Greg Coffey to become Chief Investment Officer of Moore Europe. Coffey had previously worked at London based hedge fund GLG, and brought a team of 12 with him to Moore. Reports at the time speculated that whilst at GLG Coffey had been responsible for 60% of GLG’s performance.

As well as his outstanding returns, Bacon is renowned for his risk management. He has animal-like instinct for sensing turns in the market and an itchy trigger-finger that sometimes leads him to trade in and out and around positions, even when they are moving in the predicted direction. While others might see a mountain top in the distance, Bacon notices the valley en route to getting there. Other traders and managers might ride out that valley while waiting for the mountain top. Not Bacon. Instead, he'll trade in and out of positions in order to make money in the short-term while navigating toward the long-term thesis.

Now, let's dive right into Moore's UK regulatory disclosures. There are a couple of interesting patterns in Moore’s UK holdings that we want to touch on. Firstly, six out of seven of their positions are in investment funds or insurance companies where investment and actuarial acumen determine success to a large extent (Helphire Group Plc is the only exception). Moore’s approach here seems to be to try pick out talented managers in specific niches with good track records at the right price.

Secondly, we also noted that five of the seven holdings are registered and incorporated in off-shore locations such as Jersey, Guernsey, Isle of Man and Bermuda. Of course, these locations convey lighter tax and regulation than the UK mainland. What is more difficult to determine is whether these advantages are priced into the stock price. The large number of off-shore holdings in Moore’s portfolio possibly suggests that they don’t think so.

As we mentioned earlier, Louis Bacon is well known for trading. Yet, there is little sign of the famous itchy finger in the filings below. At first sight, Moore Capital appears to have built up their UK positions steadily and in turn sold them in similar fashion. Turnover has been low and their investment style looks to be surprisingly conservative (at least with regards to these positions). As always, keep in mind this is only one tiny piece of their overall portfolio and they are a true global macro hedge fund. In regards to these specific positions though, we wonder if it is possible that Moore have been using CFDs and other derivatives to trade around and hedge the equity positions? When going through Moore’s filings, we only found one CFD position and that was in Helphire Group Plc in early June 2009. Helphire Plc, however, is the only UK mainland incorporated company and is therefore covered by the new rules on CFD disclosure that came into action on June 1 2009. (See our article on the implications of the CFD rule change for hedge fund disclosure in the UK). One of the weaknesses in these new rules is that they only apply to UK mainland companies and not those registered off-shore. So, we have no idea whether Moore have been using CFDs in six out of seven of their holdings. Their holdings are listed below:

Camper & Nicholsons Marina Investments Limited (CNMI) is a closed-ended investment company. It is an off shore fund that is registered and incorporated in Guernsey. CNMI listed on AIM in January 2007 and raised money for the acquisition, development and operation of an international portfolio of marinas and related real estate in the Mediterranean, the Caribbean and the United States. CNMI regards the marina market as highly fragmented, undervalued and ripe for consolidation.

Trading Emissions PLC is an investment fund that invests in tradable environmental instruments. It is an off shore fund and was registered in the Isle of Man in 2005. Moore has been a long-term holder of TRE stock. They purchased 20,000,000 shares in the company in 2005, probably on issue. The Company is managed to be long only in environmental commodities with a view that these commodities will appreciate in value. The core of the portfolio is a long position in carbon assets. The Company is also involved in aggregation, monetization, and collateralization in the carbon market. This is interesting because in an interesting piece on Goldman Sachs, writer Matt Taibbi hypothesized that Goldman's next big 'bubble' was the carbon market. Moore could very well agree with this given their investment. The company’s fund manager is EEA Fund Management Limited an investment advisory firm based in the City of London. EEA is also advisor to Climate Exchange PLC, another investment company listed on AIM.

Omega Insurance Holdings is an insurance underwriting company. It is listed on the AIM market and is registered and incorporated off shore in Bermuda. The majority of the Omega Group’s premium income is derived from its business operations in the United States. The companies in the Group focus predominantly on short-tail property insurance and reinsurance which they provide to small to medium-sized insurance companies. The company is most active in property insurance but it is also involved in motor insurance and professional indemnity insurance.

Juridica Investments Limited is an investment company registered off shore in Guernsey which seeks to invest in a new asset class: litigation funding. It trades on AIM and was listed in late 2007. Juridica provides third-party litigation funding to law firms seeking capital for expensive litigation cases. Juridica aim to back those claims that statistically are likely to be won.

Helphire Group plc is a United Kingdom-based company that provides assistance to vehicle owners who have been involved in road accidents. The Company's main revenue is derived from replacement vehicle hire and the financing of vehicle repairs arising from insurance claims. The Company employs 2,600 people across six sites and operates a national branch network of 30 depots. It has a fleet of over 17,000 vehicles.

Max Property was admitted to the AIM in May 2009. It is likely that Moore purchased shares at the initial public offering @ 100p. Max Property Group Plc is an off shore, closed-end real estate investment company incorporated in Jersey. The company has an experienced board and is externally managed by Prestbury Investments. The company is aiming to exploit the current cyclical weakness in the UK real estate market through investment and active management with a view to realizing cash returns for shareholders over an investment cycle of approximately seven and half years. Hedge fund Och-Ziff owns 15.9% of Max’s shares.