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Friday, March 25, 2011
Follow A Hedge Fund Manager's Trades: Exclusive 10% Discount
What We're Reading ~ 3/25/11
Looking again at the housing market [Big Picture]
Paulson, Elliott, D.E. Shaw, Caxton lobby at the Fed [AR+Alpha]
Hedge fund legend Paul Tudor Jones on failure [ReformedBroker]
Glenview Capital on the end of quantitative easing [PragCap]
On talking your book [Abnormal Returns]
Hedge funds like distressed debt [FINalternatives]
8 Unusual things I learned from Warren Buffett [James Altucher]
Old but good: Is gold an inflation hedge? [Global Economic Trend Analysis]
Investing rules and missed opportunities [Reformed Broker]
Prem Watsa's 2010 letters to Fairfax shareholders [.pdf link]
Jeffrey Kaplan becomes Appaloosa's COO [TheDeal]
A Main Street take on hedge funds [WSJ]
Herds on the street: traders instant messaging [WSJ]
Carl Icahn's fears [MoneyNews]
Thursday, March 24, 2011
Maverick Capital Reduces Rightmove Position (LON: RMV)
Lee Ainslie's hedge fund Maverick Capital recently reduced its position in UK traded Rightmove (LON: RMV). Due to trading on March 17th, Maverick's position has gone below the 3% ownership stake that requires regulatory disclosure.
The hedge fund could either still hold a small position (<3% of shares) or could have sold out of it completely; it's impossible to discern. We won't know anything further unless they breach the 3% threshold again.
Hedge Funds Gradually Reducing RMV Positions
Rightmove is intriguing because it has garnered interest from many prominent hedge funds. However, these funds have all been reducing their position over time. Steve Mandel's Lone Pine Capital, as of last disclosure, owns 4.99% of RMV's stock. At one point back in December 2008, they held over 10% of shares. We've also detailed some of Lone Pine's recent portfolio activity here.
Additionally, Brett Barakett's Tremblant Capital Group currently own around 3.97% of Rightmove's outstanding shares. While they still own it, they have steadily reduced their position since a peak ownership stake of 14.22% in September 2008. For the rest of our coverage of hedge fund positions in UK markets, check out Eton Park Capital's recent activity.
Per Google Finance, Rightmove is "a United Kingdom-based company that operates in a residential property industry, connecting people to properties. The Company is principally engaged in the operation of the Rightmove Website, rightmove.co.uk, which is the residential property portal. Its customers include estate agents, rental agents and home developers, who pay fees for the right to display properties on the Rightmove Website, which provide home hunters with property details to search."
For more from Ainslie's fund, check out Maverick Capital's year-end letter discussing the impact of fund size on returns.
Tuesday, March 22, 2011
Free TurboTax Online
Tax season is upon us and for those of you in a crunch or scrambling for a CPA, just a reminder that you can still get free TurboTax online. Taxes are due April 18th, so get those 1099-INT and 1099-DIV's locked and loaded.
John Paulson On The "Risk" In Risk Arbitrage
John Paulson catapulted to hedge fund fame during the financial crisis for his profitable bets against subprime. His exploits were even catalogued in the excellent book, The Greatest Trade Ever. Yet before all that, he paved his way on Wall Street in mergers & acquisitions.
In 1994, he started Paulson Partners and focused on arbitrage strategies. Today, Paulson & Co is the third largest hedge fund. This article traces Paulson's roots in order to learn about risk arbitrage from the manager himself.
It's little known that Paulson actually authored a chapter on the subject in the book, Managing Hedge Fund Risk compiled by Virginia Reynolds Parker. She is a graduate of Harvard Business School and founder of a firm that specializes in the design and management of fund of hedge funds.
The "Risk" in Risk Arbitrage
In the book, John Paulson writes that simply, "The 'risk' in risk arbitrage is therefore anything that affects the deal's completion, the timing of completion, or the amount of consideration received at completion."
His chapter on the subject begins by sharing advice from a risk arbitrage veteran with over 40 years of experience. This practitioner told him that, "risk arbitrage is not about making money, it's about not losing money." Given such prescient advice, it should come as no surprise that the "risk" in risk arbitrage is the key focus.
Paulson divides risk into two categories:
1. Macro Risks: Such as interest rates, exchange rates, commodity prices, and market volatility.
2. Micro Risks: Details pertinent to the specific transaction such as regulatory issues, financing, and earnings.
When looking at arbitrage opportunities, he lays out screening criteria in which he says to avoid the following: agreements in principle, deals subject to financing, targets with poor earnings, and deals in cyclical or highly regulated industries.
On the other side, he prefers to focus on: definitive agreements, large acquirers, deals with no financing conditions, reasonable valuations, and limited regulatory risk.
He concludes that, "Unfortunately, every deal has risk, so one cannot avoid risk entirely. Instead, one must prudently manage risk to produce a desired return with minimal drawdowns and low market correlation."
For an in-depth look at the strategy, embedded below is John Paulson's chapter from the book Managing Hedge Fund Risk:
You can download a .pdf copy here.
While Paulson got his start in merger arbitrage (and still today runs a fund pursuing that strategy), he has also ventured into new territory. His bets against subprime have been well documented. He's also bet on a US recovery via his aptly named Recovery Fund. His next big wager is a bet against the US dollar via his gold fund. And, in his year-end letter, he said he is recently also focusing on restructured equities.
Paulson & Co has evolved into an asset-gathering behemoth pursuing multiple strategies. But Paulson's roots stem from risk arbitrage and hopefully the above has been a useful look at this popular hedge fund strategy from a prominent manager himself.
For further insight from on hedge fund strategies from John Paulson and other managers, check out the book Managing Hedge Fund Risk. And for analysis of Paulson's latest investments, head to Hedge Fund Wisdom, our quarterly newsletter.
Eton Park Capital Reduces Vallar Position
Eric Mindich's hedge fund Eton Park Capital recently filed a disclosure in the UK due to trading on March 7th. Eton Park have reduced their ownership in Vallar (LON: VAA) from 5.03% of shares outstanding down to a 3.52% ownership stake. Eton Park first started a new position in Vallar shares back in December 2010.
Mindich founded Eton Park after being named the youngest partner in Goldman Sachs history at age 27. He launched with $3 billion in 2004 and it was one of the largest hedge fund launches ever. The hedge fund primarily pursues arbitrage strategies.
Per Google Finance - "Vallar PLC, formerly Vallar Limited, is a holding company formed to acquire a single company, business or asset that has operations in the global metals, mining and resources sector. The Company focuses on the Americas, Russia, Eastern Europe and Australia. It focuses on commodities, including base metals, coking coal, iron ore, thermal coal, gold, silver and uranium. As of July 31, 2010 the Company had not yet commenced operations. The Company’s subsidiary is Vallar Holding Company Limited."
