What We're Reading ~ Hedge Fund Links 7/26/13

The big hedge fund backlash [Reformed Broker]

David Einhorn covers JC Penney short, excerpts from Q2 letter [ValueWalk]

SAC Capital is indicted [NYTimes]

White Elm Capital's white hot streak [Institutional Investor]

Microsoft in talks with ValueAct over board seat [Reuters]

How to get a job at a hedge fund [Forbes]

Why John Paulson is talking [Felix Salmon]

A gripping account of the scandal that ruined hedge fund Galleon [LA Times]

Investors sow seeds for hedge funds [WSJ]

Hedge fund advertising is a problem waiting to happen [Boston Globe]

Falsifying Bill Ackman's Herbalife thesis [Bronte Capital]

Dan Loeb's Herbalife message [BusinessInsider]

Viking Global's Thesis on Valero (VLO): Q2 Letter

Andreas Halvorsen's hedge fund firm Viking Global is out with their Q2 letter and in it they talk about their thesis on refiner Valero (VLO):


Viking's Thesis on Valero

"Valero is the largest independent oil refiner in the U.S. with over 50% of its capacity located around the Gulf of Mexico.  Over the past several years, Gulf-based refiners have been at a cost disadvantage because they had to buy expensive crude imports while their mid-continent competitors could source cheaper inputs domestically from shale oil developments.  We believe this cost advantage is shifting towards the Gulf as new pipelines carrying cheap domestic crude are completed, giving Valero the greatest benefit due to its strong presence there.  In a further boost to the company over the next couple of years, we think its access to discounted Canadian heavy crude also will improve.  These positive developments have been amplified by sound capital allocation by the management team, such as investing in crude transport logistics to gain access to cheaper inputs, acquiring two new hydrocrackers to improve production yields, spinning off a non-core retail operation, and allocating available cash to stock buybacks.  We find the current valuation attractive given the significant earnings potential once these factors start contributing to the bottom line."


Other Notable Q2 Moves

Viking also added or re-entered positions in Capital One (COF), Valeant Pharmaceuticals (VRX), and Thermo Fisher (TMO) during Q2.  All are were sizable top-10 positions at the end of the quarter, with COF being the largest as their #2 holding.

Lastly, it's worth highlighting that Viking is exploring the impacts of a potential slowdown in the Chinese economy.  While such effects have led to lower metals prices, a weak Australian dollar and luxury goods companies weakening, Viking is looking for consequences beyond those listed above.  In particular, they're focused on exploring potential unwinding of the leverage in the banking system.

For more on this fund, we've detailed some of Viking Global's recent portfolio activity here.  Additionally, we posted up a rare interview with Andreas Halvorsen.

What We're Reading ~ Analytical Links 7/24/13

A dozen things I've learned about investing from Daniel Kahneman [25iq]

Sorry, commodities are a poor diversification tool [FT Alphaville]

Don't personalize the stock market [Abnormal Returns]

Keep investing as simple as possible [Motley Fool]

On Goldman's big shuffle of aluminum [NYTimes]

The greatest investment book ever written [Brooklyn Investor]

Looking at the shift in and future of the camera market [LensRentals]

Hitting China's wall [NYTimes]

7 secrets of investing the Warren Buffett way [NDTV]

How to make poison pills palatable [NYTimes]

China's great uprooting - moving 250 million into cities [NYTimes]

Channel retailers see trouble clearing PC inventories [Digitimes]

What George Costanza can teach us about investing [CBS]

Odey Starts Enterprise Inns Position

Crispin Odey’s hedge fund Odey Asset Management has disclosed a new position in London listed Enterprise Inns (LON: ETI).  Due to trading on July 22nd, Odey hold the equivalent of 5.1% of Enterprise Inns' voting rights, all via contracts for difference (CFDs).  We say ‘equivalent’ because CFDs do not confer voting rights.     

In the past, at least one of Odey’s funds has held a short position in Enterprise Inns.  Back in 2009 the Odey UK Absolute Return Fund, managed by James Hanbury, was short ETI as part of a bet that the UK consumer would suffer from a lack of spending power.   

Larry Robbins’ Glenview Capital had also held a large position in Enterprise Inns held via total return swaps.  The last filing by Glenview on Enterprise Inns that we have seen was made in March 2010 when they held the equivalent of 12.27% voting rights.   

Per Google Finance – “Enterprise Inns plc is engaged in the operation of public houses under the leased and tenanted pub model. This involves the granting of leases to Publicans who operate the pubs as their own businesses and who must pay rent to the Company, purchase beer and other drinks from the Company and enter into income sharing arrangements with the Company in relation to income generated from leisure machines. All of the Company’s public houses are situated in England and Wales. The Company’s subsidiaries include Unique Pub Properties Limited, which is engaged in the ownership of licensed properties, and The Unique Pub Finance Company plc, which include financing acquisitions of licensed property. On December 23, 2011, it completed the sale and leaseback of a portfolio of 17 pubs. In March 2012, Fuller, Smith & Turner P.L.C. completed the purchase of 15 freeholds, tied and tenanted pubs from the Company.”

For more on this fund, head to some of Odey's other recent portfolio activity.

Third Point Sells YHOO Shares to Yahoo

Dan Loeb's hedge fund firm Third Point filed a Form 4 with the SEC regarding trading activity in shares of Yahoo (YHOO). 

Per the filing, Third Point sold 1.4 million shares on July 19th at a weighted average price of $29.30.  Additionally, they entered into an agreement with Yahoo where the company would buy 40 million shares from Third Point at $29.11.  Additionally, Loeb would step down from the board.

After all is said and done, Third Point is left with a 20.6 million share position in Yahoo.  YHOO had previously been Third Point's top holding, but obviously it has now slid down their position sheet and they now have some new cash to put to work.

For more on this hedge fund, head to Third Point's June exposure report.

Hedge Fund Slogans & Ad Ideas: A Parody

With news that the SEC will lift the advertising ban on hedge funds in the near future, we thought it'd be fun to explore some mock slogans and ads.   Note: This is a parody.  If it isn't obvious below, this post is all in good fun.  


Hedge Fund Slogans & Ad Parodies For Major Firms


Viking Global:  TV Ad: A viking horn plays loudly as you see a viking ship sailing the ocean.  Slowly zooming in on the ship, it shows Andreas Halvorsen at the helm dressed in viking gear.  The camera pans to the other side of the ship revealing Johnny Drama from Entourage dressed as his Viking Quest character yelling "VICTORY!!!!"  Fade to black. "Viking Global"


Third Point:  TV Ad: A picture of a stoic Dan Loeb's face stares at you for 30 seconds straight. No text. No sound.  Fade to black.


Bridgewater Associates:  Video of Ray Dalio saying: "Give me your money or I will take it from you."  A black screen with the word: "Zen."  And then inspired by an old Dealbreaker post: The slogan "Be the hyena, attack the wildebeest" plays over audio repeatedly while a video of a hyena attack is played.


Appaloosa Management: Slogan: "We've got brass balls."  TV Ad: They hire Will Ferrell to play his Ricky Bobby NASCAR character from the movie Talladega Nights.  Ferrell appears on screen and says "Hi, I'm Ricky Bobby.  If you don't invest with Appaloosa, then f*ck you." 


Soros Fund: TV Ad: George Soros appears on screen and says "Why should you invest with Soros? Let me show you."  The audience then gets RickRoll'd as a music video from Rick Astley pops up out of nowhere.  The camera then pans back to Soros who is laughing like a maniac.  "Hahahah you can't even invest with us!!"


SAC Capital:  They anonymously buy ads that simply say: "Hey SEC: Suck it."


Oaktree Capital:  Howard Marks buys out all the ad inventory of a primetime broadcast to display a spot "Mr. Marks' Neighborhood" mirrored after the old children's show "Mr. Rogers Neighborhood."  Marks takes off his cardigan and shoes then proceeds to read his latest memo in its entirety, split up into 41 different 30-second spots.  


Pershing Square:  TV Ad: The words: "1 Fund. 1 Stock. Ride or Die" appear on screen.  Rapper DMX comes out of nowhere and starts yelling "RIDE. OR. DIE!  WHAT?!? C'MON!!!" repeatedly.  

2nd TV Ad: Bill Ackman grows a beard to look like the Dos Equis 'most interesting man in the world' and says, "I don't always invest in hedge funds, but when I do, I invest in Pershing Square." (via @largecaptrader1)


Icahn Partners: TV Ad: Carl Icahn appears and simply says, "I hate Bill Ackman." 


Tudor Investment Corp: Print Ad: The classic "losers average losers" PTJ picture from the 1980's with the caption, "Winners invest with Tudor.  Don't be a loser, chump."


Elliott Management:  Print Ad: A picture of the Argentinian ship they took over with the caption, "Somali pirates ain't got sh*t on us."


Maverick Capital:  TV Ad: They hire Tom Cruise to reprise his role of 'Maverick' and Val Kilmer to play 'Iceman' from the movie Top Gun.  Kilmer looks at the viewers and quotes his movie line, "You can be my wingman any time."  Cruise busts on screen and yells, "Bullsh*t!  You can be mine."  He then quotes another line, "This is what I call a target rich environment."  Iceman chomps his teeth while Cruise says, "Invest with Maverick."


Citadel: Print Ad: Picture of a big fort with the caption, "COME AT US, BRO!!!"


ESL Investments: *insert a Sears Ad*


Cerberus Capital: Image of a three-headed dog breathing fire with the caption, "Deal with it."  They sign licensing deals with Affliction and Ed Hardy for a new range of deep v-neck t-shirts with said logo.


Kase Capital: TV ad: Whitney Tilson buys an entire night's worth of infomercial slots and hires the ShamWow guy to enthusiastically promote his fund:  "Do YOU need a hedge fund?! Well do I have the fund for you. Wow!!!"   


Greenlight Capital:  Inspired by old Dealbreaker posts, Einhorn uses clips from the Green Lantern movie with his face superimposed over Ryan Reynolds' body.


Kynikos Associates: TV Ad: Jim Chanos runs a cryptic ad where the word "short seller" flashes on the screen.  Other phrases flash in and out rapidly like "Kynikos: greek for cynic" and "TRUST NO ONE."  Pictures of company logos like Enron appear and disappear like subliminal messages.


Hayman Capital: "Betting against adult diapers since 2010."


Baupost Group: "We don't even need your money."


Paulson & Co:  TV Ad for Paulson's gold fund: They hire Mike Myers to play his 'Goldmember' character from the Austin Powers movie.  He appears on the screen and just yells "I love goooooooold" nonstop.


Renaissance Technologies:  "You have no clue what we're doing."



Lastly, here's a slogan that's up for grabs.  All you gotta do is bring Jay-Z into the mix and you're set: "99 problems but beta ain't one."


Submit Your Hedge Fund Ad Slogans Below

Let us know your favorites and feel free to submit your hedge fund slogans in the comments below.  The cheesier and funnier, the better.  We'll post up the best submissions.

John Paulson Discloses New Stake in Green REIT

John Paulson’s hedge fund, Pauson & Co, has disclosed a new position in Green REIT (LON: GRN).  Green REIT recently raised 320m euros via a public offering in Dublin and London.  According to a disclosure made on July 22nd,  Paulson & Co hold 12.92% of the voting rights.    

The company’s name perhaps suggests that it is involved in environmentally friendly investing but in this case the “green”  refers to Ireland and Green REIT is Ireland’s first real estate investment trust.  Green REIT will focus on buying commercial property in the Dublin area.  

If you missed it, be sure to also check out John Paulson's rare recent interview.

Per Google Finance – “Green REIT plc is a property investment company. The principal activity of the Company will be to acquire and hold investments in Irish real estate (primarily commercial real estate) with a view to maximizing shareholder returns. The Company will focus on investing in commercial real estate, including office, industrial and retail assets. The Company will not invest     20% or more in a single underlying issuer or investment company. The Company will not invest 40% or more in another collective investment undertaking. Green Property REIT Ventures Limited is an investment Manager to the Company.”

Interview With Julian Robertson & Nehal Chopra of Tiger Ratan

Tiger Management founder Julian Robertson made his rare yearly media appearance today on Bloomberg Surveillance.  Here are the highlights of the interview with the hedge fund titan:


Julian Robertson's Interview

On the hedge fund industry's overall performance:   "Hedge funds do better than the markets in bad markets because they are hedge funds. And the, the ideal for hedge fund is a vigorous active market that doesn't move a whole lot. There they can make it in both the long and short basis….In '07, hedge funds, I know ours, just blew it out….It was just unbelievable. And then in '08, we lost, you know much of that."

This isn't the first time he's touched on this as we've highlighted Robertson's thoughts on why hedge funds were underperforming.


On whether he sees the hedge fund industry as a group of top performers and everyone else or whether he bundles performance together:   "I don't think you can bundle everyone together. But I do think one of the things that's affected hedge fund performance over the last, well, really since it started really getting big around the '80s, is the increase in size of hedge funds. It was so much easier to compete with Bank Trust departments, with individual investors, with mutual funds than it is with other hedge funds. And I think the success of hedge funds in general has probably hurt the performance of individual hedge funds…Because the competition is tougher."

Robertson also noted that he's not constructive on Apple (AAPL) anymore and he likes Google (GOOG) more.  For more from the Tiger man, we've posted up notes from Robertson's talk at the Virginia Investment Symposium.


Nehal Chopra of Tiger Ratan Capital

One of the managers Robertson has seeded also joined the interview, Nehal Chopra of Tiger Ratan Capital.  While everyone will be focused on Robertson's soundbites, Chopra actually offered more points on investment process.

She focuses on change-driven opportunities.  She looks at corporate change, CEO change, transformational measures, bankruptcy emergences, and spin-offs.

Chopra's 3 things she looks at when looking for investments: a great management team (really in-depth look at the person's ability to drive results), a good business that is very cheap, and all of it is focused on change.

She says "it's a very targeted process that's repeatable ... change creates confusion.  Confusion creates dislocation of value."

Robertson again touched on how he focuses on competitiveness when looking for new managers to seed and noted Chopra has that.


Embedded below is the video of Julian Robertson's interview with Bloomberg Surveillance:

David Winters' Wintegreen Fund Focused on the Emerging Market Consumer: Wealthtrack Interview

Consuelo Mack's show Wealthtrack had David Winters of the Wintergreen Fund on this past weekend.  Their interview touched on what stocks he's seeing value in these days.  Winters is a value-oriented investor and he runs a somewhat concentrated book with his top 5 holdings representing 30% of the portfolio.  


Winters' Focus on the Emerging Market Consumer  

One of the main themes in Winters' portfolio is the emerging market consumer.  This is by no means a new theme, but Winters argues you can buy stakes in some great companies with exposure to a rising consumer at good prices still.  

In particular, he's focused on luxury brands as he's seen these aspirational consumers crave these brands in his many trips to Asia (he's been 20 times).   Richemont (VTX:CFR) is the owner of Cartier and is one name he likes.  He says it's the most aspirational jewelry brand and he notes that the Wynn Macau has two stores there since they were selling so much.   

Winters also likes Wynn Macau (HK:1128) as a beneficiary in the Asian gambling hub since there's only 6 operators there.  He notes there's no social stigma in Asia associated with gambling.  He also likes Steve Wynn as an operator  They're the high-end provider of gaming in Macau.  He likes that you get paid 5% (dividend) to wait while the company builds out its property in Cotai.  Winters likes the conservative balance sheet and the fact that there's so much demand.  

Jardine Matheson (SGX:J36) is another name he likes and has been involved with for a long time.  It has 3 principal businesses: small convenience stores, a dairy farm, and it controls Astra, the biggest company in Indonesia, and they also own Hong Kong land, some of the most valuable assets in the world. 

One of the companies Winters has been newly buying is Cielo (CIOXY), Like his thesis on Mastercard (MA), his play on Cielo is the secular shift from cash to plastic.  Cielo is a payment processor that has 50% market share and trades at 13x earnings.  While short-term Brazil might face headwinds, he likes the opportunity long-term as 190 million people can start paying via credit/debit cards. 

Given Winters' emerging market consumer focus, Consuelo Mack prudently highlighted a term from a Bain & Co report: HENRYS: High Earnings, Not Rich Yet consumers.    This is a sweet spot Winters is targeting.  


Winters Loves Companies With Pricing Power  

The Wintergreen Fund manager says, "In my life and in everybody's life I know, everything costs more."  For this reason, he loves businesses with pricing power. 

For instance, he loves the watch and jewelry business.  For men, he notes, the only jewelry they wear (aside from a wedding ring), is a watch.  Swatch (VTX:UHR) has low, medium, and high-end watches and it's one of his major holdings.  He likes the management team and says the company is shareholder friendly. 

He also likes Nestle (NSRGY), especially for their pet food business as humans will spend a lot of money on their pets.  

Pricing power is a valuable asset for any business and we've outlined Warren Buffett's focus on pricing power in the past.


Interest Rates Rising = Inevitable

He thinks interest rates will go a lot higher over the years, saying "it's inevitable." 

In a rising rate environment, he likes companies with the trifecta: good management, a cheap price, and improving economics.  As long as the company can grow earnings and cashflows, they can outpace.  Winters says this is a stockpicker's market and notes the economy in the US is rebounding and some companies trade at the wrong prices. 

He also made sure to point out the asset allocation of many investors these days: safety.  "Most of the public is in cash and bonds, and they'll get annihilated."  

Winters ended with this bit of investing wisdom: "Headlines are often an opportunity, because people today focus on the negative, and we're very focused on where can we make money out of this?"


Embedded below is the video of Consuelo Mack's Wealthtrack interview with David Winters of the Wintergreen Fund:



For more Wealthtrack interviews, we've also posted up Consuelo Mack's talk with Bruce Berkowitz.