What We're Reading ~ Hedge Fund Links 5/2/14

A glimpse inside the strategies and tactics of 3G Capital [Santangel's Review]

Interview with Sio Capital's Michael Castor [Pension Pulse]

Baupost bets on Spanish real estate [ValueWalk]

Update on Ivory Investment Management [ValueWalk]

Estimates show 90% of hedge funds 'socialize' [All About Alpha]

Ackman's Pershing Square subsidies hint at future moves [Dealbook]

Hedge funds drive to another record [WSJ]

SEC chair: we've found bogus private equity & hedge fund fees [Fortune]

Fidelity's Danoff looks beyond tech stocks [Reuters]

Berkowitz's Fairholme seeks to form trust company [BizJournals]

How hedge funds are pushing companies to leave America [Forbes]

How to revive animal spirits in CEOs [Jeff Ubben]

Pershing Square Exercises Allergan Options, Acquires Voting Securities

Bill Ackman's hedge fund firm Pershing Square Capital Management today filed an amended 13D with the SEC regarding their new stake in Allergan (AGN).  Per the filing, Pershing Square notes early termination of the waiting period under the Hart-Scott-Rodino Antitrust Act was amended and granted with respect to Pershing's shares.

As such, Pershing exercised their call options to purchase 24,831,107 shares of AGN.  The purpose of this transaction was to acquire voting securities of the issuer.

Ackman has been working with Valeant Pharmaceuticals (VRX) to acquire AGN.  Allergan, however, has apparently been exploring a sale to Sanofi as well as Johnson & Johnson, according to Bloomberg.

You can view other recent portfolio activity from Pershing Square here.

Third Point on Dow Chemical, IHI Corp & SoftBank: Q1 Letter

Daniel Loeb's hedge fund firm Third Point is out with its first quarter letter to investors.  In it,they detail their position in Dow Chemical (DOW) in-depth.  Instead of summarizing it, we'll let you read the full pitch in the letter below.  They also touch on a Japanese midcap: IHI Corp.

Additionally, Third Point updates its stake on Softbank.  They feel the decline in shares this year was unwarranted and write,

"SoftBank is witnessing substantial growth in underlying asset value, de-levering via the Yahoo! Japan transaction, and poised to drive further de-levering and free cash flow growth in SoftBank Mobile.  It currently trades at a 23% NAV discount to consensus estimates of value.  Alternatively, valuing SoftBank Mobile on a P/FCF methodology suggests SoftBank is trading at a 45% discount.  The discrepancy lies in the fact that the EV/EBITDA approach understates SoftBank Mobile's high free cash flow conversion and low cost of capital.  These discounts are clearly unwarranted.  We anticipate SoftBank's NAV will post continued growth and shrink this discount as management's strategy comes into further focus and transparency around underlying assets (particularly Alibaba) improves."

Embedded below is Third Point's Q1 letter:




You can download a .pdf copy here.

Trian Partners on Ingersoll Rand: Q1 Letter

Nelson Peltz's investment firm Trian Partners is out with its first quarter letter.  In it, we learn that they've turned over their portfolio a bit at the start of 2014.

They cut stakes in Allegion and Wendy's.  Trian also revealed that they've initiated a brand new position that's around 11% of NAV. 

They did not disclose the name of the company, though it sounds like they'll be coming public with the name at some point.  They describe the position as follows: "We believe the company has an attractive business model and secular tailwinds that could propel its already strong market shares.  However, (the stock) has underperformed its peer group as it relates to EPS growth, total shareholder return and margins."


Trian on Ingersoll Rand (IR): Q1 Letter

In other recent activity from this firm, we highlighted how Trian boosted its Ingersoll Rand stake.  Their Q1 letter talks about their IR stake:

"We have advocated in prior letters that the separation of IR’s Security division (Allegion plc) would better allow management to focus on the margin opportunity at its remaining Climate and Industrial segments. IR’s Climate Segment, which is 75% of total revenue, achieved just under an 8.5% EBIT margin in 2013 – well below UTX’s 15% EBIT margin in its comparable Climate, Controls, & Security division. Similarly, IR’s Industrial Segment, 25% of total revenue, achieved only a 14% EBIT margin in 2013 – well below Atlas Copco’s comparable Industrial & Compressor Technique segments. We believe that as a more focused company, IR will be better able to reduce the margin gap with its closest peers and drive high-teens EPS growth. IR management believes in the outsized earnings growth potential of the business and has guided to 85 to 100 basis points of annual margin improvement and a 15-20% EPS CAGR through 2016. At a valuation of 17.5x’s 2014 earnings, in line with the large-cap U.S. Multi-Industrial peers, we believe investors receive attractive earnings growth, commercial construction exposure, and a strategically valuable Irish tax domiciliation for no additional premium to peers. Going forward, we remain optimistic that management will continue to grow earnings. In fact, during 2013, segment level margins for Climate and Industrial increased 90   basis points year-over-year despite mixed end market growth and an organizational focus on completing the spin. On February 11, 2014, the company reported fourth quarter results and issued guidance for FY 2014. Guidance called for 3-4% revenue growth and a 14-20% increase in EPS despite the tax rate increasing from 15% to 25%. Furthermore, the Board initiated a new $1.5 billion share repurchase program and a 19% increase to its quarterly dividend. On April 23, 2014, IR released first quarter earnings which exhibited solid 4% organic revenue growth and a 13% increase in consolidated operating profits. Furthermore, management maintained the guidance on the year while issuing second quarter guidance above Wall Street consensus estimates. We remain optimistic that continued margin improvements, recovering end markets, and capital return will drive outsized shareholder returns from today’s trading levels.

On March 31, 2014, Nelson informed IR that he had decided not to stand for re-election as an   IR board director when his current term expires on June 5, 2014 due to other board commitments. Nelson joined the IR board in August 2012. IR expressed to us that Nelson is a valued member of the IR board and expressed its appreciation for his contributions and service to the company. Trian continues to be a large shareholder and is very supportive of IR’s progress and plans to enhance shareholder value, as detailed above."

For more from this firm, head to Nelson Peltz's presentation on Mondelez.

Corsair Capital's Pitch on Orora Limited: Q1 Letter

Jay Petschek and Steven Major's hedge fund firm Corsair Capital is out with its first quarter letter.  In it, they pitch Orora Limited.

Their thesis is that this is a spinoff that hasn't seen much attention and could have as much as 75% upside.  The company is a bottler of wines in Australia and New Zealand with large market share.  They also are the top local producer of aluminum cans for beverages.

Via cost cuts and new capacity, Corsair sees the company's cashflow increasing over the next few years.

Embedded below is Corsair's Capital's Q1 letter:




For more from this hedge fund, we've also posted Corsair's thesis on Alere.

What We're Reading ~ 4/30/14

Why it's hard to win in investing [Aleph Blog]

On the flaws of human intuition [Abnormal Returns]

The importance of pricing power [Base Hit Investing]

The greatest predictor of future market returns [Philosophical Economics]

Google: The untold story of Larry Page's incredible comeback [Business Insider]

Jim Grant's case against Valeant Pharmaceuticals [Business in Canada]

An updated pitch on AIG [Barrons]

A look at Liberty Media [Weitz Investments]

Michael Kors and Kate Spade go head to head [CNBC]

Why the housing market is stalling the economy [NYTimes]

On China's economy [Economist]

Solar power burns old utilities' business models [Daily Beast]

On tech investing [Dasan]

Spain: where deflation becomes good news for headline GDP [Fistful of Euros]

Reining in predatory schools [NYTimes]

Joe Nocera on Warren Buffett [NYTimes]

Pershing Square Trims Canadian Pacific Stake

Bill Ackman's hedge fund firm Pershing Square Capital Management has filed an amended 13D with the SEC indicating they've trimmed their stake in Canadian Pacific Railway (CP).

Per the filing, Pershing now owns 8% of the company with over 13.9 million shares.  This is a decrease of over 3.2 million shares since their last disclosure at the end of 2013. 

The latest filing was due to activity on April 28th and indicates they sold at $149.75.  CP has been a big winner for Pershing so it appears as though they're simply locking in some profits.

In other recent activity, Ackman has also built a new Allergan stake.

Per Google Finance, Canadian Pacific is "has 14,700-mile network serving the principal business centres of Canada, from Montreal to Vancouver, British Columbia and the United States Midwest and Northeast regions. Its network is consisted of four primary corridors: Western, Eastern, Central and the Northeast the United States."

Hound Partners Boosts Tesoro Holdings

Johnathan Auerbach's hedge fund firm Hound Partners has filed a 13G with the SEC regarding their position in Tesoro (TSO).  Per the filing, Hound now owns 7.08% of the company with over 9.3 million shares.

This is a sizable increase of over 7.8 million shares since their last disclosure from the end of 2013.  The filing was required due to activity on January 24th.

You can view Hound Partners' other recent activity here.

Per Google Finance, Tesoro is "an independent petroleum refiners and marketers in the United States. The Company’s subsidiaries, operating through two business segments: manufacture and sell transportation fuels. Its refining operating segment (refining), which operates seven refineries in the western United States, refines crude oil and other feedstocks into transportation fuels, such as gasoline, gasoline blendstocks, jet fuel and diesel fuel, as well as other products, including heavy fuel oils, liquefied petroleum gas, petroleum coke and asphalt."

Lone Pine Capital Restarts Equinix Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of Equinix (EQIX).  Per the filing, Lone Pine has revealed a 5.6% ownership stake in EQIX with over 2.77 million shares.  The 13G was filed due to activity on April 17th.

The hedge fund firm had previously held a EQIX stake, but apparently sold out of the position in the fourth quarter of 2013 as it did not appear on their 13F filing that detailed year-end positions.

With the newly filed 13G, Lone Pine is back in the shares again after a brief hiatus.

Coatue Management, longtime holder of EQIX shares, dumped their position in the fourth quarter as well.  This was significant as it had been one of their top holdings.

Other hedge funds have been involved in this name too and we've posted JANA Partners' thesis on EQIX and then SPO Advisory has increased its EQIX stake.

Per Google Finance, Equinix "connects businesses with partners and customers worldwide through a global platform of data centers. The Company connects approximately 4000 customers, across the Americas, Europe, Middle East and Africa (EMEA) and Asia-Pacific. Platform Equinix combines international business exchange (IBX) data centers, a global footprint and ecosystems. The Company offers each customer a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. Equinix offers customers direct interconnection to an aggregation of bandwidth providers, including the Internet Service Providers (ISPs), broadband access networks and international carriers. Its customers include carriers and other bandwidth providers, cloud and information technology services providers, content providers, financial companies and global enterprises."

You can view other recent portfolio activity from Lone Pine here.

Tiger Global Starts Zillow Stake

Chase Coleman and Feroz Dewan's hedge fund has filed a 13G on shares of Zillow (Z).  Per the filing, Tiger Global now owns 9.5% of the company with over 3.1 million shares.

This is a brand new position for the hedge fund as they didn't report ownership of any shares at the end of 2013.  The filing was required due to activity on April 21st.

It should be noted that Tiger Global's venture capital arm has also recently made an investment in fellow real estate company, RedFin.  They were a part of a $50 million round about six months ago.

Lee Fixel, who runs the VC arm, talked about their investment in a press release: "The real estate industry is ready for an innovator who understands how business can be transformed by putting the customer first, as we’ve seen with many industries before. We are confident this strategy will create significant value for all stakeholders over the long term."

You can view some of Tiger Global's other recent portfolio activity here.

Per Google Finance, Zillow is "provides real estate and home-related information. Zillow provides products and services to help consumers through every stage of homeownership, such as buying, selling, renting, borrowing and remodeling. The Company makes home-related decisions and enables homeowners, buyers, sellers and renters to find and connect with local professionals. Individuals and businesses that use Zillow have updated information on more than 37 million homes and have added nearly 100 million home photos."

Second Curve Capital Boosts Consumer Portfolio Services Stake

Tom Brown's hedge fund firm Second Curve Capital has filed a 13G with the SEC regarding their position in Consumer Portfolio Services (CPSS).  Per the filing, Second Curve has revealed a 5% ownership stake in CPSS with over 1.22 million shares.

This marks an increase in their stake of 413,687 shares since the end of 2013.  The filing was required due to activity on April 23rd.

Per Google Finance, Consumer Portfolio Services is "a specialty finance company. The Company’s business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger vans. Through its automobile contract purchases, it provides indirect financing to the customers of dealers who have limited credit histories, low incomes or past credit problems. It serves as an alternative source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance companies affiliated with automobile manufacturers."