Hedge Fund Links ~ 5/6/16

So you want to start a hedge fund: Lessons for managers and allocators [Seides]

The future of the hedge fund industry [A Wealth of Common Sense]

Is the hedge fund industry heading for a crossroads? [HFIntelligence]

Investors' changing approach to hedge funds [Bloomberg]

Hedge funds haven't delivered on their promise [Economist]

Excerpts from Tiger Global's letter [ValueWalk]

Hedge fund analyst checklist [MebFaber]

On due diligence on manager skill [Rzepczynski]

Advice from hedge fund manager Karim Moussalem [WiloWallStreet]

CalSTRS CIO: The 2 and 20 hedge fund model is dead [CNBC]

NY state pension leader calls hedge fund fees unfair [NYPost]

Kerrisdale raises $100m to short Dish Network [ValueWalk]

Hedge fund due diligence starts with Google [Lumentus]

Hedge fund investors have fallen in love with merger arb again [Bloomberg]

HF investor Aurora to return $5.4 billion to clients [Bloomberg]

How US Attorney Preet Bharara struck fear into Wall Street [New Yorker]

Tybourne Capital Ups Boston Beer Stake

Eashwar Krishnan's hedge fund firm Tybourne Capital has filed an amended 13G with the SEC regarding its position in Boston Beer (SAM).  Per the filing, Tybourne now owns 8.2% of the beer company popular for its Samuel Adams brand with 766,547 shares.

This is up from the 552,695 shares that Tybourne owned at the end of 2015.  Their recent filing was made due to activity on May 5th.  Boston Beer recently cut its 2016 earnings guidance, providing a drop for Tybourne to add to their position.

Prior to founding Tybourne, Krishnan worked at Steve Mandel's Lone Pine Capital.  You can see other recent portfolio activity from Tybourne here.

Per Google Finance, Boston Beer is "a craft brewer in the United States. The Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and in international markets." 

7 Keys to the Perfect Pitch by James Rosebush

James Rosebush has used his experience in the Reagan Administration to develop what he feels are the 7 keys to the perfect pitch.  We thought this could be relevant for readers whether you are pitching an investment to others, pitching yourself to a potential employer, or pitching your fund to investors.


Rosebush's 7 Keys to the Perfect Pitch

His presentation focuses specifically on the mindset of pitching a fund to investors.  Here are his keys quickly summarized, with his full presentation video at the bottom:

1.  Start at the desired end - envision the final results

2.  Visualize when you talk - communication is mental transfer

3.  Associate your strategy with impact, with something bigger than just your own compact strategy -
activate something in the mind of the investor.  Where does your strategy mesh with the marketplace?

4.  Build a relationship bridge - research, get to know the investor, find out something about them that's impressive and tell them

5.  Be targeted, focused, exceptionally prepared and welcome tough questions

6.  Know what you believe and why you believe it

7.  Know yourself - ask if you have confidence in your strategy



Embedded below is the video of Rosebush's 7 keys to the perfect pitch:

Notes From Sohn Conference New York 2016: Druckenmiller, Robbins, Einhorn & More

The 2016 Sohn Conference New York just concluded and featured top hedge fund managers sharing investment ideas in order to benefit the Sohn Conference Foundation which is dedicated to the treatment and cure of pediatric cancer and childhood diseases.  Here's the takeaways:


Notes From Sohn Conference New York 2016


Larry Robbins (Glenview Capital): “Get a Grip.” Theme was stocks can be a bumpy ride for investors, and hedge funds have taken a lot of hits in the press, but if you expect them to not be short-term traders, then don’t judge them by their short-term records.   He talked his book; claiming that fundamental investing is not dead.   He is long: VCA (WOOF) – Veternarian hospital, multiple has compressed as earnings have grown and “There is no Obamacare for Veternarian hospitals.” Also pitched his longstanding holding of Thermo Fisher Scientific (TMO).  Yes, it has FX issues, but it has EPS growth.  Pitched Lab Corp (LH) as well: hit by fears of new technology, but Theranos story shows that it’s not that easy to come up with new technology. On CBS (CBS): the viewing model is changing, with over-the-top (OTT), but content still has value.   Flextronics (FLEX): they got out of the low value business, but still grew revenue 3% and EPS 15% yet their P/E is only 8.5x.  The stock fell in February 19% and nobody knows why. Abbvie (ABBV): has a pipeline, Humira has IP protection, and biosimilars will take time to develop. Brookdale Senior Living (BKD): earning less, but still, oversold. Talked about Anthem (ANTM): 1.     Managed care is still a good business  2.     Cigna (CI) merger could lead to 20% accretion  3.     ANTM vs ESRX contract repricing spat could lead to more earnings  4.     Market pricing says deal breaks, he doesn’t think it will.


Carson Block (Muddy Waters):  Famed short seller says, “No such thing as alchemy in banking” and touts Bank of the Ozarks (OZRK) as a short because they’ve done a lot of aggressive construction loans and acquisitions. Best case stock re-rates due to unsustainable EPS growth rate, worst case, balance sheet pressure.


John Khoury (Long Pond Capital):  Value oriented, private equity approach. Hyatt (H) long. Says 65% upside, and low leverage gives a floor to valuation.  Admits Pritzker family controls company but says they make good capital allocation decisions. Low end, leisure hotels most vulnerable to AirBnB threat.  Hyatt has more corporate, higher end, which is relatively insulated. Not making a bullish call on all hotel stocks.  Saying Hyatt since 2010 IPO, EBITDA is up 66%, shares up only 14% while they have bought back 20% of shares outstanding.    Uses SOTP to get $79 PT, 65% upside.


Chamath Palihapitiya (Social Capital):  Silicon Valley investor. Says Amazon (AMZN) is a multi-trillion monopoly in plain sight. Walked through e-Commerce, Amazon Web Services (AWS), says this is just the beginning, that Jeff Bezos will make good investment decisions. Says AWS is not understood by the Street and could be worth a lot more. (Seems like the AWS bull case is already widely touted by AMZN bulls?) Lots of potential losers as AWS scales.


Jeff Smith (Starboard Value): Activists. In 12 years they have replaced 162 board members at 50 companies. Likes Depomed (DEPO) long, pain medication, like Oxycontin, less abuse potential. Not taking price increases. Horizon Pharma (HZNP) tried to buy them, they refused to deal. Starboard has nominated a new board- sounds like a proxy battle is brewing.   Also like Westrock (WRK), merger of Mead WestVaco and Rock Tenn.  Sounds like a commodity business, but he says it is not, and it’s still cheap, at 4.9x 2017E EBITDA. Has $71 PT, almost a double from here.


Richard Deitz (VR Capital):  They do a lot of emerging markets stuff. He says long Greek banks and Greek treasury bonds.  Went through the sordid history of bailouts, and says now things are better, the banks are finally strong, may need one more round of recapitalizations.  141% upside, 34% IRR over next 3 years.


Stanley Druckenmiller (Duquesne Family Office): In a sentence: we have low rates, high multiples on stocks, high leverage, sell stocks and everything, buy gold.  Fed is out of control, encouraging borrowing, reckless behavior. China is out of control, just buy gold.


Jeff Gundlach (DoubleLine Capital): Comedy show, with art talk in the beginning.  In other words, his usual type of presentation. Says short XLU (utilities) long REM (mortgage REITs.)  REITS are priced at 0.88x p/book, with 11% dividend, Utilities are 1.9x p/book with 3% dividend, you earn 8% net and you can lever it up 100% and earn 15%, plus the two should converge. He mocked the “low volatility” equities and showed that even utilities have had 56% drawdowns in the past. His most incendiary statement was that Donald Trump would be President, and “he’s comfortable with debt.”


Zach Schreiber (PointState Capital): He is the man that pitched oil short 2 years ago, when it was $100 per barrel.   Long USD, short the Saudi currency, he says.  He made a compelling case for why Saudi is in an “unsustainable equilibria” with lavish unfunded entitlements, unsustainable debt, and not enough currency reserves to protect their peg. Other oil producers’ currencies are down 25- 45% vs the dollar- Mexico, Norway, Russia, for example, yet the Saudi currency is unchanged.  Only costs 1.5% to put this trade on and very asymmetric pay off.


Sohn Investment Contest Winner (Mark Grow, Columbia Business School):   DXCM, Dexcom short was the pitch. Insulin device maker (continuous glucose monitoring ~ CGM) which is facing impending competition and is unable to increase price as revenue per user declines. Says stock can drop in half.


Adam Fisher (Commonwealth Opportunity Capital):  Real estate background, now a Macro guy. Says short Japanese rates, long European rates. Very compelling case for how long JGBs that yield only 30 bps have nowhere to go but up. Even a move to 40 bps yield wipes out 10 years of return.  Says maximum return for bondholders is 9% return over 30 years - that is not a CAGR of 9%, that is a TOTAL of 9%!  Huge convexity in the trade.


David Einhorn (Greenlight Capital): He pitched Caterpillar (CAT) short, says company is NOT at trough earnings yet and the mining sector will never recover to the heights of the China boom.  No catalyst on the short, other than EPS growth expected to take longer than expected.  Then he pitched General Motors (GM) as a long, admitting that US business would drop off almost 20% but the currently money losing segments in Europe and Mexico could make up for the shortfall.  Long deck with lots of charts and cartoons as usual.  GM pitch rested on low P/E of 5.6x to increase despite US EBITDA to decline.


Jim Chanos (Kynikos Associates): Got a dig in on Tesla (TSLA), which he had said he was short earlier that day on TV.  He said Elon Musk had not enough production, not enough batteries, and now not enough executives, but he pulls production forward 2 years.  “What a showman,” he said. His pitch was a complicated one, talking about weakness in South Africa, and Nigeria, which led to a short of MTN group, a wireless carrier which is also struggling with subscriber growth and declining average revenue per user (ARPU).  At $20B EV, this is a big company that he says is not cheap.

What We're Reading ~ 5/4/16

Concentrated Investing: Strategies of the World's Greatest Value Investors [Benello] 

The internet economy [Chris Dixon]

Everything as a service [Stratechery]

A look at Cable One (CABO) [Value Seeker]

Rise of the robots is sparking an investment boom [FT]

Nielsen's blindspot and the fight for the future of TV ratings [The Wrap]

Company profile of TransDigm Group [Rational Walk]

Building failure into your process [A Wealth of Common Sense]

'Free' shipping crowds out small retailers [WSJ]

Africa's market of 1.2 billion people still holds huge promise [Economist]

Is Facebook approaching bubble territory? [Peridot Capitalist]

How grocery stores can survive Amazon [Bloomberg]

In China's Northeast, a daily jostle for jobs [NYTimes]

Baidu's moral dilemma [CNSpoon]

Google's yearly founders' letter [GoogleBlog]

Google has run away with the web search market and no one is chasing [Quartz]

Why are there so many mattress stores? [Marketplace]

The US homeownership rate falls again [WSJ]

How to be a better networker [Both Sides of the Ghost]

Jim Chanos Still Short Valeant, Alibaba, Tesla, SolarCity

At the Sohn Conference in New York today, Kynikos Associates' founder Jim Chanos appeared on CNBC to talk about what he's seeing in the markets lately (stay tuned for our full Sohn Conference notes later on).   Here are some takeaways:


- Still short Alibaba Group (BABA) with his bearish China bet

- Notes that some hedge funds charging 2/20 that generate 8% return will only give their investors a 4-5% return - is that worth paying for?

-  Still short Valeant (VRX) after originally shorting in 2014; thinks it's still not cheap and argues people are using valuation metrics that aren't right.  Doesn't think the company is trading at 3x earnings like Bill Ackman suggested recently.  Chanos: "Valeant was genius at gaming the system. That game is over."

- Cheniere Energy (LNG): Says he agrees that the contracts are money good, but the company's cost estimates are too low.  "You're paying a ridiculous price for 2020 cashflows compared to any other energy play you can buy today."  Asks how profitable can the plants operate and at what capital cost?

- Short Elon Musk: betting against Tesla (TSLA) and SolarCity (SCTY) still.  Sees flood of executives leaving TSLA as a negative sign.  Since the company can't really make money selling a $100,000 car, how are they going to do so selling a $35000 car (upcoming Model 3)?  Feels TSLA will need to raise money eventually.  Thinks SCTY gets in financial trouble in 2016.

We'll post video of his appearance if/when it becomes available.

Berkshire Hathaway Slightly Trims Verisign Position

Warren Buffett's Berkshire Hathaway has filed a Form 4 with the SEC regarding its position in Verisign (VRSN).

Per the filing, Berkshire slightly trimmed their stake in VRSN on April 29th.  They only sold 32,255 shares at weighted average prices ranging from $88.21 to $91.81.  After these sales, they still own a sizable 12.95 million shares.

This stock was largely thought to be one of Berkshire's younger portfolio managers' holdings (either Ted Weschler or Todd Combs).  These gentlemen now manage $9 billion each for Berkshire.

Per Google Finance, Verisign is "a provider of domain name registry services and Internet security, enabling Internet navigation for domain names and providing protection for Websites and enterprises around the world (Registry Services). The Company operates in Registry Services and Security Services segment. Its product suite also includes Security Services consisting of Distributed Denial of Service (DDoS) Protection Services, Verisign iDefense Security Intelligence Services (iDefense) and Managed Domain Name System (Managed DNS) Services. The Company's Registry Services provides the security and resiliency of Internet infrastructure and services, including the .com and .net domains, approximately two of the Internet's root servers, and operation of the root-zone maintainer functions for the core of the Internet's Domain Name System (DNS). The Company has operations inside, as well as outside the United States. Its operations infrastructure consists of approximately three secure data centers.."

Steve Cohen, Cliff Asness & Neil Chriss Talk Hedge Funds at Milken Institute

The Milken Institute just featured a conversation on the evolution of hedge funds and the future of asset management. The talk included Point72's Steve Cohen (formerly SAC Capital), Cliff Asness of AQR, and Neil Chriss of Hutchin Hill.

It's rare to hear directly from Cohen, so it's certainly worth watching the whole chat.  But here's some brief takeaways:

- Steve Cohen: says that there's so many players out there and they're all chasing the same names these days.  He was worried about levered/crowded names and becoming 'collateral damage' and you saw that play out earlier this year. "It's very hard to maximize returns and maximize assets too." He also noted that their data says their team are great stock pickers but not necessarily good at market timing.  In general, Cohen feels that talent is really thin.  He's "blown away" by the lack of true talent.  Later said around 80% of PMs come from inside their firm as they like to provide teaching tools.  "If you're not innovating, you're dying."  He says there's opportunities overseas but their offices there are always going to be smaller than the 'mothership' in the US.  They like to find people who have a strategy, stick to it, and do it over and over again (process).


- Cliff Asness: says that fees in the industry are just too high.  Gotta be more unique ways to structure fees, i.e. based on correlation of returns.  Barriers to entry for newer funds have gone up with increased regulatory environment (compliance, cost, etc).  Moderator says 67% of managers manage less than $250 million.  Asness notes hedge funds haven't performed well since the financial crisis and thinks they should be hedging more and be more uncorrelated to the indexes.  Also says the benchmark hedge funds compare to is simply wrong.  Noted that people overreacted to 3-5 year performance figures.


- Neil Chriss: argues that funds are too much like the indices but also too much like each other.  Says in order to scale in this business you need to be able to handle drawdowns and hire more people, expand into new investments, etc.  Made an interesting point that AUM from the 1990's until present has gone up something like 15-fold, but the talent level has not mirrored that expansion.  Thinks active managers will have more success when monetary policy stops influencing things so much.  On Hutchin Hill's multi-platform, they're looking for good decision makers, as that's ultimately what PMs are.  They want people with track records of good decision making.


Embedded below is the video of their Milken Institute talk:

Greenlight Capital Q1 Letter: New Positions in Yelp, PVH, Hatteras & American Capital Agency

David Einhorn's Greenlight Capital is out with its first quarter letter.  They returned 3% net in the first quarter after a very difficult 2016 which saw many of their top holdings implode.

During Q1, they started positions in American Capital Agency (AGNC), Hatteras Financial (HTS), PVH (PVH), and Yelp (YELP).  You can read their thesis on those names below.

Additionally, they're now dabbling in natural gas through calendar strips.

At the end of the first quarter, Einhorn's top holdings (alphabetically) were: Apple (AAPL), CONSOL Energy (CNX), General Motors (GM), gold, and Time Warner (TWX).  Their average exposure was 99% long and 79% short.

Embedded below is Greenlight's Q1 letter:

Graham & Doddsville New Issue: Interviews With MSD Capital, Meritage Group & More

The Spring 2016 issue of the Graham & Doddsville newsletter has been released by Columbia Business School.  In it, they have some great interviews with John Phelan of MSD Capital, Alex Magaro of Meritage Group, Adam Wyden of ADW Capital, and short-seller Marc Cohodes.

The issue also features the stock pitches from students from the 9th annual Pershing Square challenge.  Long Alimentation Couche-Tarde (TSE:ATD.B) won first place.  Next, second place went to a long pitch on Charles Schwab (SCHW).  Finalists also included a long pitch on Advance Auto Parts (AAP), a long of Alcoa (AA), and a long of Alliance Data Systems (ADS).

Embedded below is the latest Graham & Doddsville issue:



You can download a .pdf copy here.

SPO Advisory Reduces Resolute Energy Stake

John Scully's SPO Advisory has filed a 13G and a Form 4 with the SEC regarding their position in Resolute Energy (REN).  Per the filings, SPO now owns 6.3% of the company with 4.8 million shares.  They sold 10 million shares on April 28th at $0.51. 

Per Google Finance, Resolute Energy is "an independent oil and gas company. The Company is engaged in the exploitation, development, exploration for and acquisition of oil and gas properties. Its properties are Aneth Field located in the Paradox Basin in southeast Utah (the Aneth Field Properties or Aneth Field), and the Permian Basin in Texas and southeast New Mexico (the Permian Properties or Permian Basin Properties). It has an interest in gas gathering and compression facilities located within and adjacent to its Aneth Field Properties. Aneth Field is an oil field in southeast Utah, which produces approximately 6,290 equivalent barrels of oil per day. It owns working interests in the Aneth Unit, the McElmo Creek Unit and the Ratherford Unit. The Company has interests in approximately 27,750 gross (17,570 net) acres in the Permian Basin of Texas and southeast New Mexico. It covers over two project areas, including the Delaware Basin project area and the Northwest Shelf project area.."

Steadfast Capital Starts GrubHub Stake

Robert Pitts, Jr.'s hedge fund firm Steadfast Capital has filed a 13G with the SEC regarding shares of GrubHub (GRUB).  Per the filing, Steadfast now owns 5.1% of the company with over 4.31 million shares.

This is a newly disclosed equity position for the firm.  The filing was made due to activity on April 19th.  GRUB became publicly traded late last year.

About Steadfast Capital

This is the first time Steadfast Capital has been covered on the site.  The fund was founded by Robert Pitts, Jr. after working at Julian Robertson's Tiger Management.  As such, Steadfast is one of the many so-called 'Tiger Cub' funds.  Steadfast's most recent 13F filing reported assets of $5.2 billion, but keep in mind that doesn't include any of their international positions/exposure.

Per Google Finance, GrubHub "is an online and mobile platform for restaurant pick-up and delivery orders. The Company connects more than 30,000 local restaurants with diners in more than 800 cities across the United States. The Company’s target market is primarily composed of independent restaurants. The Company provides diners on the platform with a personalized platform that helps them search for local restaurants and then place an order from an Internet-connected device. It also provides diners with information about their orders and status. In addition, the Company enables re-ordering by storing previous orders, preferences and payment information. The Company’s products include GrubHub and seamless Websites, GrubHub and seamless mobile applications and mobile Website, seamless corporate program, allmenus and menupages, orderhub and boost, restaurant Websites and delivery."

Coatue Management Discloses Square Position

Philippe Laffont's hedge fund firm Coatue Management has filed a 13G with the SEC regarding shares of Square (SQ).  Per the filing, Coatue now owns 5.99% of the company with over 1.89 million shares.

The filing was made due to activity on April 12th.  Coatue previously did not report a stake at the end of 2015.  Square went public in the later half of 2015.

Per Google Finance, Square "provides financial services and marketing services. The Company also provides payments and point-of-sale (POS), which include hardware and software to accept payments, streamline operations, and analyze business information. The Company's payments and POS services include In-Person Payments, Online Payments, Square Cash, Square Register, Square Analytics, Square Appointments and Square App Marketplace. The Company's financial services include Square Capital and Square Payroll. The Company's marketing services include Square Customer Engagement and Caviar. The Company's mobile payments and POS services transform the checkout process and advance digital and mobile commerce by untethering sales from long lines and antiquated cash registers. The Company provides sellers a range of options for accepting payments in-person or online. The Company acts as the merchant of record for its sellers.."

Pershing Square's Latest Presentation on Their Holdings

Bill Ackman's hedge fund firm Pershing Square Capital Management recently released its slideshow presentation from its European Investing Meeting.

In it, they update the status/progress of their investments with numerous slides on each name regarding their thesis and how it's playing out. 

The investments profiled include: Mondelez (MDLZ), Air Products (APD), Zoetis (ZTS), Restaurant Brands (QSR), Canadian Pacific (CP), Howard Hughes (HHC), Valeant Pharmaceuticals (VRX), Platform Specialty Products (PAH), Fannie Mae/Freddie Mac, Nomad Foods (NOMD), and their short of Herbalife (HLF).

Embedded below is Pershing's latest presentation:



You can download a .pdf copy here.