Hedge Fund Links ~ 6/10/16

A bearish George Soros is trading again [WSJ]

Activist investor heavyweights form new lobbying arm [Reuters]

These 14 stocks are hedge funds' new favorites [CNBC]

Goldman says hedge funds wedded to top picks [Bloomberg]

The economics and finance of hedge funds [ValueWalk]

Big insurers send wake up call to hedge funds [NYTimes]

Why I don't want to run a hedge fund anymore [eFinancialCareers]

Why the hedge fund industry should welcome the pain [Yahoo Finance]

12 best things Paul Tudor Jones ever said [NewTraderU]

Women still struggle to break into hedge funds [Institutional Investor]

Why a track record is not enough for a hedge fund launch [eFinancialNews]

Hedge funds look for hard hats in a year of collapsing mergers [NYTimes]

Hedge funds: there are too many and most stink [Yahoo Finance]

Trian Fund Updates Stakes in Sysco & Bank of New York Mellon

Nelson Peltz's activist firm Trian Fund Management has made some SEC filings recently.

Peltz Acquires Acquires Sysco Shares

First, in an amended 13D with the SEC regarding their position in Sysco (SYY), Trian disclosed it now owns 7.8% of Sysco with 43.95 million shares. 

Per a Form 4 filed with the SEC, Trian acquired 520,000 shares on June 3rd at a weighted average price of $48.7874 and 173,000 more shares on June 6th at $48.8295 (weighted average).

Per Google Finance, Sysco "along with its subsidiaries and divisions, is a North American distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company provides products and related services to approximately 425,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Sysco provides food and related products to the foodservice or food-away-from-home industry. The Company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are the main segments. Broadline operating companies distribute a line of food products and a variety of non-food products to their customers. SYGMA operating companies distribute a line of food products and a variety of non-food products to chain restaurant customer locations. The Company’s other segments include its specialty produce, custom-cut meat and lodging industry products segments."


Trian Buys More Bank of New York Mellon

Second, Peltz's firm also filed a separate Form 4 with the SEC regarding its stake in Bank of New York Mellon (BK).  They acquired 370,000 shares on June 6th at a weighted average price of $42.3905. 

After this buy, they now own over 32.21 million shares.

Per Google Finance, Bank of New York Mellon is "an investments company. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes credit-related services; the leasing portfolio; corporate treasury activities, including its investment securities portfolio; its equity interest in ConvergEx Group; business exits, and corporate overhead. The Company has over $1.6 trillion in assets under management. BNY Mellon's subsidiaries include The Bank of New York Mellon and BNY Mellon, National Association (BNY Mellon, N.A.). The Bank of New York Mellon is a New York state-chartered bank, which houses its Investment Services businesses, including Asset Servicing, Issuer Services, Treasury Services, Broker-Dealer and Advisor Services, as well as the bank-advised business of Asset Management."

Berkshire Hathaway Buys More Phillips 66 (PSX)

Warren Buffett's Berkshire Hathaway has filed another Form 4 with the SEC regarding its stake in Phillips 66 (PSX).  Per the filing, Berkshire was buying PSX shares on June 3rd, 6th, and 7th at prices ranging from $80.085 to $80.76.  In total, Berkshire bought 469,604 shares.

We highlighted how Berkshire Hathaway bought PSX shares last month as well, as this has been an ongoing purchase for some time.

After the most recent transactions, Berkshire now owns over 78 million PSX shares.

Per Google Finance, Phillips 66 is "an energy manufacturing and logistics company with midstream, chemicals, refining and marketing and specialties businesses. The Company operates its business through four segments: midstream, chemicals, refining and marketing and specialties. It gathers, processes, transports and markets natural gas, and transports, fractionates and markets natural gas liquids (NGL) in the United States. The Chemical segment manufactures and markets petrochemicals and plastics. The Chemicals segment consists of its 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The refining segment buys, sells and refines crude oil and other feedstocks into petroleum products (such as gasolines, distillates and aviation fuels) at 14 refineries, mainly in the United States and Europe. The Marketing and Specialties segment purchases for resale and markets refined petroleum products (such as gasolines, distillates and aviation fuels), mainly in the United States and Europe." 

Bruce Berkowitz Acquires More Sears Shares

Bruce Berkowitz's Fairholme Capital has filed another Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Fairholme bought SHLD on June 3rd, 6th, and 7th at prices of $13 and $13.5. 

Berkowitz acquired 260,600 shares in total.  After these buys, he now owns over 27.5 million shares.

This is the second time he's filed a Form 4 recently as we highlighted Fairholme's other recent buy of SHLD.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."

Marc Andreessen on Hedge Funds Versus Venture Capital & Investing

Tim Ferriss (well-known author of The 4-Hour Workweek) recently interviewed Marc Andreessen, one of the founders of venture capital firm Andreessen Horowitz.

In the very interesting podcast, Andreessen wasn't directly asked about it but he basically touched on the similarities and differences between public market investing versus investing in private companies.

Here are some interesting quotes and takeaways from the interview:
 
On hedge fund managers:

“In investing and other things, people just hate changing their mind … If you talk to the world’s best hedge fund managers, they’re the exact opposite.  They love changing their mind.  I’m one of the few people who will openly admit I love spending time with hedge fund managers, I think they’re awesome.  They’re fantastic people and they’re the most open minded people I know.  They love when you tell them that they’re wrong.  They get all excited.  Their eyes light up.  They’re like, “Why? Why do you think that?”  And they’re genuinely interested.  Because if you’re right and they’re wrong, they will change their minds.  And they’re hedge fund managers, so they’ll literally reverse the trade.  If they were long a company, they’ll flip around and go short.“

This highlights one of the main benefits of liquidity.  While it can be a tricky task to pull a mental 180 and reverse your thinking on an investment, it's even more difficult to flip your position if there's no liquidity.  This is undoubtedly one of the biggest advantages in public investing versus private.

If you're wrong in the markets, you can simply sell the position as soon as the market opens.  But if you make a mistake with a private investment, you'll either be waiting much longer to offload the stake and/or doing so at potentially less than favorable prices.  Mistakes can easily be magnified.  


On conviction:

Andreessen also touched on the concept of 'strong opinions, loosely held' which ties into the point above about the ability to change one's mind.  He summed it up succinctly by illustrating a progressive thought process: "Conviction.  Conviction.  Conviction.  New facts.  Change."

Going back historically, this is basically an adaptation of John Maynard Keynes' oft quoted words: "When the facts change, I change my mind.  What do you do?"


On the hedge fund industry versus venture capital:

"A hedge fund manager can reverse himself.  The next day he can turn around and take the opposite trade.  We don’t get to do that.  When we invest, it’s knowing we’re in for 10+ years.  It’s a commitment of dollars but it’s also a commitment of somebody’s time and the organization’s time and bandwidth, and there’s only so much of that.  When we make a decision, we then become committed to that company in that category, and so we can’t invest in their competitors, including competitors that don’t even exist yet ... Our decisions are big decisions and they have huge consequences for the firm."

This underscores how difficult it can be to think so far into the future and to try and accurately predict it.  He gives a good example about how investors in Friendster couldn't invest in Facebook because it didn't exist at the time, but by time it came around, they were already tied to Friendster and thus they missed out on a much better opportunity.
    

On good versus great investments:

"One of our theories of venture capital: Everybody thinks in investing you either make a good investment or a bad investment.  I actually think that's not the big issue.  The issue in venture capital is you either make a good investment or a great investment.  Good is the enemy of great.  We see many companies that are just fine ... founders are good, market seems good, product seems good, customers kinda like it, and they got a little revenue and it's all fine, but those companies tend to never go anywhere.  Every once in a while we'll see these companies that have some extremely strong strength, some extremely special wonderful thing going on, that by the way may have all kinds of problems and issues, but there's something at the core of what it is that's really special and magical.  And those are the ones that we want to do.  We're trying to stock our portfolio with just investments like that."

This is similar to the notion that only a few great investments in a stock portfolio drive the majority of the returns and so investors are on a continual quest to find the holy grail.  But it's not just finding them.  You have to be able to buy them at a decent price.  As Warren Buffett says, "Price is what you pay; value is what you get."

Many great fund managers keep a watchlist of great companies they'd love to own at the right price (companies with huge moats, competitive advantages, great management teams, etc).  And if volatility presents an opportunity, they strike, often selling 'good' companies to replace them with 'great' ones.


On the importance of arguing the other side:

Andreessen then goes on to discuss his firm's investment process and the importance of arguing the other side.  There are pros and cons to doing this as he warns at first that, "It'd be very easy in a conversation about the weaknesses of something to beat the idea to death and you never invest."

At the same time, he says they can create a 'red team' or people designated to argue the other side (why they shouldn't invest, i.e. the bear case in public market investing).  Andreessen says, "Whenever (a partner) brings in a new idea, I just beat the shit out of it ... and he does the same to me.  It's the torture test."

Two quotes from Charlie Munger highlight just that:

"Invert, always invert."

and

"I never allow myself to have an opinion on anything that I don't know the other side's argument better than they do." 

Andreessen notes they're trying to take contrarian, non-consensus views to guide their investments.  This is quite similar to public market value investors, or other managers who identify the consensus view and then outline their variant perception.  Risk & mitigant lists are also pretty commonplace in investment pitches these days.


Books Recommended by Marc Andreessen:

During the interview, Tim Ferriss mentioned The Four Steps to the Epiphany.

He also singled out High Output Management, which Andreessen then called "the best book on management ever written."

Andreessen also recommended Only The Paranoid Survive, written by the same author.

He also highlighted Peter Thiel's book Zero To One as a great option.

Shifting gears a bit, the venture capitalist also noted that, "Where I got a lot of my education from was reading history.  I'd go back and read about Edison, Ford, Rockefeller, J.P. Morgan.  The period between 1870-1920 is really interesting."

He singled out The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World.

He also mentioned a book on Walt Disney as well as Schulz and Peanuts.

And while he didn't specifically name these books, here are some of the top rated biographies on the historical luminaries he mentioned above:

Titan: The Life of John D. Rockefeller, Sr.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance


On other investors he studies:

"I study the people we compete with and collaborate with very closely.  I (also) particularly study value investors, on the completely other side of the spectrum.  Warren Buffett is the archetype but Seth Klarman, and others."

"Value investing is the only other place in the market where you can actually find long term investors."


On Warren Buffett:

"On the one hand, there's no overlap between the worlds.  Anything Warren Buffett's willing to invest in we run screaming in the other direction and vice versa.  He invests in Heinz Ketchup and the reason he invests in Heinz Ketchup is that people have been eating Ketchup on hamburgers for 100 years and therefore the best guess would be that they're going to continue to eat Heinz Ketchup for the next 100 years.  We're wired completely opposite.  He's betting against change and we're betting for change.  When he makes a mistake it's because something changes that he didn't expect.  When we make a mistake it's because something doesn't change that we thought would.  They could not be more different in that way.  But what both schools have in common is an orientation towards original thinking, willing to view things as they are as opposed to what everybody says about them or what they've believed to be."



While these are just some takeaways from the interview, Andreessen and Ferriss also touch on a myriad of other subjects and we'd definitely recommending listening to the full podcast here.

Ruane Cunniff Dumps Half of Valeant Pharmaceuticals Stake

Ruane Cunniff & Goldfarb, managers of the Sequoia Fund and one of the longstanding holders of Valeant Pharmaceuticals (VRX) reported they've sold almost half of their stake, per a just filed 13G with the SEC.

They now own 4.72% of the company with only 16.11 million shares.  This is down from the 30.30 million VRX shares they owned at the end of the first quarter.

The filing was made due to activity on May 31st.

We've highlighted this ongoing saga and other investors involved include Jeff Ubben's ValueAct Capital, and much more recently Bill Ackman's Pershing Square.

Per Google Finance, Valeant is "a specialty pharmaceutical and medical device company. The Company is engaged in developing, manufacturing, and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. The Company operates through two segments: developed markets and emerging markets. The Company's developed markets segment consists of sales in the United States of pharmaceutical products, OTC products, and medical device products. The Company's Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products.."

Carl Icahn Increases Hertz Position

Activist investor Carl Icahn has submitted some recent SEC filings regarding his position in Hertz (HTZ).  Per an amended 13D filing, Icahn now owns 15.24% of Hertz with over 64.69 million shares.

This means he's boosted his stake by just shy of 1 million shares.  The Form 4 Icahn filed with the SEC indicates he bought on June 2nd and 3rd at prices of $9.96 and $9.88.

For more on this investor, we recently highlighted how Icahn has taken a stake in Allergan.

Per Google Finance, Hertz is "engaged principally in the business of renting and leasing of cars through its Hertz, Dollar, Thrifty and Firefly brands, and equipment through its Hertz Equipment Rental brand. The Company operates through four segments: U.S. Car Rental, International Car Rental, Worldwide Equipment Rental and All Other Operations. It operates over 9,980 corporate and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Middle East and New Zealand. Its brands maintain separate airport counters, reservations and reservation systems, marketing and all other customer contact activities. Its Hertz brand has approximately 8,510 corporate and franchisee locations in over 150 countries. Its Dollar and Thrifty brands combined have approximately 1,345 corporate and franchisee locations in over 75 countries and its Firefly brand has approximately 100 corporate and franchisee locations in over 20 countries.."

JANA Partners Slightly Trims ConAgra Foods Stake

Barry Rosenstein's activist hedge fund firm JANA Partners recently filed an amended 13D with the SEC regarding its position in ConAgra Foods (CAG).  Per the filing, JANA now owns 6.3% of CAG with over 27.38 million shares of exposure (including call options to purchase 6 million shares).

If you back out the 6 million shares via call options (which JANA disclosed as a new position in the first quarter), you're left with 21.38 million shares. 

Compare this with the 21.53 million shares JANA owned at the end of the first quarter, and this means they've slightly reduced their net exposure to the name. 

The filing was made due to activity on May 27th and the purpose of transaction notes that they "entered into an agreement with the Issuer that amends and restates the Cooperation Agreement (the "Amended and Restated Cooperation Agreement"). The full text of the Amended and Restated Cooperation Agreement is included as Exhibit D to this Amendment No. 2 by reference to Exhibit 99.1 of the Issuer's Current Report on Form 8-K filed with the SEC on May 31, 2016 (the "Form 8-K") and is incorporated by reference herein.

For more on this fund, we recently highlighted that JANA reduced its Walgreens Boots Alliance position.

Per Google Finance, ConAgra Foods "operates as a packaged food company. The Company offers branded and private branded food to households, as well as commercial foods, which serves various restaurants and foodservice operations. The Company operates in three segments: Consumer Foods, Commercial Foods and Private Brands. Its brands include Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim and Snack Pack, among others. The Company sells its products under private brand labels in grocery, convenience, mass merchandise, club and drug stores. Additionally, ConAgra Foods supplies frozen potato and sweet potato products, as well as other vegetable, spice, bakery, and grain products, to restaurants, commercial and foodservice customers. It has international manufacturing facilities in Argentina, Mexico and interests in ownership of international manufacturing facilities in India and Mexico.."

ValueAct Capital Sells More MSCI

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its position in MSCI (MSCI).  Per the filing, ValueAct sold 1.8 million shares on June 1st, 2nd, and 3rd at prices of $78.96, $78.69, and $76.21.

As we've highlighted previously, ValueAct has been trimming its MSCI stake throughout the year.

After these transactions, ValueAct now owns 1.87 million shares.

Per Google Finance, MSCI "together with its wholly owned subsidiaries, is a provider of investment decision support tools, including indexes, portfolio risk and performance analytics and multi-asset class market risk analytics products and services. The Company’s products include global equity indexes and environmental, social and governance (ESG) products marketed under the MSCI and MSCI ESG Research brands, its private real estate benchmarks marketed under the IPD brand, its portfolio risk and performance analytics covering global equity markets marketed under the Barra brand, its multi-asset class, market and credit risk analytics marketed under the RiskMetrics and Barra brands and its performance reporting products and services offered to the investment consultant community marketed under the InvestorForce brand."  

SRS Investment Management Reduces Avis Budget Stake

Karthik Sarma's hedge fund firm SRS Investment Management has filed an amended 13D with the SEC regarding its position in Avis Budget Group (CAR).  Per the filing, SRS now owns 9.5% of CAR with 9 million shares.

The filing indicates they sold 500,000 shares on May 5th at $25.40.  SRS previously owned 9.5 million shares at the end of the first quarter of 2016.

About SRS Investment Management  

Prior to founding SRS, Karthik Sarma worked at Tiger Global.  He started SRS in 2007 and has a large focus on international markets (particularly in India, China, etc) and typically invests in technology, media and other high-growth industries.  SRS's latest 13F filing indicates they manage in excess of $2.7 billion and that doesn't include their foreign positions.

About Avis Budget Group  

Per Google Finance, Avis Budget Group is "a provider of vehicle rental and car sharing services. The Company operates three brands, which include Avis, Budget and Zipcar. Avis is a rental car supplier and Budget is a rental vehicle supplier. It also owns Payless, which a car rental brand, and Apex, which is a car rental brand in New Zealand and Australia. It operates in two segments: Americas and International. The Americas segment provides and licenses the Company's brands to third parties for vehicle rentals and ancillary products and services in North America, South America, Central America and the Caribbean, and operates its car sharing business in certain of these markets. The International segment provides and licenses the Company's brands to third parties for vehicle rentals and ancillary products and services in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand, and operates its car sharing business in certain of these markets.."

Paulson & Co Trims NovaCopper Position

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding its stake in NovaCopper (NCQ).  Per the filing, Paulson sold 70,618 shares combined on May 27th and May 31st at prices of $0.5456 and $0.51.

After these transactions, Paulson now owns 11.73 million shares of NCQ.  Paulson had also previously done some other selling in late May.  The firm owned 11.82 million NCQ shares at the end of the first quarter this year.

Per Google Finance, NovaCopper is "a Canada-based company engaged in the exploration and development of its Upper Kobuk Mineral Projects located in the Ambler mining district in Northwest Alaska, the United States. The Company's segments are Alaska, USA; Antioquia, Colombia, and Corporate and other. Its Upper Kobuk Mineral Projects consist of Arctic Project, which contains a polymetallic volcanogenic massive sulfide (VMS) deposit, and Bornite Project, which contains a carbonate-hosted copper deposit. The Company also owns interest in the Titiribi gold-copper exploration project located approximately 70 kilometers southwest of the city of Medellin, in Antioquia Department, Colombia. The Arctic Project is located in the Ambler mining district of the southern Brooks Range, in the Northwest Arctic Borough (NWAB) of Alaska. The Bornite Project is located in the Ambler mining district of the southern Brooks Range, in the NWAB of Alaska. The Bornite Project is located within the Arctic Alaska Terrane."