Hedge funds eked out a slight gain in October, one of the more volatile months in recent memory. The HFRI Fund Weighted Composite Index gained 0.09 percent for the month, edging up its gain for the year to 3 percent. The HFRI Equity Hedge (Total) Index fared a bit better, rising 0.37 percent in October and 2.31 for the year. Even so, the equity funds are getting trounced by the broader market—the S&P 500, including dividends reinvested rose 10.97 for the first 10 months of the year. The Barclays Capital Government/Credit Bond Index is up 5.41 percent for the year. The best-performing strategy in October was the currency index, up 1.66 percent for the month, and 3.60 percent for the year. The worst performer was energy/basic materials, down 3.15 percent in October but up 1.35 percent for the year.
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Shares of Sears Holdings Friday surged more than $10 per share, or 31 percent to close at $42.81 after the struggling retailer announced that it may sell 200 to 300 stores to a newly-formed real estate investment trust (REIT). The company would continue to operate the stores. If it does execute the plan, Sears said in the regulatory filing that it “would realize substantial proceeds” from the sale, which would further enhance its liquidity. Sears also noted that if it completes the transaction—structured as a sale-leaseback—it would distribute to its shareholders rights to purchase shares of stock or other equity interests of the REIT, with the proceeds of the stock sale partially being used to purchase the stores. Of course, the stock surge is good news for Edward Lampert’s Bay Harbour-based ESL Partners, Sears’ largest investor.
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William Ackman’s Pershing Square Capital Management fired off a letter to the Allergan board of directors calling on the company to run an open auction in light of reports that the Botox maker is in merger discussions with rival Actavis. “Now that the company is seriously considering a sale, it is incumbent upon the board to maximize shareholder value by running a sale process that will generate the highest value for shareholders,” the letter from the New York hedge fund firm stated. “Allergan should not favor either bidder until it is clear that one party is offering superior value when compared to the other.” Pershing Square once again made the case that Valeant Pharmaceuticals, which the hedge fund firm has teamed up with, can pay much more than Actavis, noting “the strategic overlap between the two companies and the resulting cost and revenue synergies.”
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Jeffery Ubben’s San Francisco-based ValueAct Capital Master Fund, run by San Francisco-based ValueAct Capital Partners, disclosed in a regulatory filing that it sold more than 11.3 million shares of Motorola Solutions for $66.26 per share back to the company as part of its stock-buyback program. As a result of the $750 million transaction, ValueAct still owns nearly 17.8 million shares, or 7.8 percent of the total outstanding.
“The sale of our shares back to the company enables ValueAct Capital to both help accelerate the capital return to shareholders and proportionally size our ownership stake,” said Bradley E. Singer, a partner at ValueAct and a member of Motorola Solutions’ board of directors, in a press release. “We currently intend to maintain our position as one of the company’s largest shareholders.”
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Deutsche Bank raised its rating on PetSmart to Hold from Sell and lifted its price target to $74 from $60 mostly in response to the company’s announcement in August to seek a buyer in response to pressure from Barry Rosenstein’s New York-based Jana Partners. In a note to clients, the investment bank says the company “is still fundamentally challenged,” but stresses it “has several potential non-fundamental catalysts that could support the shares, primarily related to M&A activity, leverage recaps or cost cutting.”
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The Barnegat Fund gained 0.5 percent in October, posting its second-straight monthly gain below 1 percent. Even so, the $714 million fixed-income, relative-value hedge fund is now up 17.7 percent for the year.
