Two more activist hedge funds sank back into negative territory last month, underscoring the fact that these are really long-only value funds in search of a catalyst.
Richard (Mick) McGuire III’s Marcato International Fund lost 9.10 percent in August. The fund, managed by San Francisco-based Marcato Capital Management, is now down 8.23 percent for the year. Nelson Peltz’s Trian Partners lost 3.76 percent last month through August 28, the next-to-last trading day of the month. That put the activist fund down 2.38 for the year. It is managed by New York-based Trian Fund Management.
And William Ackman’s Pershing Square Capital Management plunged 9.2 percent last month and is now down 0.1 percent for the year. It had been up as much as 7.4 percent as recently as August 18.
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Should hedge fund managers be bracing for an investor revolt? I’m not saying this because a number of hedge funds posted lousy results in August. Rather, after six years of underperformance, investors finally are signaling that performance in general is a big deal. According to Preqin’s mid-year surveys of hedge fund investors and fund managers, 44 percent of investors said performance is a key issue facing the industry. Not surprisingly, just half as many fund managers — 22 percent — agree, though. But this issue ranked higher than any other factor in the two surveys.
“This has arisen following one of the worst years for hedge fund performance in 2014 since the financial crisis,” London-based Preqin points out. Indeed, 43 percent of investors think hedge funds have underperformed in the last year.
This is much different than what investors have said in recent surveys. Just in February, for example, we noted that even though Preqin’s All-Strategies Hedge Fund benchmark posted only a 3.78 percent gain last year, its worst performance since 2011 and way below the Standard & Poor’s 500 index’s 13.7 percent total return, 65 percent of investors said hedge funds met or exceeded their expectations.
What’s more, in the new survey 51 percent of investors as of June 2015 said they felt their interests were aligned with those of the fund managers. This compares with 69 percent who felt this way in the June 2014 survey. This impression, combined with the feeling that the funds they are invested in are not performing up to expectations, could lead to a fee revolt, or a rash of redemptions. Or maybe not, if recent history is any gauge.
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London-based Horseman Capital Management’s Horseman Global Fund, the hedge fund that has thrived despite being net short for some time, rose another 2 percent in the first two days of September alone, boosting its gain for the year to 20 percent.
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Stuart Bohart has resigned as president of Fortress Investment Group’s hedge fund business, according to the Wall Street Journal. Fortress was planning a massive overhaul of its flagship macro hedge fund, according to an earlier Wall Street Journal report.
Bohart’s departure after spending five years with the New York firm could suggest the high-profile macro fund suffered another loss in August. The results probably won’t be announced until next week, but the fund, headed by Michael Novogratz, was down 9.46 percent for the year through July after losing 1.6 percent in 2014.
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Former BlueBay fund managers Neil Phillips and Jonathan Fayman are planning to launch Glen Point Capital, a new London-based global macro hedge fund, according to Reuters. They are aiming to get rolling sometime in 2016. The two managers left BlueBay last year when the Royal Bank of Canada unit shuttered its macro hedge fund.
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Shares of Bob Evans plummeted nearly 7 percent, to $44.69, reversing a 7.8 percent gain the prior day following the release of earnings that beat forecasts. Activist manager Thomas Sandell’s Sandell Asset Management owns 9.6 percent of the shares. Last August Sandell won five seats on the board of the restaurant and prepared foods company in a high-profile proxy fight. Sandell has been pushing the company to separate its two main businesses, which the company so far has not agreed to. Another major shareholder is Robert Citrone’s South Norwalk, Connecticut-based Discovery Capital Management.
My suggestion for unlocking more value: After a recent visit to one of its restaurants while on a road trip (yes, it was either Bob Evans, Cracker Barrel or Applebee’s), it was apparent the biggest arbitrage opportunity is for the company to figure out how to fill its restaurants with people other than the over-60 set, many of whom ordered off its low price menu. Hot wings and chili could be a good start.
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Shares of hedge fund favorite eBay surged more than 4 percent after Piper Jaffray raised its rating on the stock to Neutral from Underweight, with a $30 price target. The online auction company, which spun off PayPal in July, is the fourth largest holding of Boston-based Baupost Group, sixth largest holding of New York-based Jana Partners and seventh largest holding of New York-based Och-Ziff Capital Management.
