Looking back on D.E. Shaw’s redemption requests and Oliver Stone’s silver screen hedge fund

September 13, 2011   Rob Copeland


AR also revisits Rajaratnam’s Sri Lankan charity.

One year ago

»» D.E. Shaw made good on redemption requests from investors in its multistrategy Composite fund, which resulted in outflows of an estimated $3 billion. The firm quickly followed the redemptions by laying off 150 people-about 10% of its staff, mostly in the back office.

D.E. Shaw offered a new share class for the multistrategy fund that excluded exposure to its less liquid investments and, six months later, cut its Composite fund management fee to 2.5% from 3.0% and performance fee to 25% from 30%.

The tumult contributed to the firm's total hedge fund assets falling to $14.3 billion at yearend, from $17.8 billion six months earlier. As of the midyear 2011, however, assets had bounced back to $15.5 billion. The D.E. Shaw Composite fund is up 4.14% this year through the end of July.

»» Oliver Stone spoke to AR about turning his signature Wall Street villain, Gordon Gekko, into a hedge fund manager in Wall Street 2: Money Never Sleeps.

In the film, Gekko flees to the U.K. and turns a $100 million investment into $1.1 billion. But instead of vilifying hedge funds as a group, which was the original intention, Stone went after the bankers. "Yes, the first script was about hedge funders. Shia [Labeouf] was a hedge funder, as was Josh Brolin," Stone said. "So we just took everybody and we moved them to banks, and we made Shia's firm more of a Bear Stearns, with the old guy a little bit out of touch-Langella. And the idea was that Josh would be more like Goldman Sachs or Morgan or Citicorp, for that matter.

"[The original] script was essentially about hedge funders, and [there were] scenes with Russian hedge fund guys in yachts and cars, and they wanted the emphasis on that style, and I said, 'I'm not really interested in all that stuff. I want to make this movie about the banks.'"

Perhaps Stone should have stuck with the original plan. In the end, the film was a commercial disappointment at the box office, earning $135 million worldwide. And despite pre-release hype, it was all-but ignored during awards season, with its only major accolade being a lone Golden Globe nomination for Michael Douglas.

Five years ago

»» Dan Loeb's Third Point slammed Nabi Biopharmaceuticals for "gross mismanagement" and asked for a look inside their books. Third Point owned 9.5% of Nabi at the time.

Perhaps most memorably, Loeb wrote to the board "you hide your heads in the nearest warm aperture in an apparent 'ostrich defense' and ignore your shareholders...in the hope that the company's owners will go away before your next annual meeting."

That was just the beginning. Third Point then threatened a proxy fight to remove the company's chief executive officer, Thomas McLain, unless it gave the hedge fund two members on the board and veto power over major acquisitions or sales. That effort failed. By November, both sides were ready to reach a deal. Nabi agreed to reimburse Third Point up to $250,000 for its expenses, and to form a new committee to consider strategic alternatives for the company.

Earlier this year, Third Point reduced its stake in Nabi to 8.2% from 9.4%, according to an SEC filing.

Despite writing some fiery politic rhetoric, Loeb had been less vituperous against corporate chieftains in the intervening years, but he burst back into the headlines last week by disclosing a 5.15% stake in Yahoo! following its noisy firing of CEO Carol Bartz. Though he approved of Bartz' sacking, Loeb's trademark blunt style shone through in a public letter. "From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this board's failures have destroyed value for all Yahoo stakeholders," he wrote.

»» AR profiled Raj Rajaratnam's Tsunami Relief organization, which was focused on building housing for displaced fishing communities in his native Sir Lanka. The Galleon Group founder was vacationing with his family on the island nation when a tsunami with waves up to 20 feet high hit the coast, killing 35,000 and leaving one million others homeless.

Rajaratnam pledged $5 million of his own money to relief efforts and organized a fundraiser at Manhattan's Stone Rose Lounge overlooking Central Park, raising another $10 million. Rajaratnam said he was particularly impressed by the eagerness of Sri Lankan fishermen to return to the sea, comparing them to hedge fund managers because of their high-risk occupation. "They are the greatest entrepreneurs," he said.

A now-infamous risk-taker himself, Rajaratnam was arrested in 2009 on charges of insider trading. The Galleon Group was quickly liquidated and, earlier this year, Rajaratnam was found guilty on 14 counts of securities fraud. He posted a $100 million bail and remains on house arrest in advance of sentencing later this month.

See also:
Would Raj risk it all for a mere $45 million?
Lessons learned from the Rajaratnam case
Galleon pros get new jobs
Galleon, Karsch alums start risk consulting firm





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