The Morning Brief: Hedge Funds Shied Away from Valeant’s Stock

February 16, 2017   Stephen Taub


PointState Capital sold all of its roughly 8.5 million shares in pharmaceutical company.

Hedge funds are afraid to go near Valeant Pharmaceuticals International even after its stock dropped 86 percent last year. The recently filed 13F documents reveal that hedge funds in general were not inclined to be bottom-fishers as the year wound down. Sure, John Paulson’s Paulson and Company, the largest investor in the embattled drug company, incrementally added to its position in the fourth quarter, picking up another 513,500 shares and bringing its total to nearly 19.4 million. But Bill Ackman’s Pershing Square Capital Management, the second largest shareholder, cut its stake in Valeant by 16 percent, or nearly 3.5 million shares, to a little more than 18.1 million shares. Meanwhile, a number of other hedge funds, including PointState threw in the towel on the stock in the fourth quarter, liquidating their entire stakes. They include PointState Capital, which sold all of its roughly 8.5 million shares. There were buyers late last year, but they took relatively small positions in their portfolios. For example, Two Sigma established a nearly 2 million-share position, and Millennium Management bought more than 1.25 million shares and now has more than 1.33 million. In fact, no hedge fund manager dared to make one of those big bets that would have made Valeant a top-10 holding. Interestingly, on Wednesday shares of Valeant surged 5.5 percent to close at $16.86. They are now up more than 16 percent year-to-date in what has been a very volatile trading pattern over the first six weeks of the year.

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Shares of Fortress Investment Group surged nearly 29 percent to close at $7.99 after SoftBank Group Corp. agreed to acquire the investment firm for about $3.3 billion in cash. This works out to a 38.6 percent premium to the closing price of Fortress Class A common stock on February 13. Pete Briger, Wes Edens and Randy Nardone will continue to head up Fortress. In fact, they have committed to invest half of their after-tax proceeds from the transaction in Fortress-managed funds and vehicles.

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The second hedge fund in two days has grabbed an equity honcho from Morgan Stanley. Ricky Sandler’s Eminence Capital has hired Adam Parker, formerly the investment bank’s chief U.S. equity strategist, according to Reuters. He also served as the director of quantitative research. At Eminence, Parker will serve as director of quantitative strategy, according to the wire service, citing a person familiar with the matter. Eminence is the latest hedge fund that relies on humans to make investment decisions to bring in someone with a quantitative—or computer-driven—background. Yesterday we reported that Israel Englander’s Millennium Management tapped Morgan Stanley’s global head of equities trading, Peter Santoro, to head up its equities trading operation, according to Bloomberg.

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Dyal Capital Partners said it closed Dyal Capital Partners III (PE) with about $5.3 billion of committed capital. The target size was substantially raised by more than $2 billion during the marketing period. This is Dyal’s third fund, designed to provide minority equity capital to established private equity and hedge fund management companies. Dyal has formed minority partnerships with 20 firms and said in its announcement it expects to announce several more relationships in 2017. The new fund plans to make investments in 10 to 12 private equity firms.

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