So much for the Valeant Pharmaceuticals revival. Tuesday was
a huge setback for the hedge fund honchos who have been
counting on 2017 being a big bounce-back year for the embattled
drug maker. Shares of Valeant plunged 14 percent, to $14.36, on
Tuesday even though the company reported fourth-quarter
earnings that beat forecasts. Investors, however, focused on
the fact that revenues fell 13 percent. The stock is now down
for the year.
In addition, Barron’s reported that Wells
Fargo published a note to clients asserting that
"Valeant’s franchises all appear to be stagnating
or in decline and cash generation continues to deteriorate." As
we earlier reported, in the fourth quarter John
Paulson and Co. remained the largest investor, adding
513,500 shares and bringing its total to nearly 19.4 million.
Pershing Square Capital Management, the second-largest
shareholder, pared its stake by 16 percent, or nearly 3.5
million shares, to a little more than 18.1 million shares. Jeff
ValueAct Capital remained the third largest
Several other high-profile hedge funds, however, bailed out
of the stock altogether in the December period, including
PointState Capital, which sold all of its roughly 8.5
million shares. There also were virtually no hedge funds that
stepped up and took big bottom-fishing stakes.
Hedge fund investors are apparently a happy bunch these
days. According to Credit Suisse’s ninth annual
survey, 87 percent said they would maintain or increase their
hedge fund exposures this year. This is exactly the same
percentage as last year. So, it is not surprising Credit Suisse
is forecasting a 3.5 percent increase in new inflows this year.
This commitment is especially encouraging for hedge fund firms
given that just 30 percent of investors said their hedge fund
portfolios had met or exceeded their expectations in 2016,
according to the survey of over 320 institutional investors
representing $1.3 trillion of hedge fund investments. This was
down sharply from 45 percent in last year’s
Still, investors remain optimistic. They are aiming for 7.2
percent annual returns in their hedge fund portfolios in 2017,
which is way above the industry’s average return
of 5.5 percent last year, according to the 69-page report. One
possible reason investors seem pretty content: They are
apparently improving the terms of their deals with funds.
According to the survey, a shocking 61 percent reported at
least one manager within their portfolio has a hurdle rate. In
addition, 57 percent said their management fees were lowered in
the past 12 months. Drilling down, investors reported they most
prefer global macro-discretionary funds, followed by fixed
income arbitrage/relative value.
Shares of hedge fund favorite The Priceline Group surged 5.6
percent, to $1,724.13, after the online travel agency reported
fourth-quarter revenues and earnings that beat expectations. In
the fourth quarter, gross profit grew 21 percent, while gross
travel bookings surged 26 percent. In a note to clients, Credit
Suisse raised its estimates and its target price from $1,900 to
$1,935, stressing that "accelerating growth underscores strong
execution and leadership position."
Elliott Associates, the hedge fund managed by Paul
Elliott Management Corp., lifted its stake in Arconic to
13.3 percent. Elliott, a multistrategy firm that often engages
in activism, recently nominated five individuals to the board
of directors of the aerospace and automotive parts maker.