The Morning Brief: Hedge Fund Liquidations Accelerate

March 20, 2017   Stephen Taub


Hedge fund shutdowns climbed to the highest number since 2008 last year, although assets reached a record high.

The hedge fund shake-out is intensifying. There were 275 hedge fund liquidations in the fourth quarter, up from 252 in the previous three-month period, according to hedge fund tracker HFR. Sure, this was down from 305 funds that were liquidated a year earlier. However, the total for 2016 came in at 1,057, the highest number since 2008. At the same time, the 153 new launches in the fourth quarter amounted to the lowest quarterly total since the first quarter of 2009. Altogether, there were 729 launches in 2006, down sharply from 968 in 2015.

The upshot: This was the fifth-straight quarter that the net number of total industry-wide funds declined. Even so, total industry assets increased to a record of $3.02 trillion, up from the previous record of $2.97 trillion the prior quarter.

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Jeffrey Talpins’ Element Capital Management has raised $2 billion in the past few weeks. This boosts total capital at the global macro firm to $12 billion. Last year the firm’s main fund returned about 19.4 percent. It has posted double-digit gains in three of the past four years.

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Starboard Value unloaded its entire position in Macy’s, according to Reuters. At year-end, the activist hedge fund firm headed by Jeffrey Smith owned about 3 million shares in the once-gilded retailer, according to a regulatory filing. Earlier this year the company announced it would shut down about 100 stores. However, Starboard was hoping the company would separate its real estate holdings from the retail business.

In January 2016, Starboard published an extensive plan to unlock value at Macy’s, recommending that the Cincinnati-based retailing giant create joint ventures for the real estate of underlying stores. At the time, Starboard claimed the stock could be worth close to $70. Starboard estimated the company’s real estate assets were worth $21 billion, "which implies that the operating business is currently trading for a negative value," it stated in a press release at the time. On Friday the stock rose about 0.50 percent, to close at $30.55.

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Shares of Valeant Pharmaceuticals International fell about 1.50 percent, to close at $11.03, one day after major long-time shareholder ValueAct Capital disclosed it bought 3 million shares, boosting its stake to about 18 million shares, or 5.2 percent of the total. Investors were initially euphoric over the news, bidding up the stock by 4 percent Thursday night in after-hours trading.


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