Morning Brief: Small Funds Pace Strong Year for Hedge Funds

November 10, 2017   Stephen Taub

An industry tracker reports that 80 percent of funds are profitable this year — with small funds boasting the best performance.

Hedge funds are poised to post perhaps their best returns since 2013. The average fund gained 1.22 percent in October, and is now up 7.18 percent for the year-to-date, according to eVestment. The industry scorekeeper notes that 80 percent of hedge funds are making money this year and the average gain for these profitable funds is 11.5 percent. Interestingly, the smaller the fund, the better the performance has been this year. For example, funds with less than $250 million are up 7.49 percent through October on average, funds with $250 million to $1 billion are up 6.67 percent while funds with more than $1 billion are up 5.47 percent. In addition, the 10 largest hedge funds are up 5.45 percent for the year. Long/short equity funds have now barely exceeded activists as the top performing major strategy, gaining 1.11 percent in October and 9.7 percent for the year. Activists are up 9.69 percent, one basis point lower.

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Pershing Square Capital Management’s Bill Ackman is spinning his failed proxy fight with ADP. In a press release, the activist said his firm received 31 percent favorable votes and, if you include withhold votes against incumbent director Eric Fast, 45 percent of shareholders either directly supported his candidacy to the board or withheld on Fast "to facilitate my election to the board." Ackman also warned that he is not going away. "If ADP announces a credible plan and delivers, we and other shareholders will be happy," he said. However, if management fails to deliver, he will focus on next year’s annual meeting, he warned. Ackman also asserts in the press release that the "dynamic" he created by the proxy contest sets up a "favorable risk-reward ratio for ADP shareholders over the next 12 months… It is a quintessential example of how shareholder activism is supposed to work." He did not respond in the release to ADP’s chief executive Carlos Rodriguez, who earlier this week proclaimed that Ackman sustained an "ass whooping."

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Saba Capital Management disclosed that as of October 31, it owned about 7.8 million shares of Community Health Systems, or 6.8 percent of the hospital management company. The investment is passive. Saba owned about 3.55 million shares of the company at the end of the second quarter. We will know within a day or two how many shares it owned at the end of September.

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Valeant Pharmaceuticals International surged again despite an overall down day for stocks in general. Shares of the drug company Thursday rose another 3.16 percent to close at $15.35. They are now up more than 33 percent over the past four days alone.

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Shares of Snap dropped another 4.2 percent to close at $12.36. They are now down more than 27 percent from their IPO price back in March. On Tuesday evening the social media company and parent of Snapchat reported disappointing quarterly results.


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