Tuesday July 19, 2016

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Context Looks to Fund Managers Post-Brexit NUMBER OF THE WEEK

BY MELISSA KARSH $101.8 Billion — Amount funds of Context Asset Management is looking to add three managers in the next hedge funds lost in the 12 months 12 to 18 months to its liquid alternative platform because alternatives may through March because of outflows and see increased demand following the U.K.’s decision to exit the European Union, poor performance, according to a report according to President and Chief Investment Officer John Culbertson. from eVestment. The Bala Cynwyd, Pennsylvania-based firm plans to create three liquid alternative mutual funds and hire the hedge fund managers to serve as subadvisers, said Ron INSIDE Biscardi, CEO of its parent company, Context Capital Partners. Context Capital Partners, which has previously seeded five hedge funds, will help seed the new funds, Incline Investment's Tahoe Fund rose with initial investments typically ranging from $20 million to $30 million, Biscardi said. more than 9 percent in June: Returns "Brexit is confirming our bias toward those strategies that we really like," including systematic quants, hedged equity, quant equity and strategies, Culbertson said SoMa Equity Partners is said to close in a telephone interview last month. "What we’re not doing is going back toward early the founder's class of its flagship fund on business-cycle strategies, which are pro-growth, high- strategies." Sept. 1: Milestones The firm, which currently runs one liquid alternative mutual fund — the $93.5 million Context Macro Opportunities Fund — is now "more aggressively" looking to partner with Tremblant hires former FrontPoint managers that offer a low correlation to risk assets, provide high efficiency ratios and executive Daniel Waters as co- asymmetric returns, Culberston said. "Because of Brexit, we believe there’s an president: On the Move opportunity for those types of strategies to perform very well, and for our investors to be attracted to them," he said. Newbrook goes long Dave & Busters, Hedge fund managers have been looking to liquid alternative funds to attract new shorts Goodyear. Perella Weinberg’s clients as money coming into hedge funds plateaus, Robert Christian of Franklin Vassalou says weak banks amplify Templeton’s K2 Advisors, which invests in hedge funds, said in an interview last Brexit risk: Market Calls month. Eighty-four percent of hedge fund investors withdrew money in the first half of the year, citing underpofrming funds as the main driver, according to a Credit Suisse EU regulator backs overseas-fund Group AG study released last week, and a net $15 billion was pulled from hedge funds access with new AIFMD passport advice. in the first quarter, the most since 2009, Hedge Fund Research Inc. found. ValueAct to pay $11 million to the U.S. "We’re in a market where we believe you need to be more defensive than offensive over its Halliburton stake: Regulatory and alternatives are better suited for that kind of positioning than your mainstream product," Biscardi said in a separate interview. "We’d absolutely lean more toward hiring Gramercy Funds Management's Peru a hedge fund manager as a subadviser because they have alternatives experience, bond fight is now playing in a theater versus a classic mutual fund portfolio manager." near you: Over the Hedge

Paamco may increase its exposure to Funds of Hedge Funds Retreat to Under $850 Billion in Q1 long- equity funds post-Brexit, according to managing director Alper Ince: Spotlight

QUOTE OF THE WEEK

“Organizations and investors don't like to pay 2-and-20 when funds are not making money. ... The big investors are forcing that change and they will continue to do that by starting to pull money. You don’t get any more money if you don’t change.” Funds of hedge funds assets fell to $841.6 billion at the end of the first quarter. — Nomura Holdings Inc.'s Christopher Antonelli — Hema Parmar

RETURNS IN BRIEF FOR QUESTIONS, E-MAIL [email protected] July 19, 2016 Bloomberg Brief Hedge Funds 2

RETURNS IN BRIEF FOR QUESTIONS, E-MAIL [email protected]

Mooring Capital Fund, the $60 million June Returns hedge fund that invests in distressed and sub-performing commercial loans, gained about 15 percent in the second quarter, bringing returns for the year to roughly 19.9 percent, said Chief Executive John Jacquemin. The fund purchases commercial loans from banks and other financial institutions and then works with borrowers to restructure and modify the mortgages, according to a document obtained by Bloomberg. The second- quarter return was boosted by the sale of an industrial park in Las Vegas, which the fund was invested in, to electric car company Faraday Future, Jacquemin said. "We were recipients of 41 percent of the benefits," he said in an interview. "We didn’t anticipate we would sell the land one year after we bought the rights to it." On July 1, the firm bought shares in iShares UK Property UCITS ETF and on Year-to-Date Returns to End-June July 7 it bought shares of U.K.-based homebuilder Redrow Plc, which had fallen more than 31 percent since June 23, to take advantage of market "overreaction" following the U.K.’s vote to leave the European Union, Jacquemin said. "Our view is the London real estate market is over-appreciated, but non- London-based real estate markets are attractive. Most of Redrow’s construction is outside of London," he said. The fund is run by Virginia-based Mooring Financial Corp., which manages $110 million in assets. Highwood Capital LLC, the - based fund of hedge funds, gained 0.3 percent last month, which is also its return for the year through June, said a person familiar with the matter. Hedge Fund Research’s HFRI Funds not mentioned in the text on this page were previously reported in the Brief or on BN. Composite Index fell 0.3 percent last month and 2.4 percent this year through The fund’s returns were boosted by long FTSE 100 is one of the strongest stock June. Highwood "has continued to positions in bonds across Asia, Europe markets in the world," the letter said. outperform the markets with significantly and the U.S., as government bonds "Whether it turns into a sustained uptrend less risk by properly allocating funds extended their gains last month after the is anyone’s guess, and either way we will across uncorrelated strategies of well- U.K’s Brexit vote, the letter said. "We stick to our discipline." established hedge fund managers," were already following the long-term — Hema Parmar Robert Banker, founder and managing trends in a number of markets pre-Brexit. Seth Klarman’s $28 billion hedge fund partner, said via e-mail. The fund rose So when Brexit hit, the systems were rose about 1.25 percent in June, bringing 4.6 percent in 2015, the person said. able to capture the significant moves," its gain this year to about 4 percent, said Incline Investment Management, the CEO Ted Parkhill said in an interview. a person with knowledge of the firm. Incline Village, Nevada-based systematic The largest bets were in commodities Baupost has seen some energy bets hedge fund, gained 9.5 percent in June and fixed income. The portfolio was short rebound after they dragged on 2015 in its Tahoe Fund, bringing returns for the the British pound, and long the U.K.’s performance. Diana DeSocio, a Baupost year to 9.6 percent, according to an FTSE 100 Index. "Following the Brexit spokeswoman, declined to comment. vote, the investor letter obtained by Bloomberg. — Sabrina Willmer

MILESTONES July 19, 2016 Bloomberg Brief Hedge Funds 3

MILESTONES SoMa Equity Said to Close Founder's Class Sept. 1 Perry Alumnus Said to Raise SoMa Equity Partners, the technology-focused hedge fund started by former Apex $1.3B for Fund Capital Chief Investment Officer Gil Simon, is planning to close the founder’s share Asia Research & Capital class of its flagship fund on Sept. 1, according to a person familiar with the matter. Management, started by Perry Capital’s The founder’s share class carries a 1 percent management fee and a 15 percent former Asia head Alp Ercil, has raised performance fee, the person said. $1.3 billion for its third fund, which The fund, which started in May, had almost $80 million in assets as of July 1 with invests in distressed assets globally with another roughly $90 million in commitments planned over the next six months, the a focus on Asia, said a person with person said. It has returned about 6.9 percent since May 1, according to a performance knowledge of the matter. document obtained by Bloomberg. Ercil’s Hong Kong-based company The fund was up 2.6 percent in June, with long positions in LinkedIn Corp. and Yelp completed capital raising for the ARCM Inc. being the largest performance contributors, Simon wrote in a July 12 investor letter Master Fund III last week, said the seen by Bloomberg. He said in the letter that the LinkedIn bet is an example of the firm's person. The new five-year pool, its focus on "high quality, growth companies when the market is distracted by short-term largest, will primarily invest in publicly concerns." traded and private credit, the person On Aug. 1, SoMa will start an offshore version of its onshore vehicle, the person said. added. Yusuf Haque, ARCM’s head of Simon, who joined Apex in 2006 and became CIO in 2015, started the San Francisco- business development, declined to based fundamental long-short equity fund manager with seven former Apex employees. comment on the fundraising. It focuses on the TMT sector. Apex founders Sandy Colen and Danny Katz are both Distressed-debt funds are raising investors in the SoMa fund, according to the person. capital to snap up assets amid an Todd Nabi, a spokesman for SoMa Equity, declined to comment. uneven global economic recovery and a — Melissa Karsh commodity price slump. The vehicles are also finding opportunities as companies Algebris Investments Starts 'Negative Rates' Fund struggle to renew their debt terms after banks pulled back lending and curtailed Algebris Investments will start trading its Macro Credit Fund on July 19, the London- that had been a based hedge fund firm said in a statement on Monday. source of financing. The new strategy is "designed for a world of negative rates" and will be led by Alberto The fundraising signals client appetite Gallo, a partner and head of macro strategies at the $4.5 billion firm. "Credit markets for the strategy at a time when investors are at a multi-decade turning point," according to the statement. Monetary easing are pulling capital from under-performing measures such as government bond-buying are becoming "ineffective," the statement hedge funds. Distressed debt funds, by said. contrast, raised $4.3 billion this year The fund aims to return between 6 percent and 7 percent a year with 5 percent through May 17, according to data volatility, investing in government, corporate and bank debt. provider Preqin. A HFRI index tracking Aditya Aney and Tao Pan, who both started at Algebris last month, will be analysts funds focused on distressed and and associate portfolio managers for the fund. They previously worked at Royal Bank of restructuring assets gained 3.2 percent in Scotland Group Plc, the U.K. lender where Gallo also worked before joining Algebris in the first half this year, more than twice April. the pace of the global hedge fund index. Italian hedge fund manager Davide Serra founded Algebris in 2006. ARCM sought capital for its newest — Will Wainewright pool after fully deploying the $1.1 billion investors pledged to ARCM Master Fund II, which finished fundraising in December 2013, said the person. Its FROM THE MINUTES maiden master fund, set up in 2012, generated double-digit returns, the The City of Milwaukee Employes' Retirement System was scheduled to hear a person added. The HFRI distressed and UBS hedge fund solutions presentation at the July 14 investment committee meeting of restructuring index returned an the annuity and pension board, according to a revised meeting agenda dated July 12. annualized 3.7 percent since the Along with the presentation, the agenda, signed by executive director Bernard J. Allen, beginning of 2012. included an item on the approval of a UBS hedge fund solutions guideline change. An e- A significant portion of ARCM’s recent mail to David M. Silber, chief investment officer of Milwaukee ERS, seeking more details investments have been in the energy on the guideline change was not returned. sector. ARCM also manages a $400 million dedicated energy fund that it — Melissa Karsh started in January 2015, which is close to

being fully invested, the person said. Ercil also focused on energy and cyclical industries at Perry. — Bei Hu

RESEARCH July 19, 2016 Bloomberg Brief Hedge Funds 4

RESEARCH

Funds of Hedge Funds Shrink by 11% as Losses Spur Redemptions BY HEMA PARMAR Funds of hedge funds lost more than $100 billion in 12 months because of outflows and poor performance, according to a new report. Clients pulled $50.3 billion over the four quarters through March, while managers posted $51.5 billion in investments losses, eVestment said Friday after analyzing data from more than 2,500 funds. Assets in the sector shrank 11 percent to $841.6 billion, the lowest since June 2009. “Their dominance as allocators to hedge funds has been waning steadily since their heyday prior to the financial crisis and we do not currently see any evidence of this trend abating,” eVestment wrote. “Although the industry the layer of fees the firms charge to act billion because of performance in the 12- is certainly far from lost, we have yet to as middlemen. Funds of funds were once month period, while flows were hit the floor on support levels for funds of the largest single investor in hedge essentially flat, eVestment said. hedge funds." funds, accounting for almost 50 percent Returns for funds of funds haven’t Funds of funds have struggled to keep of assets in 2008. Now they make up 28 perked up in 2016. This year through clients amid disappointing returns from percent, eVestment found. May, the funds were down 1.5 percent, underlying managers and a backlash over Industrywide, hedge funds lost $123.7 according to the research firm.

ON THE MOVE July 19, 2016 Bloomberg Brief Hedge Funds 5

ON THE MOVE Highfields Managing Director Nanji Has Left Firm FEES Farhad Nanji, a managing director at Highfields Capital Management, has left the investment firm, according to a person with knowledge of the matter. Nanji, who worked at Highfields for nine years, focused on investments in distressed Fee Pressure Looms for securities, restructurings, structured credits and global financial services, according to a Underperformers: Nomura biography on the website of PennyMac Financial Services Inc., which lists him as a Investors are starting to withdraw board member. money from mediocre Asian hedge funds At Highfields, which occasionally takes activist positions, Nanji helped push for that charge high fees, a trend that’s management changes at CoreLogic Inc. in 2012 when the investment firm was its forcing changes in the economics of the biggest shareholder. He and Chief Executive Officer Jon Jacobson sent a letter in business, according to the global head of March of that year to the company’s chairman calling for new directors. at Nomura Holdings. Highfields told investors at the end of 2015 that Nanji was leaving the firm.Todd “Organizations and investors don’t like Fogarty, a spokesman for Highfields at Kekst & Co., declined to comment. Nanji didn’t to pay 2-and-20 when funds are not respond to e-mailed requests for comment and a call to his office phone was answered making money,” Nomura’s Christopher by a recording that said he no longer worked for Highfields. Antonelli said in an interview. “The big Jacobson, 55, founded Highfields in 1998 after managing equities for Harvard investors are forcing that change and University’s endowment. they will continue to do that by starting to — Sabrina Willmer pull money. You don’t get any more money if you don’t change.” Tremblant Hires Ex-FrontPoint Waters Hedge funds charge the most among asset managers. They’re now seeing Daniel Waters, former co-chief executive officer at FrontPoint Partners, has joined investors push back after many have Tremblant Capital Group as partner and co-president. failed to beat benchmarks amid volatile Waters will oversee client activities and be part of Tremblant’s management and market conditions. investment/risk committees in the newly created role, the firm said Thursday in a “With the new launches, we are seeing statement. Tremblant, a global asset manager founded in 2001, specializes in funds that more varied fee structures and we will bet on and against stocks, as well as others that wager on rising equities. continue to see that,” Antonelli said. “Dan’s extensive experience will enhance our world-class firm and enable us to build Against this backdrop, Antonelli sees upon our strong 15-year track record,” Brett Barakett, Tremblant’s founder, CEO and fewer high-profile hedge fund launches in chief investment officer, said in the statement. Asia. With a cyclical slowdown in major Tremblant oversees about $1.7 billion. FrontPoint liquidated in 2011 amid client markets such as India and China, hedge withdrawals after former health-care money manager Chip Skowron was charged with funds may abstain from starting, while as federal authorities targeted insider trading in the hedge-fund industry. major firms headquartered in other parts — Taylor Hall of the world won’t set up regional offices in the region, he said. Adds Emerging-Market Bond Managers “There have not been many large funds that have started in Asia recently and I’m Man GLG, a unit of Man Group Plc, the world’s largest publicly traded hedge fund not sure that’s going to change anytime firm, has added five managers to its newly established developing-nation bond team soon,” Antonelli said. amid a rebound in the asset class. Launches in Asia are on track for the The group will report to Guillermo Osses, the former head of emerging-market debt lowest level in at least 10 years, at HSBC Asset Management, who was hired to lead the Man team six months ago. It according to Eurekahedge Pte, with 18 started a new emerging-market fund with American Beacon Advisors Inc. in May. new openings in the first half of the year, Phil Yuhn, who worked with Osses at HSBC before moving to American Century less than a quarter than the 79 funds Investment, joined as a portfolio manager based in New York, according to a statement. started in 2015. There has been no Lisa Chua, another former colleague of Osses at HSBC, also joined as a fund manager. launch with assets of more than 100 Other new hires include Jose Wynne, former head of foreign-exchange research at million this year, the data show. That Barclays Plc, and Ehsan Bashi, who previously advised clients on risk management at compares to seven launches surpassing KPMG. Maria do Carmo Cal joined as a product specialist in London, coming over from that amount in 2015 and and at least 14 Banco Itaú BBA International where she was the head of capital markets. in each of the previous six years. Man GLG, which was acquired by Man Group in 2010, oversaw about $28 billion at While Antonelli said Nomura’s business the end of March. is doing well because of its niche focus — Ye Xie and Elena Popin on smaller managers in Asia, he added that “it’s becoming more and more difficult to make money in prime brokerage. There is cost compression everywhere.” — Klaus Wille

MARKET CALLS ITEMS MAY BE SUBMITTED TO [email protected] FOR CONSIDERATION July 19, 2016 Bloomberg Brief Hedge Funds 6

MARKET CALLS ITEMS MAY BE SUBMITTED TO [email protected] FOR CONSIDERATION

Newbrook Goes Long Dave & Busters, Shorts Goodyear Hedge Trimming Newbrook Capital Advisors, the $1.5 billion hedge fund, is betting on Dave & Buster’s Entertainment Inc. and against Goodyear Tire & Rubber Co. Dave & Buster’s can more than double its current store base and the company’s move to start franchisee agreements internationally is "very attractive" and a "low-risk opportunity to redeploy free cash flow going forward," according to a second-quarter letter to investors obtained by Bloomberg. "We believe its stock price has significant upside over the next 18 months." The stock has gained almost 15 percent so far this year. Meanwhile, Goodyear, which has benefited from lower raw material costs over the last three years, will struggle as Source: Bloomberg prices begin to pick up, according to the Click on the chart for a live version or run G #HF.BRIEF 33 on the Bloomberg terminal. letter dated July 14. U.S. hedge funds investing in distressed debt and restructuring situations returned 3.9 percent in the "Tire manufacturers will have to raise first half of the year, according to data from Hedge Fund Research, while BofA’s U.S. high-yield pricing just to maintain margins, which corporate bond index gained 9.3 percent. Bonds of distressed or bankrupt companies were top will not be feasible given that the industry performers in the oil and gas exploration and production sector during the second quarter, according did not give back the benefits of the last to Bloomberg Intelligence. three years," Newbrook CEO Robert — Jodi Xu Klein Boucai wrote in the letter. Additionally, consensus earnings per share estimates world and all we see is uncertainty.” are overly optimistic and the extremely As oil fell below $30 a barrel in mid- Perella Weinberg PM: Weak fragmented tire industry, of which February, Trilogy started buying bonds in Banks Amplify Brexit Risk Goodyear holds a 13 percent share, Hess Corp., Anadarko Petroleum, creates a high risk of pricing pressure, Nabors Industries and Rockies Express Risks from the U.K. decision to exit the Boucai wrote. The stock has fallen more Pipeline, Kupferberg said. All were heavy European Union are amplified by the than 18 percent since January. A on cash. fragility of the continent’s banks, said Goodyear spokesman declined to Trilogy fell 8 percent last year, then Perella Weinberg's Maria Vassalou. comment. gained 5.4 percent for 2016’s first half, “This is a very sensitive time for A spokesman for Newbrook, which said a person familiar with the fund. Europe, it’s really an inflection point,” according to the letter rose 2.7 percent in Jame Donath, founder of distressed- Vassalou said on Bloomberg TV Friday. the second quarter, declined to comment. focused hedge fund Magnolia Road “As we’ve seen since the financial crisis, — Hema Parmar and Arie Shapira Capital, said he favors “stressed but banks have increased their capital buffer. performing credits where we anticipate a However in Europe, these increases near-term takeout at par, as opposed to have been much lower than what we’ve Trilogy Staying Away From investing in deeply distressed names seen in the U.S.” Riskier Assets where returns are predicated on asset European bank stocks have been recoveries over a longer time period.” plunging this year as the companies work Trilogy Capital Management LLC, Donath, whose manages about $130 to meet capital standards and confront founded by former Bear Stearns Cos. million, pointed to Zekelman Industries low interest rates. “Most of the European bond salesman Jonathan Rosenstein, Inc. and Ryerson Holding Corp., whose banks are still under-capitalized,” stayed away from risky assets for most of bonds had fallen along with metals Vassalou said. “That’s why we see the 2015, keeping as much as 45 percent in prices. Both were able to refinance and pressures that we’re seeing recently, and cash at year end, said Barry Kupferberg, repaid the old bonds, he said. that’s on top of the issues that they need research director at Greenwich, Trilogy plans to keep its conservative to deal with — Spain and Portugal having Connecticut-based Trilogy, which stance this year, Kupferberg said. "We reached their budget deficit limits. And at manages $125 million. The fund doesn’t intend to bring in the sails and prepare the same time, we’re going through a own any CCC-rated debt, he said. for some choppy waters during the prolonged period of low growth and low “We are running very defensively,” said second half," he said. inflation.” Kupferberg, 53. “We look around the — Jodi Xu Klein — Sonali Basak

REGULATORY/COMPLIANCE July 19, 2016 Bloomberg Brief Hedge Funds 7

REGULATORY/COMPLIANCE

ValueAct to Pay $11M to U.S. Over Halliburton Stake Fortress Boss Mistook ValueAct Capital Management agreed to pay a record $11 million fine to settle a US Lou Gehrig Disease for lawsuit claiming that the hedge fund violated antitrust law by failing to notify officials about investments in Halliburton Co. and Baker Hughes Inc. as the two companies Soccer Injury sought to merge. A Fortress Investment Group The Justice Department sued ValueAct in April, claiming a $2.5 billion investment in LLC managing director who fired an the oil-services companies should have been reported to the U.S. for approval and employee with a degenerative didn't qualify for an exemption for passive investors because the activist fund had disease said he didn’t notice that his sought to influence the companies. colleague couldn’t walk farther than The notification requirements "are the backbone of the government’s merger review 50 meters (164 feet) without stopping process, and crucial to our ability to prevent anticompetitive mergers and acquisitions," and believed his limp was a result of Renata Hesse, who leads the antitrust division, said in a statement last Tuesday. a soccer injury. The U.S. said ValueAct bought stakes in Halliburton and Baker Hughes after their Christopher Linkas, head of merger was announced in 2014, intending to influence the companies amid the antitrust European credit at Fortress, said he review of the deal, which was abandoned in May. That meant the hedge fund was fired Michael Johnson for poor required to report and seek approval for the investment. performance and was unaware the ValueAct, run by Jeffrey Ubben, countered that when it bought stakes in both former army officer couldn’t walk up companies its holdings were entirely passive, even though the firm spoke with the inclines or stairs because it was companies for investment research purposes — as it routinely does and as other major common at Fortress to use elevators, investors would do. It wasn’t until later that ValueAct decided to take a more active role according to a witness statement in Baker Hughes, at which point it amended a regulatory filing and notified antitrust made public Friday. officials before buying more shares. "ValueAct Capital fundamentally disagrees with Johnson, who suffers with motor DOJ’s interpretation of the facts in connection with our investments in Halliburton and neurone disease — known as Baker Hughes," the fund said in a statement. ValueAct said it moved to resolve the case amyotrophic lateral sclerosis in the quickly ahead of a 150-percent increase in penalties for non-reporting. United States — is suing the New — David McLaughlin York-based asset-management company in a London court. He sat in EU Regulator Backs Overseas-Fund Access a wheelchair while Linkas testified in the lawsuit, which accuses Fortress The European Union’s investment regulator said some overseas alternative funds discriminating against him because of should qualify for the right to operate across the trade bloc, creating a potential opening his disability. Damages in disability for U.K. managers worried about losing access after Brexit. discrimination cases are potentially There are “no significant obstacles” preventing hedge funds and private equity firms unlimited. based in Canada, Guernsey, Japan, Jersey and Switzerland gaining so-called passports "He and I both played football in under a directive due to come into force in 2018, the European Securities and Markets over-40s leagues, and sometimes Authority said in a statement. The Paris-based regulator also backed passports for each of us would come in hobbling some types of U.S. funds. It delayed opinions on Bermuda and the Cayman Islands, after our respective matches," Linkas pending new rules in these nations. said. "I assumed he had suffered Hedge fund lawyers have highlighted the ESMA report as a key indicator in from something of this sort when I determining whether European regulators will let the U.K.’s 700-billion-pound ($922 saw him limping." billion) industry operate across the bloc once the country leaves Fortress, which has $70.6 billion the grouping. About 85 percent of Europe’s hedge-fund assets are managed out of under management, denies knowing London, making it the second-largest center worldwide after New York, according to of Johnson’s illness, and says he was estimates from industry group TheCityUK. fired because of poor performance. Under the Alternative Managers Directive, non-EU funds may be At a five-minute meeting in July able to get a single passport that will let them sell products in every EU country. 2015, Linkas said he was dismissing Whether a fund qualifies will largely depend upon the regulations in force in its home Johnson because the firm was market. The European Commission will consider the ESMA’s recommendation when it “downsizing” and “it’s just not working draws up legislation to implement the directive. out,” according to the complaint. His The ESMA generally backed awarding passports to firms based in Hong Kong and firing a year ago came "without any Singapore, while noting that there are discrepancies in how accessible funds are for warning," four working days after he investors in different European countries. It also said Australian firms should get returned to work following treatment, passports, provided the nation standardized its treatment of European funds. The according to the complaint. regulator didn’t give an opinion on the Isle of Man because the island doesn’t have a A Fortress spokesman didn’t investment regime comparable to the EU directive. respond to a request for comment. — Luca Casiraghi and Silla Brush — Patrick Gower

OVER THE HEDGE July 19, 2016 Bloomberg Brief Hedge Funds 8

OVER THE HEDGE

A unit of D.E. Shaw & Co., a New York- benches was an acting student on a actor Bill Murray to steal the album back. based hedge fund managing more than mission — to glean what he could from It will not endear potential jurors to $37 billion, bought a 100-megawatt solar his first sighting of the 33-year-old ex- Shkreli. One of its songs is “I’m Martin project in Minnesota from Community pharmaceutical executive he is to portray F-----g Shkreli and You Can All Go F--- Energy Inc. It will be the largest solar at a midtown theater this week. "This was Yourselves,” in which Swailes Caldwell farm in the Midwest. Xcel Energy Inc. one of the weirdest things’ve done in a sings that he is “the richest damn has a 25-year power purchase while," said Patrick Swailes Caldwell, Albanian to walk this earth” while gliding agreement with the North Star solar the actor who has spent hours watching on a hoverboard. On , Shkreli has project in Chisago County, D.E. Shaw videos of Shkreli. "I felt like the court weighed in favorably — and critically. Renewable Investments LLC said in a jester." Swailes Caldwell accompanied a "I've never acted or sang before but I statement Tuesday. Swinerton Bloomberg reporter to the hearing. The believe @shkrelisgame will be the Renewable Energy is building the musical, “’s Game,” part of greatest musical ever made," he tweeted project, which is expected to be the Midtown International Theater on June 9. "i’ve seen better funded high operational by year-end. It should power Festival, takes as its conceit yet another school musicals," he tweeted at the about 20,000 homes in its first year. facet of the man that has outraged many show's creators the next day. "sorry for Terms weren’t provided. — his purchase for $2 million of the your careers." Shkreli was arrested in — Brian Eckhouse single copy of a Wu-Tang Clan album, December and accused of defrauding keeping the work to himself (and claiming investors and using $11 million of assets On Thursday, Martin Shkreli appeared that he hasn’t bothered to listen to it). of Retrophin Inc. to pay them off. in federal court for a scheduling The plot involves an effort by the rap — Katherine Greifeld conference. Watching from the public group and

Hedge Fund's Peru Bond Fight Now Playing at a Theater Near You

BY JOHN QUIGLEY A spat between Peru and bondholders over decades-old unpaid debts is playing out in an unlikely place: your local movie theater. “The Debt,” as the movie is titled, is a fictional account of ruthless Wall Street types who seek to enrich themselves at the expense of the nation’s poorest citizens. While the specifics are different, it has parallels with the real-life dispute between Peru and Gramercy Funds Management, a $6.1 billion hedge fund based in Greenwich, Connecticut. In 2006, the firm began snapping up the defaulted bonds that were originally handed out to landowners when their farms were seized in the 1960s and 1970s. It’s now Source: Barney Elliot demanding that Peru pay up. Gramercy says Peru snubbed Stephen Dorff, center, in "The Debt" portraying a hedge fund efforts to negotiate a settlement and left the firm with no employee demanding payment from Peru’s finance ministry. choice but to sue, while the government contends the fund has mounted a smear campaign to profit from the developing being compromised should it ultimately lose the debt case. country’s past misfortunes. Reviews have been mixed, with Canada’s Globe & Mail Earlier this month, Peru asked a tribunal to toss out a $1.6 newspaper calling it “well-meaning but contrived.” billion claim over the notes held by Gramercy. Gramercy said the movie doesn’t reflect the truth of its The movie, which started playing in New York and San dispute with the government, and glosses over the fact that Francisco theaters July 7, was conceived by director Barney the majority of land-bond holders are local Peruvians who Elliott, who moved to Lima in 2009. He started working on it the hedge fund says are getting a raw deal. “The reality of after speaking to landowners who had given up hope the what has occurred today in Peru is much different,” Steve government would honor the debt and sold them to foreign Bruce, a spokesman for the hedge fund, said in an e-mail. investors like Gramercy at a deep discount. And he realized Pablo Secada, a former Finance Ministry official who saw that these funds would one day take Peru to court over the the movie, said the government bears responsibility for debt, which bothered him. dragging its feet in resolving the land-bond dispute. He “The Debt” is a clear example of art imitating life, to an expects President-elect Pedro Pablo Kuczynski to negotiate extent. In the movie, Peru is forced to cut back spending on a settlement. Carlos Anderson, a spokesman for APJ, an its health service to pay a hedge fund called Union Global umbrella group of local bondholders, says the film wrongly Capital. A nurse’s assistant turns to crime to pay for a suggests that Peru shouldn’t have to repay its debts. He said surgery the hospital can’t afford, which serves to illustrate local bondholders, who hold 80 percent of the debt the human cost of the fund’s exploitation. outstanding, welcomed Gramercy’s suit. In reality, Peru’s finances are robust and nowhere close to — With assistance from Ben Bartenstein

SPOTLIGHT July 19, 2016 Bloomberg Brief Hedge Funds 9

SPOTLIGHT

Paamco's Ince Says Firm May Increase Exposure to Long-Short Equity Post-Brexit tightly-hedged and don't take directional exposure to that strategy over time. We Alper Ince, a managing director at $10 billion risk on markets. are interested in managers trading the Pacific Alternative Asset Management Co., volatility directly, using the options spoke to Bloomberg Brief's Will Wainewright Q: So you expect more market market created by the big divergence about how his firm's hedge fund investments will volatility in the next few months? between asset classes. We shy away be affected by the U.K.'s vote to exit the A: Yes, this volatility is not going to go from traditional managers European Union. Ince, who helps oversee away. Now we have the Italian banking who are betting on political events or Paamco's investments in long-short equity and crisis and there will be others in the next solely on central bank policy divergence. event-driven managers, said long-short equity few months. Other issues on our radar Those funds really rely on one person's funds are more appealing post-Brexit. Comments include the banking stress tests in call on events which are hard for us to were edited and condensed. Europe, the lack of political leadership in underwrite. It will be interesting to see the U.K. and elections later in the year in the extent to which the Brexit outcome the U.S. There are lots of big macro destabilizes the broader European Union Q: How did hedge funds perform political questions waiting to be resolved. project. A lot of people are very bearish following the British vote for Brexit? The opportunities are all there for funds about the next few years — taking up A: The industry did well, especially that can be nimble, which is a key reason positions being long gold, long-duration, compared to long-only funds. The we prefer small managers. index hedges, short bets. markets provided hedge funds good opportunities to trade around Q: Back to long-short funds, where in Q: Which hedge fund strategies are dislocations. The result of the vote was particular do you see opportunities? less attractive following Brexit? too close to predict and the potential A: We are most interested in managers A: Anything directionally net-long outcomes, particularly to the downside, trading long and short in the same Europe. We don't have exposure to funds were extreme, so most firms chose not to sector, so not taking a huge amount of with that strategy, and that won't change take a big bet and lowered their sector risk. We like managers looking to any time soon. They will be out of favor exposure. Many funds did put on some pick up small amounts of from mis- for a while. Brexit-specific hedges, which were more pricings generated by the volatility in the profitable because of the way the result market. In particular, we see opportunity Q: Hedge funds have faced a lot of went. We invest in a lot of managers that in commodities and energy stocks. Firms criticism this year. Does the Brexit hedge their currency exposure, so we which cut down production may now be outcome and the resulting market weren't directly impacted by the selloff in less sensitive to changes in the oil price, climate present an opportunity for the the pound. I am relatively happy by how for instance. We also like health-care sector to rebound? hedge funds performed. It was not a specialists — there is a lot of new A: Definitely. Hedge funds have been repeat of the Swiss franc event last research going on in the biotech sector, criticized for negative alpha, but now we January, which brought down some firms. which can be traded on the margin. Big have a great set of conditions in which pharmaceutical companies are well- they can shine. Parts of our portfolio of Q: How will the result affect your placed to prosper in the volatility too. hedge funds have made money since the future allocations? vote, particularly in fixed-income relative A: There are some interesting Q: Do these conditions present a great value, merger and equity opportunities both long and short now for opportunity for global macro funds? strategies. Short-term short-term, trading-oriented managers. It A: Yes, and we have been upping our trading funds, which can be nimble, are is a good environment for them. We especially well positioned in our view. focus on smaller funds, particularly those which can prosper during periods of market dislocation. The merger arbitrage strategy is one example of a sector which Age: 44 often presents opportunities during Based in: Irvine, California dislocations, though we have not seen Hometown: Istanbul, Turkey spreads widen as much as in other Education: Economics degree from METU in Ankara, Turkey, episodes of volatility due to a lack of de- before MBA in finance from University of Hartford leveraging. We are thinking of increasing Career: Managing director at Paamco. Prior to Paamco, was an exposure to select long-short equity associate director at pension-consulting firm BARRA funds in the wake of Brexit as we think RogersCasey. the environment will present them Hobbies: Reading, guitar, tennis, movies opportunities. In general, we like funds Recommended book: "The Firm: The Story of McKinsey" by that are defensively-positioned, Duff McDonald Best recent vacation: Park City, Utah

DEAL ARBITRAGE July 19, 2016 Bloomberg Brief Hedge Funds 10

DEAL ARBITRAGE

The table below tracks pending corporate mergers in North America and the deal spreads — the difference between the offer price and the target's stock price. The table shows the week-over-week change in those spreads through Monday. Spreads that have moved by 2 percent or more are flagged in the far right "major move" column by an arrow indicating the direction of movement. Projected annualized returns are based on the spread and the deal's expected completion date.

1W DEAL EXPECTED OFFER PROJECTED TARGET PAYMENT CHANGE MAJOR TARGET ACQUIRER SIZE COMPLETION PER SPREAD ANNUALIZED PRICE TYPE IN MOVE (M) DATE SHARE RETURN SPREAD Alere Inc Abbott Laboratories 8,040 - 56.00 43.26 Cash 29.4% 0.0% -7.1% ▼ Consortium Led By David Amaya Inc 6,487 - 21.00 20.30 Cash 3.4% 0.0% -1.2% Baazov Cigna Corp Anthem Inc 50,382 12/31/16 172.95 133.13 C&S 29.9% 65.8% -2.2% ▼ NorthStar Asset Management Colony Capital Inc 6,024 03/31/17 16.83 17.37 Stk -3.1% -4.4% -2.0% ▼ Group Inc/New York EI du Pont de Nemours & Co Dow Chemical Co/The 65,591 12/31/16 67.43 68.06 Stk -0.9% -2.0% -0.4% EMC Corp/MA Dell Inc 63,491 10/31/16 31.00 27.54 Cash 12.6% 43.6% 1.1% Envision Healthcare Holdings Amsurg Corp 7,520 12/31/16 26.37 26.06 Stk 1.2% 2.6% -1.2% Inc Humana Inc Aetna Inc 28,906 12/31/16 224.13 159.64 C&S 40.4% 88.8% -2.5% ▼ Quintiles Transnational IMS Health Holdings Inc 12,559 12/31/16 27.79 28.12 Stk -1.2% -2.6% 0.1% Holdings Inc Tianjin Tianhai Investment Co Ingram Micro Inc 6,133 12/31/16 38.90 35.13 Cash 10.7% 23.6% -0.1% Ltd ITC Holdings Corp Fortis Inc/Canada 11,150 12/31/16 47.72 46.43 C&S 2.8% 6.1% 0.7% Johnson Controls Inc Tyco International Plc 28,667 09/30/16 40.03 44.12 C/S -9.3% -45.7% -0.3% KLA-Tencor Corp Lam Research Corp 11,033 12/30/16 76.67 75.93 C&S 1.0% 2.1% -0.1% LinkedIn Corp Microsoft Corp 24,380 12/31/16 196.00 189.60 Cash 3.4% 7.4% 0.4% Manitoba Telecom Services BCE Inc 4,171 06/30/17 41.17 38.46 C/S 7.0% 7.4% 0.0% Inc Nexstar Broadcasting Group Media General Inc 4,474 12/31/16 17.23 17.67 C&S -2.5% -5.5% 1.7% Inc Medivation Inc Sanofi 9,708 - 58.00 61.83 Cash -6.2% 0.0% 0.7% Memorial Resource Range Resources Corp 4,287 09/30/16 16.34 16.13 Stk 1.3% 6.3% -0.2% Development Corp Monsanto Co Bayer AG 63,035 - 125.00 106.44 Cash 17.4% 0.0% -0.8% NorthStar Realty Finance NorthStar Asset Management 10,055 03/31/17 12.62 12.99 Stk -2.8% -4.0% -2.8% ▼ Corp Group Inc/New York Piedmont Natural Gas Co Inc Duke Energy Corp 6,536 12/31/16 60.00 59.76 Cash 0.4% 0.9% 0.1% Questar Corp Dominion Resources Inc/VA 5,965 12/31/16 25.00 25.17 Cash -0.7% -1.5% 0.1% Rite Aid Corp Walgreens Boots Alliance Inc 16,708 12/31/16 9.00 7.01 Cash 28.4% 62.4% -1.8% SolarCity Corp Tesla Motors Inc 5,739 - 29.64 26.14 Stk 13.4% 0.0% -5.2% ▼ St Jude Medical Inc Abbott Laboratories 30,108 12/31/16 83.40 80.56 C&S 3.5% 7.8% 0.1% Starz Lions Gate Entertainment Corp 4,154 12/31/16 31.89 30.27 C&S 5.4% 11.7% 0.8% Talen Energy Corp Riverstone Holdings LLC 5,045 12/31/16 14.00 13.71 Cash 2.1% 4.7% -0.1% Valspar Corp/The Sherwin-Williams Co/The 11,206 03/31/17 113.00 108.23 Cash 4.4% 6.3% 0.3% Westar Energy Inc Great Plains Energy Inc 12,117 12/31/17 60.00 56.36 C&S 6.5% 4.4% 0.1% WhiteWave Foods Co/The Danone SA 12,349 12/31/16 56.25 55.70 Cash 1.0% 2.2% 0.8% MARB North American deals *Spread moved by more than 2% of price target: ▲ = up, ▼= down C/S=cash or stock

ACTIVIST SITUATIONS COMPILED BY MELISSA KARSH July 19, 2016 Bloomberg Brief Hedge Funds 11

ACTIVIST SITUATIONS COMPILED BY MELISSA KARSH

Significant Actions at Companies Targeted by Activist Investors

COMPANY ACTIVIST WHAT HAPPENED Activist hedge fund said in a statement July 18 that it has started legal proceedings against the Hong Kong-listed Bank of East Asia Ltd. Elliott Management Corp. company and some of its directors, alleging "serious corporate governance failings." Nutrition company agreed to pay $200 million and retool its business after a Federal Trade Commission review sought Herbalife Ltd. Bill Ackman by the activist. The FTC stopped short of activist's calls to declare the company a pyramid scheme and to shut it down. Activist hedge fund said in a filing on July 14 that it holds a 13.21 percent stake in the U.K. discount chain via Poundland Group Plc Elliott Capital Advisors derivatives and other options. In a note on July 15, Kepler Cheuvreux said the stake makes Steinhoff International Holdings NV's deal to buy the grocery chain more complicated. A growing number of creditors is said to be joining an opposition group, which includes activist, that opposes the Oi SA Aurelius Capital Management bankrupt Brazilian telecom carrier's reorganization plans, reported July 13. Lionbridge Activist increased its stake in the company to 8.1 percent as of July 12 from 7.1 percent as of Nov. 25, and is now Omega Advisors Technologies Inc. ranked a top two holder, according to Bloomberg data. Cybersecurity company targeted by activist is said to have hired an advisory firm to explore a sale after receiving Imperva Inc. Elliott Management Corp. unsolicited takeover interest, Bloomberg News reported July 11. Source: Bloomberg News, NI SHRHOLDACT , BI BESG

Bloomberg Brief: Hedge Funds

Bloomberg Brief Managing Editor Contributing Reporters Contributing Data Editors Jennifer Rossa Will Wainewright Anibal Arrascue [email protected] [email protected] [email protected] +1-212-617-8074 +1-609-279-5084 Suzy Waite [email protected] Sean Casey Hedge Funds Editor Melissa Karsh [email protected] Contributing News Reporters [email protected] +1-609-279-4084 Katherine Burton +1-212-617-4557 Michael Zlotnick [email protected] Interested in learning more about [email protected] Contributing Editor Saijel Kishan the Bloomberg terminal? Request a +1-646-324-4668 Nathaniel E. Baker [email protected] free demo here. [email protected] Advertising Simone Foxman This newsletter and its contents +852-2293-1176 Christopher Konowitz [email protected] may not be forwarded or [email protected] Reporter redistributed without the prior Marketing & Partnership Director +1-212-617-4694 Hema Parmar consent of Bloomberg. Please Johnna Ayres [email protected] Reprints & Permissions contact our reprints and [email protected] +1-212-617-6990 Lori Husted permissions group for more +1-212-617-1833 [email protected] information. +1-717-505-9701 x2204 © 2016 Bloomberg LP. All rights reserved.

CALENDAR TO SUBMIT AN EVENT E-MAIL [email protected] July 19, 2016 Bloomberg Brief Hedge Funds 12

CALENDAR TO SUBMIT AN EVENT E-MAIL [email protected]

The "event" column links to websites. "Attendees of note" links to individual's BIO page, where available, on the Bloomberg terminal.

DATE ORGANIZER EVENT SPEAKERS/ATTENDEES OF NOTE/DETAILS LOCATION Investment Management 10th Annual Alternative Investment Josh Zweig, Cambridge Associates; Karen Chandor, Hyatt Regency Greenwich, July 21 Institute, HFA Consultants Summit Mercer; Todor Todorov, Willis Towers Watson. Connecticut July 23 Hedge Funds Care San Francisco Bike Ride For more information, contact [email protected]. Hillsborough, California New York Young Professionals Hotel Hugo Rooftop, New July 26 Hedge Funds Care For more information, contact [email protected]. Summer Sunset Social York July 26 Hedge Funds Care Denver Golf Tournament For more information, contact [email protected]. Littleton, Colorado California Hedge Fund July 27 Summer Social at the Races 2016 Del Mar Thoroughbred Club. Del Mar, California Association New York Hedge Fund August Roundtable: Money, Politics David Urban, American Continental Group and senior Aug. 2 Penn Club, New York Roundtable and the 2016 Presidential Race adviser to the Trump campaign. Katherine Nixon, Northern Trust; Kevin Rochford, Aug. 17 Markets Group Private Wealth Midwest Forum Chicago Bessemer Group; Katherine Lintz, Matter . Aug. 25 Hedge Funds Care San Francisco Golf Tournament For more information, contact [email protected]. Presidio Golf Course Private Investment Fund, Michael Maestas, Charles Schwab & Co.; Adam L. Aug. 25-26 FRA LLC Operations & Compliance Forum San Francisco Menkes, Credit Suisse. West 2nd Annual Texas Credit & Hedge Joseph Quinlan, Bank of America PWM; Lisa Needle, Sept. 7 Markets Group Austin, Texas Fund Investor Forum Albourne; James Perry, Dallas Fire and Police. World Alternative Investment Dennis Mitchell, Sprott Asset Management; Matthew Fallsview Casino Resort, Sept. 7-9 Radius Summit Canada Barnes, Centurion Asset Management. Niagara Falls Bruce Richards, Marathon; Guillermo Osses, Man Sept. 8-9 IMN 22nd Annual Alpha Hedge West San Francisco GLG; Mark Okada, Highland; Stuart Fiertz, Cheyne. Sept. 13 CNBC, Delivering Alpha 2016 To be released. New York Ernest Jaffarian, Efficient Capital Management; Eddie Sept. 15 CTA Expo CTA Expo Chicago UBS Center, Chicago Lund, Gemini Fund Services. Cap Intro: L/S Equity/Event Driven Sept. 19 Catalyst One-on-one meetings. New York Alternative Investing Select Hedge Funds Conference & Sept. 19-21 BHA Jim Chanos, Kynikos Associates. Boston Private Markets Connector Lars Nielsen, AQR; Max Roberts, Highbridge; Paul Sept. 20 Risk.net Risk Hedge USA 2016 New York Richardson, Pine River; Ronan Cosgrave, Paamco. NY Hedge Fund Charity Poker Sept. 21 Hedge Funds Care For more information, contact [email protected]. Yale Club, New York Tournament Sept. 20-23 TABOR Family Office Conference Includes 50 family offices and 25-30 managers. Beaver Creek, Colorado Sept. 25-27 Context Summits Context Summits West 2016 One-on-One meetings with investors. Dana Point, California Ron Suber, Prosper Marketplace; Alan Snyder, Sept. 28 Context Summits Alternative Lending Summit 2016 Shinnecock Partners; Damon Krytzer, GreyWolf Dana Point, California Capital; Peter Sterling, Coastland Capital. World Alternative Investment Sept. 28-30 Radius Lawrence McDonald, ACGA; Peter Hughes, Apex. Bermuda Summit Carson Block, Muddy Waters; Jeff Ubben, ValueAct Oct. 5 Sohn Conference Foundation Sohn San Francisco San Francisco Capital; Mick McGuire, Marcato Capital Management. Oct. 5-6 AIMA Canada Hedge Fund Conference To be released. Quebec American Conference Institute, Michael Neus, Perry Capital; George Chang, D.E. Oct. 6-7 Hedge Fund Compliance Park Lane Hotel, New York OFA Shaw; Jennifer Duggins, SEC; David Chaves, FBI. Cap Intro: Credit/Fixed Income Oct. 17 Catalyst One-on-one meetings. New York Alternative Investing Great Investors' Best Ideas Caroline Cooley, Crestline; David Einhorn, Greenlight; Oct. 18 10th Annual Investment Symposium Dallas, Texas Foundation T. Boone Pickens, BP Capital. Oct. 18 High Water Women Investing for Impact Symposium Elizabeth Littlefield, Overseas Private Investment Corp. New York DISCLAIMER: The information on this page was compiled by Bloomberg from multiple sources, public and private, and is deemed to be accurate, but not definitive or exhaustive. Questions about events should be addressed to the event organizer.