Hedge Funds See Further Profit From Glencore-Xstrata

Hedge funds are betting that commodities trader Glencore will succeed in its battle for miner Xstrata, in a long-running deal that has been profitable for arbitrageurs and is still attracting funds looking to make money.

Arbs, hungry for action after a lean period for M&A, have been buzzing around the deal for months, attracted by its size, liquidity and complexity, and many profited from last week’s move by Glencore(GLEN.L) to sweeten its now 23 billion pound all-share bid.

Reported by Laurence Fletcher and Sophie Sassard, Reuters, Xstrata (XTA.L) was expected to recommend the offer as early as next week, although Qatar Holding – its second-biggest investor after Glencore – has yet to make its decision public.

However, after a breakthrough in talks last week, brokered by former British prime minister Tony Blair, many funds believe it is only a matter of time before the deal gets the Qataris’ stamp of approval.

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Hedge Fund Grabs A Piece of Office Depot

Activist investment fund Starboard Value grabbed a 13.3 percent stake in Office Depot Monday and laid out a series of changes the office products retailer can implement in order to become a more profitable company.

In a letter to Office Depot’s board, Starboard said it believes the retailer is “deeply undervalued” and a “substantial opportunity” now exists for the company to improve its performance andvaluation.

Reported by Roland Jones, NBC News, Starboard’s stock purchase makes it Office Depot’s largest common shareholder. It follows a number of similar bids by investors to boost the value of besieged bricks-and-mortar retailers.

Starboard, which is known for targeting smaller companies it thinks are undervalued, recently launched a campaign to revitalize former Internet giant AOL, pushing the company to change its strategy.

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Ex-Touradji Trader Crone Starts Citrine Commodity Hedge Fund

Paul Crone, the former head trader at Touradji Capital Management LP who left the firm in March after seven years, has started a metals hedge fund in New York, according to Citrine Capital Management LLC, his new company.

Reported by Chanyaporn Chanjaroen, Bloomberg, Citrine, located on the 34th floor of the Chrysler Building, has a team of three led by Crone, who’s chief investment officer, according to a statement. The fund will trade listed derivatives in base metals, gold and platinum-group metals, Crone said in an e-mail interview, declining to specify how much money the fund has raised nor its target size.

Crone, 40, is among traders starting hedge funds this year looking to profit from a bull run in commodities that began last month as policy makers from China to the U.S. ramp up stimulus to boost their economies. Commodity hedge funds tracked by the Newedge Commodity Trading Index advanced 0.9 percent on average in August, erasing the year’s loss.

Citrine hired Mike Connolly, formerly at HSBC Securities USA Inc., as a trader, and Drew Ries, who used to work at Susquehanna International Group LLP, as chief operating officer, according to the e-mailed statement. Energy Alpha Strategies, a London-based commodity-focused investment firm, is a so-called strategic partner, it said.

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Paulson Steps Up Gold Bet to 44% of Firm’s Equity Assets

Billionaire John Paulson raised his stake in an exchange-traded fund tracking the price of gold while selling other stocks during the second quarter, leaving his $21 billion hedge fund with more than 44 percent of its U.S. traded equities tied to bullion.

Reported by  Miles Weiss and Kelly Bit, Bloomberg News, Paulson & Co. purchased an additional 4.53 million shares of the SPDR Gold Trust, the firm’s largest position, and bought more shares of NovaGold Resources Inc. (NG), according to a Form 13F filed yesterday with the U.S. Securities and Exchange Commission. Gold prices posted their biggest declines since 2008 last quarter.

While Paulson trimmed his stake in AngloGold Ashanti Ltd. (ANG) and Gold Fields Ltd. (GFI), sales of energy, financial and auto-parts stocks boosted the relative weighting of gold-related securities in his U.S. stock portfolio to the highest in three years. That’s making the fund more vulnerable to declines in the price of bullion as the hedge-fund manager struggles to reverse record losses last year.

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Hedge Funds Back Off Banks as Mutual Funds Dip In

Hedge funds who have tried to make money out of European banks during the euro debt crisis are becoming frustrated with the sector’s erratic movements just as some bigger, and more patient, institutions are dipping tentatively back in.

European bank stocks .SX7P have risen more than 25 percent since late July, fuelled by relief over new crisis-fighting plans, in particular the ECB’s latest announcements which have triggered hopes of a more lasting solution.

But the sector at the root of the global financial crisis has repeatedly disappointed investors after each attempt to call a floor, from a rally at the beginning of 2009 on hopes that the worst of the global credit crunch was over to short-lived optimism over the European Central Bank’s liquidity injections.

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Hedge Fund Founder Says Bonds Are ‘Quite Close to Cash Under the Bed’

What’s a better investment — U.S. bonds or the underside of your mattress? Ray Dalio wonders if it’s the latter.

Dalio founded the hedge fund Bridgewater Associates. He tells the Council on Foreign Relations: “You are quite close to cash under the bed being better than Treasurys. Because essentially you know you’re going to get it back if it’s under the bed.”

The rate on the 10-year Treasury note is about 1.7 percent. Earlier this summer, it scraped to its lowest on record, under 1.4 percent.

Dalio says the risk of super-low returns is that buyers of Treasurys, including foreign governments that finance U.S. government deficits, will go elsewhere as soon as a reasonable alternative emerges.

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Hedge Fund Makes Quick Work Of Barnes & Noble Stake

Activist hedge fund Jana Partners in August sold the remainder of its stake in Barnes & Noble, after amassing a 12% position in the stock, new SEC filings show.

The investment by the fund, which is led by one-time billionaire Barry Rosenstein, proved well-timed. Less than two weeks after Jana disclosed its stake—some 7 million shares—Barnes & Noble stock jumped 52% in one day, driven by news that Microsoft would invest in the company’s e-book division and Nook tablet. The stock ended April 30 at $20.75, far above the time period earlier this year when Jana built its position.

Reported by Abram Brown, Rosenstein was gleeful that day, appearing on television networks and touting his investing thesis: “The question is: Why was any body short that stock?” he said. “We got the Nook business for nothing.” The firm did not enter the position as an activist, a person familiar with the firm’s thinking says. So, as the shares appreciated, Jana reevaluated the investment thesis and ultimately exited the position—the result of ordinary portfolio management, the person says.

Jana began to sell the day that the Microsoft news broke. It sold 1 million shares, $24 million transaction. From there, the stake dwindled: Jana sold nearly 2 million shares from April to June, and by August 31, it had sold the remaining four million shares.

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World’s Most Powerful Hedge Fund Manager Tells Investors How They Should Set Up Their Portfolios

Hedge fund god Ray Dalio, who runs Bridgewater Associates, is widely considered to be the most successful hedge fund manager in the world.  He recently sat down with CNBC’s Maria Bartiromo to discuss a variety of topics at the Council on Foreign Relations and he had some advice for the average investor.

During the hour-long discussion, Bartiromo asked Dalio about portfolio allocation in terms of gold versus equity versus real estate and other asset classes.

Reported by Julia La Roche, here’s his advice that we’ve transcribed: (emphasis ours)

First, Dalio explains what you need to think about when setting up a portfolio.  The key here is asset allocation.

“So I think I’m going to answer it in the following way that I think that is the right way for people to look at it. It’s the way I look at it. I think that the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.  And I think most people should…”

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New Jersey Court Clears Exis Capital in Fairfax Financial Hedge Fund Lawsuit

 

New Jersey Superior Court Judge Donald Coburn of Morristown today dismissed a multibillion-dollar lawsuit filed against New York-based hedge fund Exis Capital Management Inc., fund manager Adam Sender and other defendants after ruling that the damages claim filed by Canada’s Fairfax Financial Holdings Ltd. was not supported by law.

 

The court’s decision brings an end to the long-running lawsuit, which originally was filed by Toronto-based Fairfax in 2006 against a large group of hedge funds that were accused of conspiring with financial analysts and researchers to organize a “bear raid” by allegedly spreading false rumors and driving down Fairfax’ stock price.

 

Fairfax had sought as much as $8 billion in damages, with the company’s remaining claims totaling approximately $3.2 billion against Exis Capital, Mr. Sender, Exis Capital Chief Operating Officer Andrew Heller and Memphis, Tennessee-based Morgan Keegan & Co. (now known as Raymond James Morgan Keegan). The expected six-week trial was scheduled to begin today.

 

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Moore Capital Said to Cut Jobs in Team Restructuring

Moore Capital Management LLC, the $15 billion hedge fund run by Louis Moore Bacon, cut 10 to 15 investment jobs as it restructures one of its equity teams, according to three people with knowledge of the matter.

The portfolio managers and research analysts were let go on Sept. 11, said one of the people, who asked not to be identified because the information is private. Patrick Clifford, a spokesman for New York-based Moore, declined to comment.

“Apart from a few hedge funds, it’s not that typical to see a large reduction in headcount in the industry,” said Ronen Schwartzman, founder of Ten Capital Advisors LLC, a New York- based firm that advises clients on investing in hedge funds. “Performance must be having an impact.”

Bacon, 56, hired his older brother, Zack Hampton Bacon III, in February to oversee strategic planning, a person briefed on the matter said that month. Bacon told clients last month that he planned to return $2 billion, or about 25 percent of his main fund, to investors, saying it may be too big for him to generate returns in line with historic profits as “liquidity and opportunities have become more constrained.”

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