FT : Hedge fund Element to slim down after $1bn hit in rally

Hedge fund Element to slim down after $1bn hit in rally
Jeffrey Talpins’ $12bn vehicle aims to be more nimble and able to respond to market moves

Jeffrey Talpins’ Element Capital, one of the world’s biggest macro hedge funds, is planning to shrink its asset base in an effort to improve performance after a run of poor returns, including losing more than $1bn in last month’s market rally.

New York-based Element, which manages about $12bn in assets and has one of the sector’s best long-term track records, suffered a 9.6 per cent loss last month, according to people who had seen the numbers, as equity markets rose strongly on hopes that interest rate rises were almost done.

Element will now let investors exit its fund more easily than usual by temporarily relaxing its redemption terms, the people said. The move, which has not previously been reported, is aimed at reducing the firm’s assets in order to make it more nimble and able to respond quickly to market moves, the people said.

Element declined to comment.

January proved a tough month for some hedge funds as equities rallied, led by more speculative stocks that were hard hit last year, and bond markets also gained on hopes that central banks were finally succeeding in taming inflation. Those market moves inflicted heavy losses on funds that had been positioning for higher rates, including some computer-driven funds betting on falling bond and equity prices.

Element’s loss follows two years of negative returns, the first annual losses in its 18-year history. It suffered an 8.9 per cent drop in 2021 after taking a roughly $1bn hit in the bond market tumult of October that year.

Last year it lost a further 3.4 per cent, after betting that inflation would prove more transitory than it eventually did. That decline came even as rivals such as Caxton, Rokos and Brevan Howard were making big gains from the huge sell-off in global government bonds and the rally in the US dollar as interest rates were raised sharply to combat inflation.

Element will now relax its redemption terms that allow investors to withdraw only 25 per cent of their money each quarter, and instead permit unlimited exits before the end of March. It will also allow clients to give less notice before pulling their money out.

The move highlights a growing concern among hedge fund managers that becoming too large can potentially hurt their performance by making them slower to react to big market moves.

Size was widely seen as a factor in hurting returns at Brevan Howard, whose assets grew to around $40bn in 2013 before tumbling to around $6bn as performance sagged.

While losing assets reduces the amount that firms can earn in management fees, many believe that it is more important not to damage their performance record. Firms such as Millennium and Citadel are among those to have returned some capital to clients in recent years.

Element has been closed to any new inflows for nearly five years, during which time it has already handed back more than $5.5bn to investors, but the firm nevertheless feels it needs to shrink further as it looks to prosper in the current market environment.

In late 2020 the Financial Times reported that Talpins’ firm had made a highly prescient call that the results from Pfizer’s phase 3 coronavirus vaccine trials would stun the market by having a higher efficacy than had widely been expected.

>>> What to look at today - 15th of February 2023

Asian stocks and US equity futures fell Wednesday as investors weighed hot American inflation data and mixed commentary from central bankers on the outlook for interest rates. Equity benchmarks in Australia, South Korea, Japan and China fell. The drop for Hong Kong’s Hang Seng Index pushed it more than 10% below its January peak. Contracts for the S&P 500 declined after the index ended Tuesday little changed. Nasdaq 100 futures also slid after the gauge, which is more sensitive to higher interest rates, rose 0.7% on Tuesday. The two-year Treasury yield held its gains after adding 10 basis points Tuesday to touch the highest level since November. The 10-year Treasury benchmark was broadly flat after falling four basis points in the prior session. Australian and New Zealand benchmark yields were largely unchanged. The moves were driven by US CPI data that showed prices rose more than forecast, and subsequent comments from policy makers. The dollar edged higher and the yen strengthened after weakening over the prior two days. Oil fell for a second day after the announcement that the US was selling more crude from its strategic reserves.
the People’s Bank of China added more cash into the financial system to meet a rebound in loan demand after the nation eased Covid restrictions. US After Hours  Lots of 13F filings today; ABNB +9.9% jumps following earnings; OSUR +17.4%, TRIP +8.4%, HLF +4.9% also higher on earnings; CRDO -48.4% falls on weak guidance; UDMY -8.8%, DVN -5.4% lower on earnings.

Nikkei -0.37% Hang Seng -1.42% CSI -0.59% Shanghai -0.45% Shenzen -0.16%

Eur$ 1.0721 CNH 6.8497 CNY 6.8430 JPY 133.02 GBP 1.2159 CHF 0.9229 RUB 73.6488 TRY 18.8499 WTI 78.35 -0.90% Gold 1,846 -0.44% BTC 22,117 -0.61% ETH 1,551 -0.33%

S&P -0.52% Nasdaq -0.71% EuroStoxx -0.23% FTSE -0.21% Dax -0.22% SMI-0.19%

Macro :
- FTX Investor Sues Sequoia Capital, Thoma Bravo, Paradigm
- European Gas Winter Respite Masks Enduring 2023 Supply Headwind

Keep an eye on :
- AD NA : Ahold Delhaize 4Q Adjusted Operating Margin Beats Estimates
- AIR FP : Airbus Considers Raising Production on Widebody Models
- AIR FP : Airbus Says Air India to Lease 25 Planes on Top of Order: Rtrs
- ALFEN NA : Alfen N.V. Sees 2023 Revenue EU540M to EU600M, Est. EU552.8M
- AAD GY : Amadeus Fire Prelim FY Operating Ebita EU68.0M
- ASML NA : ASML Says Ex-Employee in China Misappropriated Chip Data
- BAVA DC : Bavarian Nordic Sees 2023 Revenue About DKK6.00B
- BDT GY : Bertrandt 1Q Ebit EU11.5M Vs. EU9.91M Y/y
- BB FP : BIC FY Net Sales Meets Estimates
- BP/ LN : CF Industries Buys MiQ-Certified Natural Gas From BP
- BYS SW : Bystronic Says Jacob Schmidheiny to Step Down from Board
- CA FP : Carrefour FY Net Free Cash Flow Beats Estimates
- CA FP : Carrefour No Longer Needs Large M&A, CEO Tells Le Figaro
- COTN SW : Comet CFO Pataki to Step Down at End of Aug. 2023
- DHER GY : Delivery Hero to Repurchase EU476.4m 2024 Converts, EU250m 2025
- DTE GY : Deutsche Telekom Gets Sell Rating on US Competition Concerns
- DIC GY : DIC Asset FY FFO per Share Misses Estimates
- ECV GY : Encavis Prelim FY Oper Ebitda About EU340M, Est. EU327.5M
- ECONB BB : Econocom FY Revenue Beats Estimates
- ENEL IM : Yahoo! UK: Italy's Enel expects to sell Romania business before end-June, its CEO says
- FDJ FP : FDJ FY Revenue Meets Estimates
- RACE IM : Ferrari's €170,000-a-Car Profit Bonanza Despite Batteries Shift
- GALP PL : Galp to Start €500 Million Share Buy Back on Wednesday
- HEIA NA : Heineken FY Org. Beer Volume Beats Estimates
- IPN FP : Ipsen, Université de Montréal, IRICoR Broaden Oncology Work
- IT IM : SNAM Set to Sell 13.5% Stake in Italgas: MF
- KER FP : Kering 4Q Gucci Revenue on a Comparable Basis Misses Estimates
- MC FP : Moët Hennessy Bets On a Rosy Future for Luxury Provence Rosé
- MB IM : Mediobanca Begins Buying Up to 9% of Anima for Unnamed Investor
- MEKO SS : Meko 4Q Adjusted Ebit SEK198M Vs. SEK203M Y/y
- MERY FP : Mercialys FY Ebitda Misses Estimates
- META US : Meta Must Curb Drug, Human Traffickers on Platforms: Senators
- MOWI NO : Mowi Sees 2023 Harvest 484,000 Metric Tons
- NEX FP : Nexans Sees 2023 Ebitda EU570M to EU630M, Est. EU589.5M
- NP3 SS : NP3 Fastigheter Offering of 2.75m Shares Prices at SEK230/Share
- ORRON SS : Orron Energy 4Q Ebitda $6.8M
- PUUILO FH : Puuilo Holder Puuilo Invest Holding Offers 5m Shares
- SFQ GY : SAF-Holland SE FY Adjusted Ebit Margin Beats Estimates
- SAND SS : Sandvik to Supply SEK370m Worth of BEV Equipment to Rana Gruber
- SAS SS : SAS Airline Hit by Cyber Attack That Affected App, Website
- SF SS : Stillfront 4Q Ebit Misses Estimates
- SF SS : Stillfront Sets New Financial Targets
- SZU GY : Suedzucker Fourth Goal Hike Shows Cost Risk on Less Sugar: React
- TKA AV : Telekom Austria FY Dividend per Share Beats Estimates
- TIT IM : Telecom Italia 4Q Ebitda Beats Estimates
- TIT IM : Telecom Italia Raises Targets With Focus on Fiber, Higher Rates
- TIETO FH : TietoEVRY 4Q Adjusted Operating Profit Beats Estimates
- VCT FP : Vicat FY Ebitda Misses Estimates
- DG FP : Vinci Sees FY FCF in Range of €4.0B to €4.5B
- VOD LN : Vodafone Interim CEO Della Valle Favorite for Top Job: BI Poll
- VPK NA : Vopak Sees 2023 Adjusted Ebitda EU910M to EU950M, Est. EU911.8M
- XIOR BB : Xior FY EPRA EPS Matches Estimates

>>> Europe : Brokers Upgrades & Downgrades - 15th of February 2023

>>> Up
* Brenntag Raised to Buy at Citi; PT 96 euros
* Coca-Cola HBC PT Raised to 2,800 pence at Jefferies
* Heba Fastighets Raised to Hold at Handelsbanken
* Norwegian Air Raised to Buy at Pareto Securities; PT 15 kroner
* Thyssenkrupp Raised to Neutral at JPMorgan; PT 5.90 euros

>>> Down
* Betsson Cut to Sell at ABG; PT 79 kronor
* FLEX LNG Cut to Hold at Fearnley; PT 365 kroner
* Lulu's Cut to Hold at Jefferies
* Michelin Cut to Hold at HSBC; PT 29.50 euros

>>> Initiation
* Autoliv Rated New Equal-Weight at Barclays; PT $100

>>> Call
* Brenntag Upgraded at Citi on Re-Rating Scope From a Separation
* Jefferies More Cautious on US Apparel Outlook, Cuts Four Stocks
* Swiss Prime Raised at Baader, Seen Moving in Right Direction

FT : $50bn credit fund caught on both sides of distressed debt dispute

$50bn credit fund caught on both sides of distressed debt dispute
Angelo Gordon’s positions differ in contested Revlon and Serta Simmons bankruptcies

Angelo Gordon, one of the world’s savviest corporate credit investors, has found itself on both sides of a contentious divide roiling Wall Street.

The $50bn fund manager is a longtime lender to Revlon, the cosmetics company, and to Serta Simmons Bedding, the mattress group. Each company is in US Chapter 11 bankruptcy proceedings after falling behind on debts.

But Angelo Gordon’s status as a creditor is starkly different in the two cases. At Revlon it is poised to seize control after joining a slim majority of lenders that offered rescue financing in May 2020, a deal that left other creditors behind.

At Serta, however, it was among the creditors excluded from a similar emergency financing assembled in June 2020. Now at risk of recovering pennies on the dollar from its investment, Angelo Gordon and other stranded creditors will try to convince another bankruptcy court that the majority group violated their rights.

The stances strike some observers as inconsistent.

“It is definitely a bad look to try to propose an amendment [to a loan contract] that may have left minority lenders behind, and then complain about lack of good faith when they’re on the receiving end,” said Randall Klein, a lawyer at Goldberg Kohn who specialises in corporate debt.

Angelo Gordon’s differing positions in the Revlon and Serta cases show how corporate debt contracts have become unsettled by disputes over a set of novel financing structures.

The structures give highly indebted companies financial lifelines. But they come with a catch, allowing a majority of lenders to swap existing debt into a tier of newly issued debt that receives the first claim on a company’s assets. In the Revlon and Serta cases and others, this majority has been accused of steamrollering a smaller, seemingly unsuspecting group to snatch outsized profits when companies are reorganised in bankruptcy.

Bankruptcy disputes are familiar territory for Angelo Gordon, which in the years since it was founded in 1988 has not shied away from complex or controversial situations.

The New York-based fund’s head of distressed and corporate special situations, Ryan Mollett, is an industry veteran who previously worked at Blackstone, where he was the architect of a so-called “manufactured default” at the US homebuilder Hovnanian. In that strategy, Blackstone sought to provide financing to the company in exchange for Hovnanian missing a debt payment so the fund manager could win a wager on credit default swaps.

Angelo Gordon believes that the technical differences between Revlon and Serta transactions leave it on the correct side of both, according to court filings and people familiar with their thinking. A representative of the group declined an interview request.

The bankruptcy disputes at Revlon and Serta are expected to be resolved in the next few months, either through a settlement or a judge’s ruling. Revlon and Serta declined to comment.

The novel financing structures were devised by lawyers and investment bankers to raise capital for companies in distress by cleverly exploiting rivalries among lenders.

“If a company dangles an aggressive restructuring move without guaranteeing a privileged position to anyone, it can help the company by pitting creditors against one to offer up a better deal,” said Eric Talley, a professor at Columbia Law School. “They’re in a financial Hunger Games scenario, with each tribute hoping against hope that the odds will ever be in their favour.” 

These novel financings take two main forms, known as “drop-downs” and “uptiers”.

Revlon used a drop-down to borrow from a group led by Angelo Gordon. Revlon said permissive loan covenants provided leeway to create, or drop down, a new subsidiary that in turn borrowed $880mn from Angelo Gordon and others. The lenders in this majority group were able to claim several top Revlon brands as collateral, taking them outside the reach of existing lenders.

In the most controversial step of the deal, the Angelo Gordon group was allowed to transfer about $1bn of the previous loan into the new subsidiary, in a move called a “roll-up”.

The remainder of the loan, held by the stranded group of minority investors, has since plunged to less than 40 cents on the dollar after it was no longer backed by the transferred collateral.

The minority has alleged in bankruptcy court that Revlon rigged a vote in order to win the majority approval it needed to execute the drop-down. Revlon denied that claim, saying that it rejected a rival plan offered by the excluded group and gave that group the opportunity to participate in the drop-down. Angelo Gordon has also argued that the 2020 deal was permissible.

The issue will go to trial in March.

The more novel uptier transaction, used at Serta to the exclusion of Angelo Gordon and others including Apollo Global Management, has proven even more controversial than drop-downs.

The mattress company, in raising the $200mn in new cash in 2020, created a new “super-priority” top layer of debt that ranked ahead of an existing $1.95bn first-lien loan. Similar to Revlon, the funds investing the new cash also rolled several hundred million dollars of their existing debt into the new debt level.

Angelo Gordon and other Serta lenders that were left out of the transaction argue in lawsuits that all lenders, not just a majority, should have been granted the option to participate in the roll-up. Moreover, changing the repayment “waterfall”, or the order of debt repayments at Serta, required unanimous consent of incumbent lenders, they said.

Serta, in court papers, said that it chose an uptier structure over a competing drop-down proposal from Angelo Gordon, which it believed would cost the mattress company more.

Angelo Gordon’s lawsuit against Serta, filed last year in New York state court, is in its early stages. A separate ruling on whether Serta’s uptier transaction should be allowed may come sooner in bankruptcy court.

In a separate 2021 lawsuit filed by another creditor, US District Judge Katherine Polk Failla in Manhattan last year agreed with Serta in ruling that only a majority of creditors was needed to approve a new a super-priority debt tier.

However, she refused to dismiss the case entirely, ruling that Serta’s ability to roll old debt into the uptier required a separate trial. Her willingness to at least partially question the uptier had grabbed the attention of the lawyers, bankers and companies in the realm of distressed debt.

“Indeed, one could reasonably conclude from Plaintiffs’ allegations that [Serta] systematically combed through the Agreement tweaking every provision that seemingly prevented it from issuing a senior tranche of debt, thereby transforming a previously impermissible transaction into a permissible one,” the judge wrote in her ruling.

FT : Deutsche Bank cuts ties with Selfridges co-owner René Benko

Deutsche Bank cuts ties with Selfridges co-owner René Benko
Developer named by prosecutors last year as a suspect in long-running corruption investigation

Deutsche Bank has cut ties to one of Europe’s most successful property developers over concerns about his involvement in a sprawling corruption investigation.

Germany’s biggest lender decided late last year to end its business relationship with René Benko, the Austrian real estate billionaire who co-owns Selfridges in London, the Chrysler Building in New York and German department store, KaDeWe, according to three people with close knowledge of Benko’s financial affairs.

The only banking relationship Deutsche has retained with Benko’s €24bn property empire is with German department store Galeria Kaufhof, which filed for bankruptcy protection in October, the people said.

“The writing was on the wall,” said one person close to Benko’s property business, Signa Group.

In October, Benko was named by prosecutors as a suspect in a long-running corruption investigation in Austria that has ensnared prominent businessmen and politicians. The probe led to the resignation of the country’s chancellor Sebastian Kurz, a key ally of Benko, in 2021.

Benko’s involvement in the case became public after police raided Signa’s headquarters in Innsbruck.

No charges have been made against Signa Group or Benko, and both have denied any wrongdoing in relation to the investigation.

Some of the individuals named in the probe have privately accused prosecutors of targeting figures close to Austria’s ruling conservative People’s party for political reasons.

Benko was cleared of wrongdoing in a separate bribery probe against him and other property developers last month.

Deutsche Bank said it did “not comment on actual or potential client relationships”.

A lawyer for Signa Group said that the company had “no existing loans, no credit business or investment banking business with Deutsche Bank and is not in talks with Deutsche Bank about this”. Deutsche Bank was not the group’s principal bank, he added.

Deutsche Bank has nevertheless provided commercial services to Signa entities in the past and has played a role in helping to advise and finance the group. Deutsche was the joint bookrunner for a $300mn green bond issued by Signa in 2021, for example, and provided banking services to Benko personally.

The bank is believed to have kept Galeria Kaufhof as a client because it judged it would be politically difficult to break ties with Germany’s largest department store chain in the middle of a restructuring, people familiar with the details said.

The move to sever ties with Benko comes as Deutsche Bank seeks to reduce its exposure to clients that might come with reputational risk.

Last year, it ditched Hertha Berlin as a client over the Bundesliga football club’s links to financier Lars Windhorst, after the Financial Times reported that Windhorst was under investigation for potential violations of the country’s banking act.

Windhorst and Hertha Berlin declined to comment.

FT : Will telco billionaire Xavier Niel challenge Apollo?

Will telco billionaire Xavier Niel challenge Apollo?
Is a takeover battle brewing for Latin American mobile operator Millicom International?

French telecoms billionaire Xavier Niel announced on Tuesday that his holding company had raised its stake in Millicom to 19.6 per cent from 7 per cent disclosed in November.

The large minority stake could complicate the near-$10bn bid that private equity group Apollo Global and ex-SoftBank executive Marcelo Claure have been preparing, which the FT first told you about in January.

In the weeks after the FT’s report, trading volumes in Millicom soared, causing merger arbitrage analysts to question whether an incumbent shareholder was building a stake.

At least some of the buying came from Niel as he bolstered his position and muddied what’s already a complicated story for Millicom — one of the largest telecom providers in Latin America (despite being based in Luxembourg).

The company, which serves 50mn customers predominantly under its Tigo brand, has been trying to cut its heavy debt load through a corporate break-up.

Millicom is planning to spin off its cellular tower business by the end of the year after a gruelling multiyear separation plan. It’s also soliciting outside investors for its Tigo Money digital payments platform. But fast-rising interest costs and soaring regional inflation have made the operating environment increasingly precarious, battering shares. The telecom group has seen its stock fall by two-thirds since 2019.

Apollo and Claure are looking to buy all of Millicom ahead of those divestitures, sources briefed on the group’s thinking told DD. The company’s stock has already soared beyond the “high teen” price the group had wanted to pay, signalling that it may need to pay up.

Niel has filed as a passive shareholder for now and has remained tight-lipped on his ambitions for Millicom.

But the billionaire has never been one to miss out on a good opportunity. He has been buying up telecom assets for years via his holding company and Iliad, the French telecoms group he founded in 1990 that has expanded into Italy and Poland. His investment vehicle Atlas Investissement also bought a 2.5 per cent stake in Vodafone in September.

Now that Niel’s Atlas is Millicom’s biggest shareholder, DD is watching to see how it will affect the deal talks under way between Millicom, Apollo and Claure. He was already a significant shareholder when their deal began forming, underscoring that the group already knew its efforts would have to eventually win approval by large existing shareholders.

Niel’s typical playbook is to buy up telecoms groups before applying the signature low-cost model that made his fortune in France. So it wouldn’t be like him to quickly flip an asset or stake to another buyer.

Telecoms is a small world and DD wouldn’t be surprised if the bankers and other players around the table on this one happened to know each other well enough to pick up the phone.

>>> Trian Fund (Nelson Peltz) discloses updated portfolio positions in 13F filing: Confirms DIS holding


Trian Fund (Nelson Peltz) discloses updated portfolio positions in 13F filing: Confirms DIS holding

Highlights from Q4 2022 filing as compared to Q3 2022:
  • New positions in: DIS (~9.03 mln shares)
  • Maintained positions in: IVZ (~55.8 mln), JHG (~31.9 mln shares), WEN (~25.3 mln shares), FERG (~11.2 mln shares), GE (~4.03 mln shares)
  • Closed positions in: PG (from ~0.01 mln shares)
  • Decreased positions in: SYY (to ~5K shares from ~7.2 mln shares)