TheChek News Flow

Closure after three decades follows years of weakened returns

Louis Bacon, the veteran hedge fund manager and founder of Moore Capital Management, is planning to shut his firm and return capital to investors after three decades, according to two people familiar with the situation, in what will be one of the industry’s most high profile closures to date.

The decision follows years of diminished performance at Moore’s hedge funds, which trade stocks, bonds, currencies and other financial instruments. Moore Capital declined to comment.

Raised in North Carolina, Mr Bacon began his trading career at Commodities Corporation in the 80s, where he rubbed elbows with the future hedge fund billionaires Bruce Kovner and Paul Tudor Jones.

Mr Bacon is viewed by peers as one of the most successful traders of his generation, known for his ability to shift between positions based on macroeconomic judgments. But he has also struggled to match his historical record since the 2008 financial crisis, a period marked by persistently low interest rates that has frustrated many macro managers.

Last year a Moore fund managed by Mr Bacon declined by almost 6 per cent following two spikes in market volatility that wrong footed several hedge funds. Another Moore fund overseen by teams of portfolio managers fell 3.3 per cent for the year, according to performance information sent to investors.

Mr Bacon gained early notoriety for making gains of 86 per cent in 1990 after betting against Japanese markets and 45 per cent in 1992 when the European Exchange Rate Mechanism collapsed. Through last year, Moore had made $18.3bn for investors since the firm’s inception, making it the 15th most profitable hedge fund of all time, according to data published by LCH Investments.

Mr Bacon joins other hedge fund managers such as Leon Cooperman and Michael Platt who have shunned outside investors in recent years.

Moore’s assets under management have declined by billions in the past decade to $8.9bn at the end of last year, according to regulatory filings.

Before deciding to return capital, Mr Bacon had been pitching investors on a fund managed by one of his top-performing traders, Joeri Jacobs, people briefed on the matter said. It was unclear whether the fund would now spin out independently.

Mr Bacon, whose net worth Forbes estimates at $1.5bn, has given money largely to environmental causes. In 2012, he donated close to 167,000 acres of land on his Colorado ranch to the US Fish and Wildlife Service for conservation purposes, marking the largest ever easement in the US

The 51 per cent sliver means that Jenner’s business -- which is called, you guessed it, Kylie’s Cosmetics -- is valued at around $1.2bn. Quite something for a company that was started just four years ago.

Alphaville laconically commented on Jenner’s status as a “self-made” billionaire earlier this year, but the news this week seems to have stirred the debate further, with many defending Jenner, seemingly, as a Roarkian hero of capitalism. “If it’s so easy, then why has no other influencer done it?” they cry.

It’s not quite that simple.

First off, let’s just get one indisputable fact out of the way: Team Kylie Jenner has built a remarkable business. It posted revenues of $200m last year, and is on track for Ebitda margins of 25 per cent this, all while growing 40 per cent. For reference that’s more Ebitda than Uber, Lyft and Peloton made in the last quarter. Combined. (We should add that Alphaville made more Ebitda. Maybe.)

To get there, Jenner has proved apt at driving demand via curated pop-up stores, one-off FOMO-inducing specials and pushy upsell techniques. Like many of the successful direct-to-consumer brands, she’s also leveraged e-commerce platform Shopify to startling effect.

The fact Jenner has done them, or has been advised to do them, does deserve respect. But the crucial point to be made here is that none of these factors are remotely unique to Jenner. In fact, for the Warby Parker hopefuls of this world, this strategy is relatively quotidian.

Jenner also has one advantage which a well-heeled Wharton grad could only dream of: little-to-no marketing costs.

Thanks to her lineage as the youngest member of the Jenner-Kardashian family, Jenner has amassed a startling social media following. At pixel time, she has 151m followers on Instagram, 22m on Facebook and 29.4m on Twitter. This effectively free airtime is worth a lot. The BBC reported in July that Jenner currently demands $1.2m for a single promotional post on Instagram. So if she posts, say, 400 times about her brand over the year, that’s around $440m of effectively costless marketing -- more than Snapchat and Peloton spent on the same item in 2018. And that’s just on Instagram.

We don’t have the numbers to hand, but it’s fair to assume that having little need to spend on marketing might provide around 20-25 percentage points of extra margin. Which, for a high growth company, is an extreme advantage.

Aside from super profitability it also provides another edge.

Much has been written, including on Alphaville, about how the various direct-to-consumer hopefuls have struggled with scaling their businesses, and brands, due to the rising costs of digital advertising. Costs which, of course, require outside capital to fund. So not only has Jenner benefited from naturally higher margins, but the ability to retain control over her business.

Raising venture, or private, capital also requires time. Funds have to be pitched to, and lengthy PowerPoint decks prepared. So the benefits of not initially needing outside capital run deeper than just economic control.

In short, Jenner’s success should be framed within the context within which it was built: a hyper-globalised, social-media driven star system that half a decade ago barely existed, and very few still have immediate access to without entering other fields (acting, music, etc). This, in itself, is an intangible asset probably worth more than even the $1.2bn valuation Coty has endowed on the business.

No-one can begrudge anyone taking advantage of your personal circumstances, but let’s not pretend that Jenner’s achievements are equivocal to other well-regarded business founders -- even those from privileged backgrounds, such as Bill Gates. Indeed it’s arguable that the advantages she’s enjoyed are unique in business history.

The question for Coty, however, is will the fans follow now a faceless corporate has got so heavily involved? Odds are, they may not even notice.

* Global Payments (GPN): Managers that show brand new stakes in GPN include Maverick Capital, Glenview Capital, and Lone Pine Capital. The company recently completed a $21.5 billion merger with TSYS to form a leading pure play technology-enabled payments platform.

* Wayfair (W): Hound Partners, Tiger Global, and Sequoia Fund all show new stakes in the furniture ecommerce company. Shares slid during the quarter from $140 down to lows of $100. And in trading thus far in Q4, they’ve fallen even lower to current levels around $84.

* Fidelity National Information Services (FIS): Funds that show a new position in FIS for Q3 include Maverick, Glenview Capital, and Third Point. This name comes with a caveat because the company recently completed its acquisition of WorldPay (former ticker WP) in a $35 billion deal. Some funds (like Third Point) previously owned WP and as a result of the merger no longer show a stake in WP and now instead show a ‘new’ stake in FIS. WP shareholders received 0.9287 FIS shares and $11 in cash for each WP share owned.

* IPO’s: Datadog (DDOG) and Cloudflare (NET): These two names both went public in the third quarter. For the most part, these are smaller positions but a decent chunk of funds show new holdings, so they made the list. Hedge funds that show DDOG positions include Tiger Global, Coatue, and Viking Global while funds showing NET positions include Omega Advisors, Tiger Global, and Viking. DDOG in particular has seen some interest among tech-focused funds so it will be interesting to see if they build positions further or were merely flipping the IPO shares.

* Alibaba (BABA): This is the second quarter in a row that BABA lands on this list. Funds that accumulated more shares include Maverick, Farallon Capital, Viking, Coatue, Lone Pine, and Tiger Global. All things considered, shares of the Chinese e-commerce giant have held up quite well. They’ve faced a trade war, a potentially slowing Chinese economy, as well as a large block seller of its shares (Altaba). When funds were buying, BABA traded between $155 and $180 and now presently trades around $185. The company just concluded its annual Singles Day selling bonanza (akin to Black Friday or Cyber Monday in the US, but on a bigger scale) and set yet another gross merchandise value (GMV) record.

* Alphabet (GOOG): Despite facing potential antitrust inquiries, shares of GOOG have also held up quite well. Funds that bought more of Google’s parent company include Tiger Management, Farallon, Maverick, Appaloosa, and Sequoia Fund.

* Salesforce.com (CRM): Shares of the customer relationship management company were bought by Tiger Global, Third Point, Viking, and Lone Pine during Q3. Software as a Service (SaaS) stocks have sold off in recent months, though CRM shares weren’t impacted to the same degree as other firms.

* Atlassian (TEAM): Duquesne Family Office, Coatue, Tiger Global, and Lone Pine all boosted their exposure to TEAM. The company provides platforms for teams to work smarter and faster together and famously doesn’t really rely on a salesforce to drive customer acquisition. Some of its products include Confluence and Trello for document and visual collaboration as well as Jira for project/issue tracking and a service desk. During Q3, shares provided an entry point for these funds by falling from $145 to $120 (and currently trade at the low-end of that range, around $125).

* Sprint (S): This wireless service provider received approval from the Department of Justice and the FCC for its merger with T-Mobile (TMUS). The deal still hasn’t closed yet, so perhaps funds merely moved capital to more compelling opportunities. Funds that liquidated S stakes include Duquesne Family Office and Farallon Capital.

* Liberty Global (LBTYK): A hedge fund darling just a few years ago, shares of this European cable giant have really fallen out of favor with various managers. Funds that dumped their entire stakes include Brave Warrior Advisors and Farallon Capital. John Malone’s cable giant has been selling off assets recently.

* Micron Technology (MU): Shares of this DRAM producer were sold-off by the likes of Duquesne Family Office and Viking Global during the third quarter.

* Wynn Resorts (WYNN): Although Steve Wynn is no longer involved in the company, the casino chain that bears his name was sold-off by funds such as Lone Pine and Maverick. The company this year opened its new Encore Boston Harbor property and reportedly was previously in talks with MGM Resorts (MGM) about selling it but those discussions fizzled.

* Mergers Closed: First Data (FDC), Red Hat (RHT), Anadarko Petroleum (APC), Array Biopharma (ARRY): This list is for portfolio housekeeping more than anything. All of the above companies completed mergers in the quarter and so shares no longer trade, making it appear that various funds ‘sold’ the shares. In many cases, funds retained positions in the newly combined entities. For instance, First Data was acquired by Fiserv (FISV) and so now some funds no longer show a stake in FDC and show a ‘new’ stake in FISV).

* Microsoft (MSFT): After previously being on the ‘consensus increase’ list for over an entire year, MSFT has now landed on the decrease list for two consecutive quarters. More than anything, it’s quite plausible that these are merely risk management and position sizing moves, as shares have appreciated considerably. Tiger, Hound, Maverick, Duquesne, Coatue, Viking, and Lone Pine all reduced exposure to Satya Nadella’s expanding cloud and software giant.

* Adobe Systems (ADBE): This is now the third consecutive quarter this stock graces this list. Funds that trimmed exposure to this content creation specializer include Duquesne, Maverick, Viking, Third Point, Coatue, and Lone Pine. Much like MSFT above, ADBE shares have outperformed considerably and it’s very likely position sizes have swelled for many of these firms. The bull thesis on this name has been two-fold: in a world increasingly driven by content creation and consumption, ADBE makes the ‘pick axes’ in this gold rush (software for content creators). The second leg of the thesis is that ADBE made the shift to a subscription model and the new recurring revenue model has been a boon for the company. Adobe also just announced it will be releasing its iconic Photoshop platform on Apple’s iPad.

* Centene (CNC): Hedge funds that reduced exposure to this healthcare play include the likes of Bridger Management, Glenview Capital, Third Point, and Viking. Managed care companies in general have come under fire as Democratic presidential hopefuls tease plans of Medicare for all.

* BMW Raised to Neutral at JPMorgan; PT 70 euros

* Dart Group Raised to Buy at Jefferies; PT 1,570 pence (+)

* Hella Raised to Buy at Goldman; PT 55 euros

* SGS Raised to Sector Perform at RBC

* Telecom Italia Raised to Equal-Weight at Barclays (+)

>>> Down

* American Shipping Cut to Hold at SpareBank; PT 35 kroner

* Aurubis Cut to Hold at Hauck & Aufhaeuser; PT 51 euros (+)

* Aviva Cut to Hold at Deutsche Bank; PT 450 pence

* Fevertree Drinks Cut to Hold at Deutsche Bank; PT 2,200 pence

* Gimv Cut to Hold at KBC Securities; PT 55 euros (+)

* Hays Cut to Hold at HSBC; PT 155 pence

* Mitchells & Butlers Cut to Neutral at Citi

* Mitchells & Butlers Cut to Equal-Weight at Morgan Stanley

* Senior Cut to Hold at Peel Hunt; PT 175 pence

>>> Initiation

* AJ Bell Rated New Hold at Berenberg; PT 370 pence

* C&C Rated New Underweight at Barclays; PT 310 pence

* Cementir Holding NV Rated New Outperform at MainFirst

* IntegraFin Rated New Buy at Berenberg; PT 460 pence

* JD Sports Rated New Buy at Goldman; PT 870 pence

* Nucleus Financial Group Rated New Buy at Berenberg

* Premier Foods Rated New Buy at Peel Hunt; PT 50 pence

* Smith & Nephew Rated New Buy at Citi

* Travis Perkins Reinstated Hold at Deutsche Bank; PT 1,550 pence

* Umicore Rated New Buy at Goldman; PT 51 euros

>>> Call

* Aviva Cut to Hold at Deutsche Bank on Weaker New Cash Outlook (+)

* BASF Stock Could Be Vulnerable Amid Weak Cracker Data, Citi Says (+)

* Buy IntegraFin, Nucleus Among Investment Platforms: Berenberg

* Bucher ‘Looks Cheap,’ Re-Initiated With Buy at Berenberg

* Carrefour Not Faring So Badly in Latest French Data: Deutsche (+)

* Comet’s New 2025 Targets Suggest ‘Material’ Upside: Vontobel (+)

* Dart Group 1H Confirms Market Share Opportunity, Jefferies Says (+)

* Melrose Target Boosted at Citi on Improved Aerospace, Auto View (+)

* Mitchells & Butlers Cut at Morgan Stanley, Citi After Rally (+)

* Senior to Face Tougher 2020, Peel Hunt Downgrades Rating to Hold

* Smith & Nephew at Attractive Entry Point; Citi Initiates at Buy

* William Hill’s In-Line 3Q Results to be Taken Positively: Citi (+)

* *EUROPEAN FINANCIALS RAISED TO NEUTRAL AT SOCGEN (+)

* *EUROPE OIL & GAS SECTOR DOWNGRADED TO NEUTRAL AT SOCGEN (+)

Marble producer wiped out on MSCI U-turn as furniture maker hit by short-seller’s report

Billions of dollars worth of investor capital evaporated in Hong Kong on Thursday after shares in two obscure companies plunged, marking the latest examples of spectacular wipeouts in the city’s equity market. 

A lossmaking marble producer that had rallied 3,800 per cent this year saw its market capitalisation fall by $5.7bn — a 98 per cent decline — after index compiler MSCI said it would not include the stock in its globally tracked benchmarks.

ArtGo Holdings, which recorded a net loss of almost Rmb640m ($91m) last year, had been selected for inclusion in the MSCI China index on November 7. That prompted the company’s share price to more than double in little over a week as investors snapped up the stock ahead of its planned inclusion. 

But on Thursday, MSCI reversed its decision on ArtGo, citing “further analysis and feedback from market participants on investability”. 

David Webb, a Hong Kong-based activist investor and corporate governance expert, said in September that ArtGo’s shares were in a bubble and had written to the city’s financial regulator requesting a probe into the company’s ownership.

He said on Thursday that MSCI’s “fairly mechanistic criteria” influenced its initial decision to include the stock.

“They don’t apply any valuation metrics to their decisions,” Mr Webb said. “If they had, they’d have seen, as I did, that it was trading at 20 times net asset value, and that’s not sensible by any stretch of the imagination.”

Dramatic booms and busts are a hallmark of Hong Kong’s stock market. In 2017, a group of the stocks in the Asia finance hub shed $6bn in a series of mysterious plunges that left the worst of them down 95 per cent.

The companies had earlier been singled out by Mr Webb as part of what he called an “Enigma” network in his analysis that charted the crossholdings between the businesses. 

ArtGo was not the only Hong Kong-listed company whose market value was almost obliterated on Thursday. 

Shares in Kasen International also fell by more 90 per cent, representing about $800m in market capitalisation, after the furniture maker and property developer was attacked by short-seller Blue Orca Capital. 

A Blue Orca research note raised concerns about certain projects being developed by Kasen in Cambodia, as well as asset disposals that had been made by the company. “Kasen’s only viable segment is property development, a melting ice cube as the company sells off the last of its remaining residential units,” the report claimed. 

Kasen, which halted trading, declined to immediately comment on Blue Orca’s accusations but said it would publish a response later in the day.

The falls on Thursday brought the total number of sudden price collapses in Hong Kong to three for November, with shares in luxury bottled water supplier Tibet Water having dropped by two-thirds in a single day earlier in the month.