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Hedge fund’s sometimes belligerent statements mask a careful and dogged strategy

If Hitachi, the Japanese conglomerate, thought it would be a routine matter to buy out the remaining investors in an Italian rail signalling equipment company where it had just become the largest shareholder, then it did not reckon on Paul Singer’s Elliott Management.

For the past two years, Hitachi’s planned takeover of Ansaldo STS has been under a multi-pronged legal attack, orchestrated by Elliott, that has included multiple complaints to the Italian markets regulator, a complaint to the country’s auditing board and a lawsuit.

For Elliott, this is business as usual. The $32.8bn fund and its billionaire Republican donor founder are an anomaly among activist hedge funds because of their readiness for a very protracted fight and the very broad legal tools they employ to win.

Elliott is battling on multiple fronts. It is demanding, among other things, that BHP Billiton spin off its US petroleum business, Akzo Nobel accept a takeover offer and Samsung break itself up. Last week it disclosed an activist stake in Gigamon, a network-monitoring company.

The string of victories includes claiming back more for holders of Argentine sovereign debt or pushing Klaus Kleinfeld out as chief executive of metals group Arconic. But Elliott’s belligerent legal strategies and bellicose public language mask a patient strategising that reflects Mr Singer’s early career as a lawyer. One rival activist calls it a “prosecutorial” approach; Mr Singer himself has called it “using every tool in the tool chest”.

Another anomaly: as other big-name activists falter and the sector faces criticism for crowding into the same trades, Mr Singer’s fund still has investors clamouring to pay the full rate. The industry standard is a 2 per cent management fee and a 20 per cent performance fee. When Elliott briefly opened its main fund to accept new investments earlier this month, it raised $5bn in 24 hours.

“Raising that much money that quick is really hard, especially in a time when people are taking money away from the activists,” said Don Steinbrugge, managing partner at Agecroft Partners, a hedge fund consultancy. “You have all this competition and the low-hanging fruit is gone, especially if you’re a big activist.”

The consistency of the returns explains why. Elliott’s main fund was up 3.1 per cent in the first quarter, and returned 13.1 per cent last year. In its 40-year history, Elliott has had only had 12 losing quarters, and only two down years. In two years — 2007 and 2009 — the fund returned more than 30 per cent.

As a multi-strategy fund, Elliott remains more versatile than its competitors, investing in a range of credit, commodities, property and various arbitrage strategies when equity opportunities are thin. Its long background in distressed debt investing means that Elliott instinctively takes a “what’s the worst that can happen” approach that has limited its downside.

The 72-year-old Mr Singer, who founded Elliott 40 years ago, has shown signs that he is preparing for an eventual succession by bolstering the management ranks, but every investment decision still goes through him and his co-chief executive, Jon Pollock.

In a rare interview, Mr Pollock said that, whatever the asset class in which the fund is investing, “there is an activist thread that runs through the entire business”, and he added: “Patience and persistence are certainly hallmarks at Elliott.”

Most famously, Elliott spent 15 years battling Argentina in court over its defaulted debt, leading a band of creditors that were the last holdouts to settle. The final pay-off to the New York-based hedge fund was $2.4bn. With US car parts company Delphi, the fund pocketed nearly $1bn after years as a creditor by buying it out of bankruptcy.

The soft-spoken, bearded Mr Pollock favours button-down shirts with the sleeves rolled up, a tattoo on his wrist visible under his watch. Mr Singer’s long-time deputy, he was promoted to co-CEO in late 2015. Earlier this month, the fund named Jesse Cohn and Steve Cohen equity partners, bringing the partnership to seven people.

Mr Cohn, who oversees Elliott’s activist positions in US companies and runs Evergreen Coast Capital, their recently launched private equity arm, became the firm’s youngest-ever partner at 36. Mr Cohen is Elliott’s head trader and a macro specialist who has spent 14 years at the fund.

Mr Pollock chafes at the accusation of short-termism that is sometimes levelled at activists. Elliott will often be invested in a trade for five years, and it never seeks unnecessary public fights, he says.

“We have no interest in having our interactions with a company become public just for the sake of it. It usually becomes public after a series of conversations.”

Yet the fund’s style of activism has been criticised by its targets as “vulture” capital and has come under fire even from other activists.

Jeff Ubben, chief executive of ValueAct, an activist fund that keeps its pressure behind the scenes, said the recent ouster of Mr Kleinfeld was an example of companies being “bullied” by Elliott. Mr Kleinfeld was forced out not because of Elliott’s criticisms of his record at Arconic but because of what his board called “poor judgment” in sending a letter to an official at Elliott that the hedge fund said “read as a threat to intimidate or extort”.

“It’s prosecutorial in nature,” said Mr Ubben, speaking on a panel at the Milken Conference in Los Angeles earlier this month. “You hear the Elliott side, but you don’t ever hear the management or board side because they’re the defence, and the defence doesn’t talk . . . And then when you do strike back, you’re fired.”

The Ansaldo situation has not gone Elliott’s way so far. It lost a ruling in a court in Genoa in November last year where it sought to suspend the appointment of the chairman of the board, and Hitachi has shown little inclination to boost its offer price. But there — as at Elliott’s burgeoning number of activist positions — the infusion of new cash means it has additional firepower to prosecute its case.

Presentation entitiled ‘New Leadership Is Needed At Arconic’, Jan 2017

“Arconic will never approach its potential under the current CEO”

Letter to Marathon Petroleum board, Nov 2016

Letter to Cognizant Technology board, Nov 2016

V2X

Hedge Funds Turn Against OPEC After Oil Gains Slip Away

Traders tally up losses as cartel falls short in its effort to boost prices and reduce global glut

OPEC is trying harder than ever to woo big investors, but the cartel is finding that falling oil prices are making that a tough sell.

Dozens of hedge-fund managers and oil traders attended a series of closed-door meetings in recent months with OPEC leaders—the first of their kind, according to Ed Morse, Citigroup ’s global head of commodities research, who helped organize some of the events.

Cartel officials made the case for how OPEC supply cuts would reduce the global glut and boost crude prices, according to people familiar with the meetings. Instead, oil prices are down more than 10% from their February high, and some prominent hedge-fund traders are reeling.edf fp Equity gip

Pierre Andurand, a French hedge-fund manager with a history of double-digit returns, met with a Saudi official from the Organization of the Petroleum Exporting Countries just before the Nov. 30 decision to cut production, said people familiar with the meeting. After a series of bullish bets, his main fund at Andurand Capital is down around 16% this year through May 5, according to a person who had seen the performance numbers.

Oil rose 2.1% on Monday after Russian and Saudi Arabian energy ministers said they would support another nine months of production cuts. That helped crude rebound from recent five-month lows and paved the way for an extension of the output cuts when the cartel meets on May 25.

But the rally fizzled on Tuesday when U.S. oil prices fell 0.4% to $48.66. Many traders see any extension as OPEC’s acknowledgment that the first round of cuts haven’t been effective. Some are starting to wonder whether OPEC’s ability to influence the market is waning.

OPEC officials couldn’t immediately be reached for comment.

Saudi Arabia’s energy minister Khalid al-Falih said Monday that while “there has been a marked reduction to the inventories, we’re not where we want to be.” Mr. Falih, speaking after a meeting of the G20 countries in China, said that a “general consensus” was emerging that extending the cuts “is the right approach and the right thing to do.”

“In my view, it’s the wrong response,” Doug King, chief investment officer at RCMA Asset Management and manager of that firm’s $200 million Merchant Commodity hedge fund, said of extending the current cuts. “We’re not seeing what we needed to see.”

Mr. Morse said he arranged introductions between OPEC Secretary-General Mohammad Barkindo and more than 100 hedge-fund managers and other oil buyers who met with Mr. Barkindo in Washington, D.C., New York and London since October.

The coordinated outreach was a new effort by the cartel to build bridges between its members and Wall Street, aiming to convince investors that producers were serious about reining in supply, say people close to the matter. After asking what OPEC planned to do boost prices, fund managers came away impressed, Mr. Morse said, adding that some still text with the OPEC leader.

OPEC’s cuts started in January, and oil prices jumped 8.7% in December as traders anticipated an easing supply glut. Bullish bets by money managers hit a record for the 10 years of data from the Commodity Futures Trading Commission early this year.

Many analysts agreed with the upbeat mood, forecasting that crude prices would hit $60 a barrel or higher by the end of 2017.

U.S. oil inventories have declined since OPEC’s output cuts, but they remain near historic highs. That is in part because U.S. production has increased by more than 200,000 barrels a day during the past two months. If output continues to ramp up at that pace, U.S. producers could end the year producing 800,000 barrels-a-day more than at the end of last year. That would replace much of what OPEC has taken off the market, analysts say.

In recent weeks, hedge funds have cut their bullish position on oil prices to the lowest level since November as a gasoline glut raised worries that demand could falter.

Mr. Andurand informed investors in an April 24 letter reviewed by The Wall Street Journal that oil prices “will reach new highs.” But three weeks later, he had abandoned most of his bullish bets, said a person familiar with the matter.

Veteran oil trader Andrew Hall also bet heavily that OPEC’s strategy would work. A fund managed by his Astenbeck Capital Management LLC, a Southport, Conn., hedge-fund firm, lost 17.3% this year through April, said a person familiar with the matter.

Mr. Hall is one of a few still preaching patience. He recently wrote to investors predicting that inventory excesses would be eliminated, said the person familiar with the matter.

Astenbeck and Mr. Hall didn’t respond to a request for comment. It isn’t clear if he or anyone at his fund attended meetings with OPEC.

Oil reclaimed some momentum last week after the U.S. Energy Information Administration reported the biggest stockpile decline of the year and prices rose more than 3%.

Qualcomm Inc filed a complaint against Foxconn Technology Group and three other Apple Inc contract manufacturers for not paying royalties, firing the latest salvo in its fight with the iPhone maker.

The other manufacturers listed by Qualcomm were Pegatron Corp, Wistron Corp and Compal Electronics Inc.

Apple sued Qualcomm in January, accusing it of overcharging for chips and refusing to pay some $1 billion in promised rebates.

Qualcomm said in the complaint that Apple is trying to force the company to agree to a "unreasonable demand for a below-market direct license".

Apple could not immediately be reached for a comment.

Qualcomm said last month that Apple had decided to withhold royalty payments to its contract manufacturers that are owed to the chipmaker, for sales made in the first quarter of 2017, until the dispute is resolved in court.

"While not disputing their contractual obligations to pay for the use of Qualcomm's inventions, the manufacturers say they must follow Apple's instructions not to pay," Qualcomm said in a statement on Wednesday.

Apple has agreed to indemnify the manufacturers for any damages resulting from breaching their agreements with Qualcomm, the chipmaker said in the complaint filed in the United States District Court for the Southern District of California.

Qualcomm said it sought an order that would require the manufacturers to comply with their long-standing contractual obligations to the company, as well as declaratory relief and damages.

The chipmaker slashed its current-quarter profit and revenue forecasts in April, saying it excluded revenue receivable from the four contract manufacturers.

Qualcomm did not disclose the quantum of royalty owed to it by the manufacturers.

Qualcomm, the largest maker of chips used in smartphones, is a major supplier to Apple and Samsung Electronics Co Ltd for modem chips that connect phones to wireless networks.

Foxconn Technology Group is the trading name of Taiwan's Hon Hai Precision Industry Co, the main assembler of Apple devices.

Qualcomm's shares were marginally lower at $55.66 in premarket trading.

(Satellite Business News) — In a deal that could link up two of the richest chief executives in the world, Dish Network and Amazon are in talks that would make the giant internet retailer a foundational customer of the wireless network Dish Network hopes to launch within the next few years, Satellite Business News has learned. How close the two companies are to a definitive agreement was not certain as of press time Tuesday night.

It was also not immediately clear if the discussions also involve an investment by Amazon in Dish Network and/or its potential wireless business. By some accounts, Dish Network hopes to make an announcement regarding its wireless relationship with Amazon this week in Dallas during its annual trade show for its independent satellite retailers.

That event begins tonight, though the main session for the show is not scheduled until tomorrow morning. However, Dish Network, it should be noted, has been down to the final strokes of major agreements with other firms in the past, only to see the deals get scuttled at the last minute.

As such, it is possible a Dish Network-Amazon deal might not be consummated. If it is, it could give Dish Network’s much talked about — and some would argue, struggling — wireless spectrum fortunes a huge boost. As reported, Dish Network has spent $21 billion to acquire wireless spectrum but has no customers, and only a vague outline of a business plan centered on the idea that countless machines and devices will be connected one day under the general term, “the Internet of things.”

Amazon has repeatedly mentioned its interest in introducing new services for its existing and future devices, and maybe looking for a bigger role in determining its wireless fate rather than depending on companies like AT&T and Verizon to connect to its devices and sell its services — such as its streaming offerings.

Amazon is also believed to be interested in developing an online video service which includes live channels, and recently announced an agreement with the NFL to distribute Thursday Night Football games to its best customers on-line next season.

Such an agreement would also bring together not only two of the wealthiest people on the planet, but two of the most controversial chief executives who are nevertheless viewed by most as among the most visionary, self-made, and hard-driving executives in recent business history: Dish Network co-founder and Chairman Charles William Ergen and Amazon founder and Chairman Jeffrey Bezos. Both also have a reputation as being difficult to negotiate with, which could complicate their discussions.

And, interestingly enough, Dish Network and Amazon have also been labeled as having very rough workplace environments.

The Dish Network retailer event is slated to take place at the Gaylord Texan hotel in Dallas the next three days. For the first time in over a decade, Satellite Business News is not being permitted to cover the show. If some sort of wireless alliance is announced during the convention, satellite dealers and distributors will no doubt want to know if they will play any role in that, but also in Dish Network’s wireless business in general.

At Dish Network’s dealer show a year ago, Ergen urged the retailers to invest into becoming installers of home wi-fi equipment and networks, off-air TV antennas and similar products that would allow them to move away from being solely reliant on the company’s DBS service for their income. But in the months that followed, Dish Network shut its dealers out of participating in several new, related initiatives it launched — such as the program to sell and install its Air TV video player and an off-air antenna, and its repair of its Samsung washing machines.

That left many dealers bitter, particularly as Dish Network’s DBS service continued to hemorrhage customers and the company’s focus on its Sling TV online video service intensified.

Dish Network does not comment on corporate matters. Amazon has never responded to a single inquiry on any subject from Satellite Business News.