Tyrus Capital hit hard by large bet on NXP Semiconductors
Monaco hedge fund bore significant losses from investment in Dutch chipmaker
Tony Chedraoui stood on stage in front of his hedge fund industry peers at the Monaco yacht club last year to deliver one of his top investment ideas. A Dutch company called NXP Semiconductors, he told the audience at the Sohn Conference, a charity fundraising fixture, had “very low” downside and potentially double-digit upside.
Just over a year later, Mr Chedraoui’s Monaco-based hedge fund Tyrus Capital is dealing with the aftermath of a half-a-billion dollar bet that went very wrong.
The presentation, made in front of peers and prospective clients, turned into the latest blow for Tyrus, which in 2012 paid $5m to settle a regulator’s fraud allegations in Brazil and during 2014 suffered a heavy paper loss betting on an aborted takeover of Shire.
According to data from public filings, Tyrus, which is distinctive for being based in Monaco rather than a more established financial centre, was one of a number of hedge funds that bet heavily on NXP.
Confidence came from two fronts: NXP had an agreed takeover offer from Qualcomm, the US semiconductor company, and the chip sector had rallied since that deal was struck in October 2016. Either Qualcomm would have to improve its offer, or NXP would remain independent but be buoyed by the broader rally.
By the middle of 2017, when Mr Chedraoui promoted his NXP trade, the shares were trading above the $110 Qualcomm offer price.
By February 2018, Qualcomm revised its takeover offer to buy the company to $127.50, raising the deal value to $44bn.
But things took an unexpected turn. NXP shares sold off sharply in the months that followed, as fears emerged that the deal would be caught up in US president Donald Trump’s trade war with China. By July, those fears proved accurate as Qualcomm scrapped its takeover plans after failing to get approval from Chinese authorities.
NXP’s shares have fallen 24 per cent from their February high.
The losses on NXP have ricocheted across the industry, hurting a number of high-profile investors, including Paul Singer’s Elliott Management, and serving as a reminder that even seemingly sure-fire bets can backfire.
Multiple investors who held NXP shares have told the Financial Times that their funds were blindsided by Sino-US tensions over trade, which many cite as the reason for the deal’s collapse.
Public filings show that Tyrus sold its entire position before that happened. Tyrus held 4.3m shares in NXP at the end of the first quarter this year. By the end of the second quarter, the fund had sold off its entire shareholding.
The losses were significant for Tyrus and for Mr Chedraoui, a former director of mergers and acquisitions at Lehman Brothers, who subsequently worked as a portfolio manager at the hedge fund Deephaven Capital Management before he founded Tyrus in 2009.
At one point in the first quarter, Mr Chedraoui bet $508m of his fund, a significant proportion of Tyrus’s assets under management, which stood at $1.7bn in February, according to US regulatory filings and data from HSBC.
Tyrus did not provide comment for publication.
After April, Tyrus’s performance numbers no longer appeared in a weekly report compiled by HSBC, which leading hedge funds use to report their investment returns to prospective clients.