Twin Capital CEO David Simon on Buying Opportunities in REITs, Airline Companies
1 2 3 4 5 6 7
tananbaum likes gazprom debt
GoldenTree’s founder says Russia’s biggest
gas producer presents an opportunity:
Market Calls, page 5
Steven Cohen is said to back Gabriel Plotkin’s
fund with $200 million. 36 South is starting a
new fund targeting Australian institutions seek-
ing downside protection: page 2
market calls: revisited
How BlueMountain Capital’s bet on Lexmark
Inc. shares has paid off so far: page 4
Cevian Capital says VW’s takeover of Scania
AB would help Volvo reach targets set by the
fund: page 3
Over the hedge
Man Group triples Emmanuel Roman’s pay to
$3.4 million: page 5
CTAs and global macro funds may be poised to
benefit from positive surprises in the euro area,
according to Lyxor Asset Management: page 5
Calendar of Events: europe
Twin Capital Management CEO David Simon
on why it’s a good time to buy U.S. airlines:
By Fabio Benedetti-Valentini
Dominique Strauss-Kahn, the former head of the International Monetary Fund who
last year became chairman of a Luxembourg-based bank, is planning to raise $2 billion
for a hedge fund he’s setting up.
The move is part of efforts Strauss-Kahn, or DSK as he’s known in France, has been
making to rebuild his post-IMF life after he was charged in 2011 with criminal sex,
attempted rape, sexual abuse, unlawful imprisonment and forc-
ible touching of a chambermaid at the Sofitel hotel in Manhattan.
Strauss-Kahn, 64, denied the charges, which were later dropped,
and he settled the maid’s lawsuit in 2012.
Strauss-Kahn joined LSK & Partners last year as chairman to
help develop the Luxembourg-based company’s franchises. The
hedge fund he’s setting up, called DSK Global Investment, will be
directly managed by him and will benefit from “academic re-
search and practical knowledge, both stemming from Dominique
Strauss-Kahn’s experience as a public figure,” Mohamad Zeidan,
LSK & Partners’ chief operating officer, said in a phone interview
“It’s transparent, no leverage,” he said.
LSK & Partners aims to raise funds “on a global level” for the new
fund and a trip is planned to the Gulf region in about a month, followed by a visit to Rus-
sia, Zeidan said. Strauss-Kahn’s fund aims to attract about 20 institutional and private in-
vestors including “anything from family offices to high-net worth individuals,” Zeidan said.
DSK Global Investment’s research will be headed by Vanessa Strauss-Kahn, Domi-
nique’s daughter and a Paris-based professor of economics at ESCP Europe. LSK &
Partners hired her as an adviser while she continues with her teaching job, Zeidan said.
Strauss-Kahn, a former French finance minister and a potential presidential hopeful for
the Socialist Party in the 2012 French elections, has been taking on consultant roles.
Strauss-Kahn Plans to Raise $2 Bln Macro Fund
new mandates: Early-State Hedge Funds
0 2 4 6 8 10 12 14 16 18
Source: Bloomberg Mandates
Institutional searches for early-stage hedge funds have
increased since September, according to Bloomberg data.
Since that month, there have been an average of almost 12
such mandates, defined as searches with no requirements for
track records or assets under management, compared to an
average of four for April through August. Since October there
have been four consecutive months of 10 or more searches
for early-stage funds, a streak that is expected to continue in
March, which already has nine.
— Nathaniel E. Baker
Institutional mandates for hedge funds are now available on the
Bloomberg terminal via MND<GO>. Access is provided to Bloomberg
Anywhere clients at buyside firms. Contact your sales representative
for questions about accessing the function. For more information about
Bloomberg Mandates, e-mail firstname.lastname@example.org.
Europe News, analysis and Commentary
continued on next page
1 2 3 4 5 6 7
By Veronica Ek and Niklas Magnusson
Volkswagen AG’s planned $9.3 billion
takeover of truckmaker Scania AB may
help rival Volvo AB reach targets set by
activist shareholder Cevian Capital AB.
Volvo’s second-largest shareholder has
been lobbying the Swedish truckmaker to
streamline operations and boost margins.A
combination between Scania and VW-con-
trolled MAN SE could be a boon for Volvo,
and help the company gain market share,
Cevian Chief Executive Officer Christer
Gardell said in an interview.
“In the short term, I think the integra-
tion of the two companies would create
some confusion among the customers,”
Gardell said.A merger between Scania and
less-profitable Munich-based MAN “would
benefit Volvo,” in which Cevian has held
shares since 2006.
VW offered 6.7 billion euros on Feb. 21 for
the shares in Scania it doesn’t already own
to create a global heavy-trucks unit that can
compete with Daimler AG and Volvo.
With about 9.5 billion euros in assets un-
der management, Cevian held 11 percent
of the voting rights in Volvo as of Dec. 30
last year, according to information on the
Cevian has started shifting its portfolio
by investing in a listed company in Europe.
To free up funds for additional moves, the
investor plans to exit one of its current
holdings this year, Gardell said, declining to
identify the companies.
Gardell, who co-founded Cevian in 2002,
expects Volvo’s trucks and construction
equipment units to generate adjusted
Ebitda at a pace of at least 10 percent of
sales by the end of this year. “It would be
a disappointment otherwise,” he said. 2014
will be “a year to deliver.”
The units reported Ebita margins of 4.3
percent and 4.7 percent in 2013, respec-
tively, he said.Volvo’s operating margin
excluding restructuring charges was 2.9
percent last year, down from 6.5 percent
in 2012, according to the company’s Feb. 6
fourth-quarter earnings statement. Gardell
said that the complexity of the company
has crimped margins.
The combination of MAN and Scania
would see them overtake Volvo as the
world’s second-largest truckmaker.Even
with a new larger competitor, Volvo’s pros-
pects are positive after the Gothenburg-
based company renewed its product fleet
last year, Gardell said.
“I have confidence that Volvo, under the
leadership of Olof Persson and Carl-Henric
Svanberg, will be able to deliver,” he said.
Since Svanberg became chairman in April
2012, Volvo shares have advanced 6.4 per-
cent through March 18.They have gained
25 percent since Persson became CEO in
Cevian Says VW’s Scania Merger Will Help Volvo Profitability
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03.21.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds Europe 3
1 2 3 4 5 6 7
Marathon ‘Hates High Yield,’
COO Rabinowitz Says
Marathon Asset Management LP is
betting prices will fall in the high-yield,
high-risk bond market because interest
rates and defaults probably will rise.
“We hate high-yield – we’re actually
short high-yield,” Andrew Rabinowitz,
Marathon’s chief operating officer, said
this week on a panel at the Absolute
Return Symposium 2014 in New York. “It’s
trading at dangerous levels.”
Rabinowitz joins DoubleLine Capital
LP’s Jeffrey Gundlach and Oaktree
ment LP’s Howard
Marks in voicing
concern that the
is showing signs of
grade bonds have
returned 148 percent
since the end of
2008 as five years of
by central banks led
investors to pour
amounts of money into the market.
With borrowing costs for the least-credit-
worthy companies globally approaching
the record low of 5.94 percent, junk bonds
no longer provide enough of a buffer from
rising Treasury yields as the Fed trims its
stimulus, said Gundlach, whose Double-
Line Capital oversees $49 billion.
“They’ve squeezed all the toothpaste out
of the tube,” the bond manager said this
month in a telephone interview from Los
Angeles. “There is interest-rate risk that’s
just being masked by fund flows holding
up the prices of junk bonds.”
The amount of high-yield securities
worldwide tracked by a Bank of America
Merrill Lynch index has ballooned to
$1.97 trillion from less than $1 trillion in
Steven Tananbaum, chief investment
officer at GoldenTree Asset Management
LP, also said at the event in New York that
it will be difficult to make much money on
speculative-grade corporate debt.
“It’s going to be very hard to get more
than 5 percent returns in high-yield or
loans for the rest of the year,” said Tanan-
baum, who founded the $18 billion New
York-based investment firm.
Still, loans offer “the best value rela-
tive to bonds in 15 years” because their
interest payments are floating-rate, which
offers protection against rising interest
rates, he said.
David Sherr, the founder of One Wil-
liam Street Capital Management LP,
said at the conference that while relative
yields on junk bonds are “aggressive,”
it may be difficult to make money short-
ing the debt because it may take time
for yields to climb. Any spread widening
would then be offset by the lower risk
premiums associated with a closer matu-
rity date, said Sherr, whose One William
Street manages more than $2.5 billion.
— Jody Shenn
Tananbaum Sees Gazprom
Steven Tananbaum, chief investment
officer of GoldenTree Asset Manage-
ment LP, said OAO Gazprom presents an
opportunity amid turmoil.
Russia will do “its best” to honor the
debt of Moscow-based Gazprom, Tanan-
baum said at the Absolute Return Sym-
posium. He also said Russia’s sovereign
debt is at an “interesting level,” being
50 to 100 basis points cheaper than fair
value models suggest.
Tananbaum likened his purchases of
Russia’s biggest gas producer to invest-
ments he made in the debt of Spanish
regional authorities including Madrid last
year. Municipal debt traded at more de-
pressed levels than the country’s federal
securities and provided bigger returns
Market Calls Items may be submitted to email@example.com for consideration
BlueMountain Capital Management LLC took a 5.6 percent stake in Lexmark
International Inc. last April, at the time its biggest equity wager. Andrew Feld-
stein’s fund bought 3.56 million shares, worth about $105 million, it said in an April
26 regulatory filing (Bloomberg Brief, April 30, 2013).
BlueMountain’s bet paid off in the near-term, as Lexmark’s stock rallied by 40
percent through Aug. 13 to reach $41.11 per share, which would turn out to be its
highwater-mark for 2013. It surpassed that level in February and this week was
trading as high as $44.50 per share, its highest point since 2010.
3/1/13 5/1/13 7/1/13 9/1/13 11/1/13 1/1/14 3/1/14
Lexmark International Inc. (LXK US Equity)
BlueMountain’s Lexmark Bet Pays Off
Market Calls, Revisited Nathaniel E. Baker
03.21.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds Europe 4
continued on next page
1 2 3 4 5 6 7
over the hedge
Roman Pay Triples as Man Reinstitutes Bonus
Man Group Plc Chief Executive Officer Emmanuel Roman’s pay more than tripled last
year to $3.4 million after the hedge-fund company’s earnings rose and its share price
increased for the first time since 2009.
Roman, 50, received a salary of $1 million and bonus payments valued at $2.3 million,
the world’s largest publicly traded hedge-fund manager said in its annual report on Mon-
day. Roman’s salary was unchanged from 2012, when he received no bonuses.
Roman’s cost cuts helped push London-based Man Group’s adjusted pretax profit up
8 percent to $297 million in 2013, and he also restructured management in response to
client redemptions and losses posted by the firm’s biggest hedge fund, AHL Diversified.
The shares gained 2.7 percent last year after plunging 73 percent from the end of 2009
Finance chief Jonathan Sorrell’s pay increased 42 percent to $2.6 million, according
to the annual report. He received $625,000 in salary and $1.9 million of bonus payments
last year. Sorrell, a former Goldman Sachs Group Inc. banker, became a Man Group di-
rector in June 2012, so his salary of $336,407 for that year only reflects about six months,
the company said.
The board awarded Roman’s bonus payments based on the CEO meeting objectives
such as cutting jobs, overhauling management and increasing sales of investment prod-
ucts, according to the annual report. The company fell short of its targets for revenue and
earnings growth, the report said.
— Jesse Westbrook
■■ All hedge fund strategies posted
positive returns in February, accord-
ing to a report by EurekaHedge
Pte. Long-short equity managers
delivered gains of 2.4 percent, while
distressed debt funds posted gains
of 2.3 percent, the eighth consecu-
tive month of positive returns, the
report, published on March 11, said.
Multi-strategy, arbitrage and fixed
income hedge funds rose 1.6 per-
cent, 1.2 percent and 1.2 percent,
respectively, while managers de-
ploying macro strategies rebounded
from their January losses to finish
the month with gains of 1.3 percent,
the report said. Managers utilising
systematic or trend-following strate-
gies posted gains of 2.2 percent
during the month, the report, titled
the ‘Eurekahedge March Index
■■ CTAs and global macros appear
to be particularly well-positioned
to benefit from positive surprises
in the euro area if the recovery ac-
celerates, according to a report by
Lyxor Asset Management. “These
views are expressed through long
positions in equities and sovereign
bonds,” Philippe Ferreira, head of
research of the managed account
platform, said in the report. Long-
short credit funds would also post
gains on the tightening in euro area
credit spreads given “significant
exposures” to Greece, Ireland and
Portugal, the report, based on data
as of Feb. 18, said. Concerns over
emerging markets are “very unlikely”
to impact hedge fund performance,
the report, published on March 11,
said. “CTAs and long-short credit
funds would be mostly negatively
impacted by the rise in EM bond
spreads. The fall in EM currencies
would also generate losses for
CTAs,” Ferreira said in the report,
titled ‘Stress Testing Hedge Fund
Portfolios: Resilience is a Virtue’.
— Darshini Shah
when it recovered, he said.
The founder of the $18 billion, New York-based investment firm also said phone-book
publishers are “at an inflection point.” GoldenTree, the second-largest investor in Cana-
da’s Yellow Media Ltd., sold about 43 percent of its shares in the publisher from October
to Jan. 7, according to data compiled by Bloomberg.Yellow Media handed control to
creditors in 2012 in exchange for writing down most of its debt. Its stock has more than
doubled in the past year.
“I wish there’d be another opportunity like Yellow Media in Canada,” Tananbaum said in
an interview following his panel appearance.
Italy’s Seat Pagine Gialle SpA may follow a similar recovery, he said during the panel
discussion. Like Yellow Media, Seat swapped debt for equity as part of a bankruptcy plan
that that will help it shift more of its business to digital media, Tananbaum said.
— Cecile Gutscher and Jody Shenn
Gottlieb Says He Likes Consumer Stocks Including Nike
Jacob Gottlieb, founder of $6.5 billion hedge-fund firm Visium Asset Management LP,
said Nike Inc. is among the consumer stocks he likes.
Gottlieb also likes technology stocks, especially those with a “mobility, Internet and retail
theme,” he said on a panel discussion at the Absolute Return Symposium this week.
— Saijel Kishan
ONE CLICK FL
03.21.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds Europe 5
continued from previous page
1 2 3 4 5 6 7
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03.21.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds Europe 6
1 2 3 4 5 6 7
David Simon, founder and chief executive
officer of New York-based Twin Capital Man-
agement, spoke to Nathaniel Baker about his
quarter century of investing experience and
why REITs and airlines are worth buying.
Q:The fund has been around for a
while. How did you get your start?
A: I worked as a corporate attorney for
two years and then I went to Spear Leeds
& Kellogg. I worked for Dave Nolan, who
was the head of the entire trading opera-
tion. He was a great person to learn from
because it taught me a style of investing
that differentiates us from everybody else.
We look for the best risk/reward opportu-
nity rather than just mechanically putting
on a standard risk arbitrage spread. I
worked for Dave for two years and then
I went to Mercury Securities, which was
run by Hank Bayer and Bill Hyman. After
the crash of 1987 I started trading my own
account very aggressively. I started Twin
Securities in 1988 and ran in the form of
managed accounts that all traded pari
passu until 1995. Then I converted it to
Twin Securities LP. In 2002 I formed Twin
Offshore Limited. That brings us up to
today. I’ve been in business for 26 years
and only had one down year, 2002.
Q:You were up in 2008?
A: Yes we started that year horribly. Were
down 6.75 percent in January and ended
up returning over 6.5 percent on the year.
Q: Okay so tell me about the strategy?
A: It really goes into three buckets: special
situations, risk arbitrage, and undervalued
with a catalyst. We like to say that a lot of
our ideas are risk arb-centric. We made a
lot of money last year from risk arbitrage
announcements. We made it from buying
either both the acquirer and the target or
just the acquirer. We were more profitable
last year just buying the acquirer.
Q: Why is that?
A: Because the deals were so accretive
and were so positive for the acquirer.
The synergies and everything else were
just amazing. Also cash is worth zero.
Twin Capital CEO Simon on Buying Opportunities in REITs, Airline Companies
Hometown: Livingston, New Jersey
Education: Muhlenburg College, University of Miami Law School
Hobbies: Golf, tennis, working out
Charitable Work: Vice Chairman of HELP USA Charity Golf Outing
Recommended Recent Reading: Steve Jobs’ biography
Favorite New York City Restaurant: Carbonne
Who will win the NCAA men’s basketball tournament: Florida
Your cash in the bank is earning 25 basis
points and if you buy a company you get
over an 8 percent return using your cash
right away providing you pay a reasonable
price. It’s a good time to do acquisitions.
Q: Is there any type of sector focus?
A: No, we play just about everything. We
tend to concentrate. We think there are
three ways to make money in the stock
market: Be totally long and hope it goes
up, be very leveraged and try to squeeze
blood from a stone, or concentrate your
best ideas. We look at it in the context of
a bond portfolio of 50 bonds. 15-20 are
rated AAA and 30-35 are rated B or below
and they all yield 8 percent. Why would I
want to own, for the sake of diversification,
the other 30-35? We want to own 15 to 20
situations or stocks, knowing them better
than everybody else through deep-dive re-
search, which entails meeting every CEO
and knowing every competitor, so we
aren’t surprised. We can take advantage
of lulls versus positive times, to get longer
or try to hedge out risk if we believe the
catalyst we are wainting for has a longer
time horizon. Things like that.
Q: How long do you hold stocks?
A: The average holding period is about
four to six months.
Q: Where are the opportunities now?
A: We think there’s a lot of opportunity in
the REIT space, such as private REITs
selling to public REITs, and REIT conver-
sions such as outdoor advertising com-
panies. We believe some will go through
and some won’t. We like to think we are
picking the ones that will go through and
are very undervalued. The reason they’re
undervalued is that the government put a
hold on allowing these things to happen
for about nine months until it came up
with rules. We think they’re going to start
approving them shortly. We think there’s a
big opportunity in the rental car business
and airlines. There are now three major
airlines and three major rental car compa-
nies. All these industries are not looking
to undercut one another and they realize
that they all need to make money. Airlines
for years didn’t make money. Now they
should consistently make money.
Q: Because there’s less competition?
A: And there’s less capacity. They have
more efficient planes. It’s really become a
much smarter business. It’s not something
where travelers are that comfortable. The
average coach seat I think went from 18
inches to 15 inches. The old coach seat
is in first class now. They’re squeezing
everything they can out of the business. It
could be very profitable.
Q: What about the fundraising side?
A: We grew the fund over the last year
and a half from about $350 million to $700
million and stopped taking new money
until we staffed up. We recently added an
excellent new CFO and we were fortunate
that one of our analysts who left us two
years ago has rejoined us. We believe in
controlled growth and now that we are
fully staffed we hope to continue to add to
our funds under management.
03.21.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds Europe 7
Economics ChinaBrief London (free brief)
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Healthcare Finance Oil Buyer’s Guide Bankruptcy & Restructuring