BloombergBrief HF Newsletter 201459

8/10/2019 BloombergBrief HF Newsletter 201459

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INSIDE

PROSIRIS RISES IN JULYThe Prosiris Global Opportunities Fund is up5.6 percent this year after a 0.4 percent gain inJuly; Returns in Brief: page 2

ON THE MOVEOri Hershkovitz is leaving Sphera Funds Man-agement after seven years; Kite Lake CapitalManagement hires Nick McEwen: page 3

FUNDRAISINGMultistrategy firms have raised a net $29.5billion in the first half of this year, according toHedge Fund Research. This compares withoverall net inflows of $57 billion in the first halfof this year, the research showed: page 4

FROM THE MINUTESThree presentations by AQR Capital Manage-ments Cliff Asness for Arizona State Retire-ment Systems Aug. 18 investment committeeare included as reference material in the meet-ing agenda packet: page 4

REGULATORY/COMPLIANCEThe London office of York Capital Managementmay face civil charges from Spanish regulatorsfor allegedly using a banned trading techniquebefore last years bailout of Bankia: page 5

CALENDARpages 6-7

SPOTLIGHTPhillip Schaeffer, senior portfolio manager atScotts Cove Management, on opportunities insmaller-size bond issues: page 8

BY ALASTAIR MARSH AND JULIE MIECAMP

John Frank, the managing principal of the worlds largestdistressed-debt investor Oaktree Capital Group LLC, says hesunderwhelmed by the record amount of bad loans being offloadedby European banks.

While disposals accelerated this year, the flow of new assets intothe market is more of a trickle than the flood the Los Angeles-based firm initially expected, Frank said in a phone interview.

Europes lenders will sell 100 billion euros ($131 billion) of loansincluding non-performing debt this year, according to Pricewater-houseCoopers LLP, up from 64 billion euros in 2013 and the mostsince they started shedding problem assets in 2010.

A lot of folks, par ticularly a lot of American investment managers, raised a lot of moneyto take advantage of what was anticipated to be a very substantial flow of loans fromthose banks, said Frank. The avalanche anticipated didnt materialize.

Oaktree, which manages $91 billion, is among international investors including LoneStar Funds and Cerberus Capital Management LP that have piled into Europe in searchof bargains. Banks are tidying balance sheets before stress tests that will determine theirability to withstand another crisis while the European Central Bank reviews the quality oftheir assets before taking over as the regions banking supervisor in November.

A rise in the price of some soured loans is also encouraging banks to sell off the debt,according to Richard Thompson, a partner at PwC in London.

Competition for the assets is increasing, according to Frank, encouraging the firm to

look for additional areas in which to invest the $10.2 billion it set aside for European pur-chases. Areas of focus include shipping and real estate, he said.

We continue to think Europe will provide a substantial quantum of attractive invest-ment opportunities for all of our strategies and in particular real estate, private equity anddistressed debt, said Frank.

Oaktree Sees Trickle of European Debt Disposal

John Frank

NEW MANDATES

11

18

2622

30

1117

45

64

106

95 95

49

63

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014

Ratio

NewMandateCoun

t

Distressed Debt All Hedge Funds Ratio

Source: Bloomberg Mandates

Institutional searches for distressed debt hedge funds haverebounded this quarter with 17 mandates so far, correspond-ing to 27 percent of all hedge fund searches. This is anincrease from the second quarter when there were just 11such mandates, corresponding to 22 percent of all hedge

fund searches, matching the lowest number since Bloombergbegan tracking the data.

Nathaniel E. Baker

Institutional mandates for hedge funds are now available on the Bloom-berg terminal via MND. Access is provided to Bloomberg Any-where clients at buyside firms whose primary responsibility is to marketin-house alternative investment funds. Contact your sales representa-tive for questions about accessing the function. For more informationabout Bloomberg Mandates, e-mail [email protected].

BRIEFHedge Funds

NEWS, ANALYSIS AND COMMENTARY09.02.14www.bloombergbriefs.com

or use by [email protected] only. Redistribution only allowed with firm license. Call +12126179030 o.


2/9

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RETURNS IN BRIEF

Prosiris Capital Management LLC, the $1.8 billion credit hedge-fund firm foundedby former Goldman Sachs Group Inc. trader Reza Ali, rose 0.4 percent in July and 5.6

percent this year in its Prosiris Global Opportunities Fund, according to a person familiarwith the matter. Ali started Prosiris with $50 million in July 2011 after heading the Ameri-cas principal funding and investments group at Goldman Sachs. Ali declined to comment.

TIG Securitized Asset Fund climbed 1.5 percent in July and 11 percent this year, ac-cording to a person familiar with the matter. The fund is par t of TIG Advisors LLC, theNew York-based multistrategy hedge-fund firm. We are still quite favorable on structuredproducts broadly speaking as we see opportunistic situations in most asset types andample areas of over valued assets, Stuart Lippman, the firms chief investment officerand money manager of the $650 million fund, wrote in an e-mail. Lippman and David Liustarted the fund in October 2012.

Kelly Bit

Helios Strategic Fund, which runs a long-short equity strategy, has returned 36 percentthis year through the end of July. Samir Arora, Singapore-based founder of Helios Capi-

tal Management Pte., declined to disclose the assets for the fund that star ted in 2005. Forefront Capital Management Pvt.s Forefront India Dynamic Value Fund has

returned 14 percent this year through the end of July, and 30 percent since its start inAugust 2013, said Radhika Gupta, co-founder and business head at the Mumbai-basedfirm. Forefront was founded in 2009 and bought by Indian service provider EdelweissFinancial Services Ltd. this year.

Kuvera Fund Ltd., a long-short strategy that invests in Indian equities, has returned11.5 percent this year to the end of July, according to Raju Kamath, a London-basedmanager at Kuvera Capital Partners LLP.

Klaus Wille

We saw in 2007 that it was agenerational time to reduce longsand to increase shorts. We dontfeel that today.

Phillip Schaeffer, senior portfolio man-

ager, Scotts Cove Management

(see Spotl ight,page 8).

QUOTE OF THE WEEK

Call +1-212-617-9030 or visitwww.bloombergbriefs.com

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Hedge Fund Index ReturnsSTRATEGY BLOOMBERG INDEX CODE 2013 2014 JULY 2014

Asset-Backed Securities BBHFASTB 13.0 7.5 0.7

Capital Structure Arbitrage BBHFCRED 14.3 7.3 0.3

Long-Biased Equities BBHFLONG 9.8 7.2 -0.4

Distressed Securities BBHFDIST 12.7 6.9 -0.1

Event-Driven/Special Situations BBHFSPEC N/A 6.0 0.4

CTA/Managed Futures BBHFMGDF -8.4 5.8 -0.6

Mortgage-Backed Arbitrage BBHFMARB 5.1 5.4 0.7

Multi-Strategy BBHFMLTI 6.8 4.4 -0.1

Convertible Arbitrage BBHFCARB 2.6 4.3 0.1

Fixed-Income BBHFFIXD N/A 4.4 0.4

Long-Short Equities BBHFLSEQ 10.7 3.0 0.3

Global Aggregate Hedge Funds BBHFUNDS 7.4 2.5 0.0

Merger Arbitrage BBHFMERG 6.4 2.1 -1.6Global Macro BBHFMCRO -2.2 1.6 0.6

Fixed-Income Arbitrage BBHFFARB 5.9 1.5 0.3

Fund of Funds BBFHFNDS 8.0 1.0 -0.4

Emerging Market Equities BBHFEMEQ -5.3 0.4 -0.4

Market-Neutral BBHFMNFL 5.7 -0.1 -0.7

Emerging Market Debt BBHFEMDB -5.5 -0.5 0.2

Equity Statistical Arbitrage BBHFSTAT 5.17 -4.4 -2.1

Short-Biased Equities BBHFSHRT N/A -9.1 0.2

Source: BAIF Information on methodology available on the Bloomberg terminal under IDOC #2072204.

09.02.14 www.bloombergbriefs.com Bloomberg Brief | Hedge Funds 2

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3/9

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Hershkovitz to Leave ResearchPost at Israeli Fund Sphera

Ori Hershkovitz, head of pharmaceu-tical research at Sphera Funds Man-agement Ltd., is leaving after sevenyears of stock-picking at Israels largesthedge fund.

Hershkovitz, who frequently spoke outagainst management decisions at TevaPharmaceutical Industries Ltd., declinedto discuss the reasons for his depar-ture when contacted by Bloomberg bytelephone. He will be replaced by DavidMunno, who is shifting from WexfordCapital Fund, Tel Aviv-based Spherasaid in a statement.

Were parting on good terms and Iwish them all the best, said Hershkov-itz, who will step down at the end of thisyear. Im taking some time off for now.

The Sphera Global Healthcare fundmanages more than $450 million for

private and institutional investors. It wasestablished by health-care investor Mori

Arkin, Sphera and Hershkovitz in 2007.Munno has been serving for the past

two years as head of the health divisionat Wexford, which has $4 billion in as-sets under management.

David Wainer

Kite Lake Hires FormerCo-CEO of OVS Capital

Kite Lake Capital ManagementLLP , the London-based event-drivenhedge fund firm, has hired Nick McE-wen as a partner and head of busi-ness development.

McEwen started at Kite Lake on Aug.26, he said in an e-mail.

McEwen was previously co-chief ex-ecutive officer of OVS Capital Manage-ment LLP, a London-based event-drivenfirm. OVS started trading in October

2010 with $8 million and grew to man-age more than $500 million in 2012

before soft-closing to new investors.The firm shut down in April after founderSam Morland decided to retire. Prior toOVS, McEwen was a managing director aRevere Capital Advisors LLC.

Kite Lake Capital was founded in July2010 by Massi Khadjenouri and JanLernout. Before co-founding Kite Lake,Khadjenouri was chief investment officerof London-based Cheyne Capital Man-agement LLPs Special Situations Fund,while Lernout was a portfolio managerfocused on credit investments in thespecial situations group at Cheyne fromMarch 2005 to March 2009.

Kite Lake has returned 5.6 percent thisyear through the end of July and an an-nualized 9.1 percent since its inceptionin February 2011.

Darshini Shah & Lindsay Fortado

ON THE MOVE ITEMS MAY BE SUBMITTED TO [email protected].


http://brief.tkr.me/BofA080214


4/9

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Three presentations by AQRCapital Management LLCs CliffAsness for Arizona State Retire-ment Systems Aug. 18 invest-ment committee are included asreference material in the meetingagenda packet. The presentationsare Investing with Style, AlternativeRisk Premia Today, from August2014, Is Alpha Just Beta Waitingto be Discovered, from 2012 andUnderstanding Style Premia, fromlast October.http://bit.ly/1w1OxCB (see agenda item #3)

Texas State Board of Educa-tion agreed to extend its contractwith Mesirow for 18 months and thecontracts with Grosvenor Capi-tal Management and BlackstoneAlternatives Asset Management fortwo years on July 18, according to asummary of action items.http://bit.ly/1x5E7Cr

Texas County & District Retire-ment Systemcommitted $50 mil-lion to Highline Capital Partners LPand $10 million to Lakewood CapitalPartners LP on July 1. It was TC-DRSs second commitments to thefunds this year and ninth and 10thhedge fund commitments of 2014.http://bit.ly/z8Tqsh

Orange County EmployeesRetirement Systemwas scheduledto hear presentations from CQSsPeter Warren and Andrew Hahn andTricadia Capital Managements DanBradley and Chris Gates at its Aug.28 investment manager monitoring

subcommittee meeting, according tothe agenda.http://bit.ly/1qlmAkL

For news on mandates type NI MANDATEon the Bloomberg terminal

FROM THE MINUTES

Citadel, Hutchin Hill Leading Funds Raising Most Since 07

Multistrategy firms, which returned 4.4 percent through July 31, compared with 2.5 percentfor hedge funds overall, are the most popular this year, attracting a net $29.5 billion in thefirst half of this year, according to Hedge Fund Research Inc. This compares with overall netinflows of $57 billion in the first half of 2014, the research showed.

Pension funds see multistrategy hedge funds as a one-size-fits-all investment, said BradBalter, head of Boston-based Balter Capital Management LLC. Its very difficult right nowto identify attractive opportunities, so they are letting the manager make the tactical decisionsrather than wait for their own investment committees to re-allocate capital.

Hutchin Hill Capital LP,the New York-based multistrategy firm founded by math doctorateturned fund manager Neil Chriss, has doubled assets by attracting $1.2 billion this year.

Och-Ziff Capital Management Group LLCpulled in a net $3 billion into its hedge funds in2014, even as it warned shareholders that it was being investigated for investments in a numberof companies in Africa. Its main fund returned 2 percent in the first seven months of the year.

Chicago-based Citadel LLC, run by billionaire Ken Griffin, helped spark a backlash

against multistrategy funds after it lost 55 percent in 2008, one of the worst hedge funddeclines stemming from the financial crisis. Six years later, its $22 billion in assets have sur-passed its previous peak in 2008.

Its main hedge fund, which is up 9.9 percent this year, has pulled in a net $1.2 billion in2014, even though its limiting inflows primarily to sovereign wealth funds, according to aninvestor. The firms Global Fixed Income fund, run by Derek Kaufman, attracted $2.7 billion.

Millennium Management LLC, founded by Israel Izzy Englander, has collected a net$2.6 billion this year, after only taking in enough money to replace client withdrawals in 2013.The New York-based firm, which manages $23.5 billion, decided to raise money again be-cause its adding more teams to the 150 that currently work at the firm. The fund has climbedabout 4.2 percent this year and has posted an annualized return of 14.6 percent since Janu-ary 1990, said investors.

The popularity of the multimanager, multistrategy approach that Millennium helped pioneera quarter-century ago has been a boon to some smaller managers. Dmitry Balyasnys Chi-cago-based Balyasny Asset Management LPattracted $1.5 billion this year, bringing total

assets to $5.9 billion, while Jacob Gottliebs New York-based Visium Asset ManagementLPpulled in $700 million into its multistrategy fund this year, after raising $1 billion in 2013.

Its not just multistraegy firm that are proving popular. Event-driven funds continue to attractinvestors this year as the strategy gained 6 percent through July. P. Schoenfeld Asset Man-agement LP climbed to $4.1 billion in assets as clients invested a net $1 billion.

A few start ups have also received a billion dollars or more this year, in part because theyare coming out of firms with strong track records. Herb Wagner, who started FinePointCapital LPthis year and raised $2 billion, was a co-portfolio manager at Baupost GroupLLC, the Boston-based firm run by Seth Klarman. Matthew Sidmanopened Three BaysCapital LP, another Boston firm, in January and is now managing $1.2 billion. He worked atJonathon Jacobsons Highfields Capital Management LPfor 14 years.

Spokesmen for all the firms declined to comment on inflows and performance. Katherine Burton

FUNDRAISING

FIRMPORTFOLIOMANAGER

NET INFLOWS($B)

AUM($B)

Citadel LLC Ken Griffin 3.9 22.0Och-Ziff Capital Management Group LLC Dan Och 3.0 45.7Millenium Management LLC Israel Englander 2.6 23.5FinePoint Capital LP Herb Wagner 2.0 2.0Balyasny Asset Management LP Dmitry Balyasny 1.5 5.9Hutchin Hill Capital LP Neil Chriss 1.2 2.5Three Bays Capital LP Matthew Sidman 1.2 1.2Passport Capital LLC John Burbank 1.0 3.9P. Schoenfeld Asset Management LP Peter Schoenfeld 1.0 4.1

Source: Bloomberg




5/9

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REGULATORY/COMPLIANCE

York London Office Said to Be Probed by Spain Over Trade

The London office of James Dinans York Capital Management LPmay face civilcharges from Spanish regulators for allegedly using a banned trading technique beforelast years bailout of mortgage giant Bankia SA.

The Comision Nacional del Mercado de Valores, or CNMV, notified Dinans firm inMarch it was scrutinizing a May 2013 short sale by the York European Focus Fund,according to a regulatory filing. The stock involved was Bankia, according to a person fa-miliar with the matter. In December, the Spanish regulator started a probe into bets madeagainst Bankia shares before May 23, 2013, when the stock plunged 51 percent afterterms of a government bailout were disclosed.

The civil charges against York would be one of the first cases filed under a new regula-tory code adopted by the European Union in 2012 to restrict short selling. I have notseen a single case of even threatened enforcement under the EUs new short sale rule,said Christopher Leonard, an attorney at Bingham McCutchen LLP. It was inevitable thatat some point someone would contravene the regulation, accidentally or on purpose, and

that a regulator would seek to take action.Richard Swanson, Yorks general counsel, declined to comment.In a regulatory filing, York said the trade was reviewed by its compliance department

and other parties, and that there were circumstances outside its control that prevented atimely delivery of shares to execute the trade. The CNMV as a policy does not commenton its supervision process, according to a spokeswoman for the regulator. The CNMV isconsidering filing civil administrative charges against York Capital Management Europe(UK) Advisors LP for failing to cover a short position in a timely manner, documents Yorkfiled with the U.S. Securities and Exchange Commission show. It is the firms positionthat the failure of timely delivery was on account of circumstances completely outside ofits control, New York-based York, which oversees about $19 billion, said in the filing.

Miles Weiss

Consultant Charged With 13 Counts of Insider TradingA consultant for investor relations firm Lippert/Heilshorn & Associates Inc. was

charged with trading on inside information he took from draft press releases for sevenclients of the company.

Michael A. Lucarelli, who served as LHAs director of market intelligence, is chargedwith 13 counts of insider trading. He was arrested Aug. 26 at his Manhattan home andlater released from custody on $500,000 bond after appearing in Manhattan federal court.

Lucarelli made more than $538,000 from insider trades in the stock of Trex Co., FABUniversal Corp., PhotoMedex Inc., LCA-Vision Inc., Pacific Ethanol Inc., Dot Hill Sys-tems Corp. and Lifetime Brands Inc., according to a criminal complaint. According to thecomplaint, Lucarelli traded on information he got from press releases in which co-workerswere preparing to announce corporate events including earnings and mergers. Lucarellimade trades from his office computer in four brokerage accounts, prosecutors said.

FBI agents searched Lucarellis LHA office on July 24, the complaint said. Inside alocked briefcase they found a draft release of Trex financial results. The agents photo-

graphed the document and returned it to the briefcase. Lucarelli later made $89,487 trad-ing in Trex stock after the final press release was issued, according to the complaint.

In court last week, Assistant U.S. Attorney Brian Blais said agents seized an unidenti-fied white powder believed to be drugs in their search.

Lucarellis lawyer, Oscar Michelen, declined to comment on the charges.In a related case, Lucarelli was sued by the U.S. Securities and Exchange Commission,

which accused him of making illicit profits of more than $950,000 in about a year. TheSEC identified six additional stocks Lucarelli allegedly traded in using inside tips. PeterMirabella, LHAs chief financial officer, didnt return a message seeking comment.

Bob Van Voris

Hedge Funds Hunt Clueson U.S. Tax-Inversion Limits

Tax lawyer Robert Wellens tele-phone keeps ringing with calls fromhedge-fund officials hes never met.

Theyre desperate for clues aboutthe Treasury Departments plannedcrackdown on corporate inversions.

It was completely from no placethat these people called us, saidWellen, a partner at Ivins, Phillips& Barker. These folks were reallytrying to get whatever insights theycould, from whoever they could.

Wellen is one of many lawyers,

lobbyists and political intelligencespecialists hounded by invest-ment firms since President BarackObama said this month the Treasurywould study action to limit inver-sions. The firms are worried aboutbillions of dollars of trades theyveplaced on mergers, and the poten-tial that new regulations could sourthe investments. The uncertaintyabout what Treasury might do hasleft markets guessing while allowingObama to shine a spotlight on thedeals as Novembers congressional

elections near. Democrats in par-ticular have seized on inversions asan example of corporate behaviorthat hurts average taxpayers. Con-gress is deadlocked on a Democrat-ic proposal to end the practice.

The hedge funds reaction showsthe difficulty of balancing the ad-ministrations policy goal of prevent-ing inversions with election-yearpolitics, Stephen Myrow, managingpartner of Beacon Policy Advisors,and other analysts said.

The biggest group of hedge fundsaffected by the debate employ a

merger arbitrage strategy. Otherfunds paying attention are investedin a particular industry, like healthcare, where many of the inversiontakeovers have been occurring.Some with more general strategiesalso are moving into mergers, see-ing an opportunistic investment.

Robert Schmidt and Richard Rubin




6/9

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DATE EVENT FEATURING LOCATION CONTACT / REGISTRATION

Sept. 10 China Forum 2014Theodore Shou, Skybound Capital; Qing Wang,Chongyang Investment Management; LingYang, Star Rock Investment Management.

Grand Hyatt Hotel,Shanghai

http://bit.ly/1mcLsKz

Sept.14-16

Institutional Investor's 11th AnnualFamily Office Wealth Conference

David Levy,Jerome Levy Forecasting Center;Ron Suskind; Shaun Tomson.

Montage Resort & Spa,Laguna Beach, Calif.

http://bit.ly/1lKKwvk

Sept. 15UBSs Flagship Global Hedge FundConference

Capital introductions event.New York (locationprovided to attendees)

Private event by invitation only.

Sept.15-16

BHA Select Hedge Funds: Boston "Private, invitation-only cap intro event" Fenway Park, BostonManagers may apply online at:http://bit.ly/1jypcJ1

Sept.16-18

Morgan Stanley Global Hedge FundManager Forum

Capital introductions event.Greenwich (locationprovided to attendees)


Sept.17-18

Financial Research Associates' Estab-lishing a '40 Act Alternative Fund

"The ultimate guide to tapping into the growingliquid alternative space."

Princeton Club,New York

http://bit.ly/SbBOdZ

Sept.17-19

Institutional Investor'sEuropean Investment Roundtable

Gustaf Hagerud, AP3; Martin Sanders, UnileverPensioenfonds.

Ritz Carlton,Berlin

http://bit.ly/1rXLgz9

Sept. 18,12:15pm

HFC's Help Fore Children GolfTournament

Eighteen hole scramble tournament, dinner.Presidio Golf Course,San Francisco

www.hedgefundscare.org

Sept. 18iGlobal Forum's Distressed DebtInvesting Summit: Europe

Adam Shah, Starwood Capital; Gali Velimukha-metova, GLG Partners; Cutler Cook, PAAMCO;Khing Oei, Eyck Capital.

The Waldorf Hilton,London

http://bit.ly/1hyMkrR

Sept. 18 Capital for Kids Sponsor Party2014 advisory board includes Kyle Bass, ClintCarlson, Lee Hobson.

Dallas (location pro-vided to attendees)

www.capitalforkids.org

Sept.21-23

Alpha Hedge WestBrian McQuade, Calpers; Gareth Henry,Fortress; Ronnie Jaber, Carlyle; Andrew Ross,PAAMCO; Sean Bill, City of San Jose.

Ritz Carlton,San Francisco

http://bit.ly/1fmLw1m

Sept. 22Catalyst Cap Intro: L/S Equity | EventDriven

Introductions through private meetings ar-ranged prior to the event

Capital Grille WallStreet, New York


Sept.23-24

Mercer's Global Investment Forum Keynote speaker Brad Katsuyama, InvestorsExchange.

Toronto (location pro-vided to attendees)

http://bit.ly/1oQ7GQm

Sept. 24Hedge Funds Care's UK Golf at TheGrove

Golf tournament.The Grove Golf Course,Hertfordshire

http://bit.ly/1kL1dUw

Sept.29-30

Quant Invest 2014"The premier business event in Europe forquant and CTA investors and managers."

The Dorchester Hotel,London

http://bit.ly/1ii8aJU

Sept. 30FBN Securities Capital IntroductionEvent

Invitation-only capital introduction event.New York (locationprovided to attendees)

Greg Naso, [email protected]

Sept. 29-Oct. 1

Context Summits West 2014Focused on meetings between managers andinvestors, with speakers only during meals.

St. Regis MonarchBeach, Dana Point, CA

http://bit.ly/1j2LCOD

Oct. 7Great Investors' Best Ideas Founda-tion Symposium Dallas

Bill Ackman, David Einhorn, Richard Perry,Boone Pickens.

Dallas (location pro-vided to attendees)

www.gibidallas.com

Oct. 8

A Leg To Stand On's 3rd Annual

Rocktoberfest Chicago

"Rock & roll and acoustic music performed by

key players in the hedge fund industry."

Crossroads at House

of Blues, Chicago http://bit.ly/1hfotx2

Oct. 9Wells Fargo Prime Services ManagerSymposium

Full day, closed-door manager meetings.New York (locationprovided to attendees)

E-mail [email protected]

Oct.14-16

Context Summits Las Vegas 2014 Liquid alternatives.Cosmopolitan,Las Vegas

http://bit.ly/1j2M7rW

Oct.14-16

Morgan Stanley European HedgeFund Forum

Capital introductions event.Paris (location pro-vided to attendees)


Oct . 15 HFA's Women in Hedge Funds Agenda and speakers to be announced.New York (locationprovided to attendees)

[email protected] more information.

CALENDAR TO SUBMIT AN EVENT E-MAIL [email protected]



continued on next page


7/9

1 2 3 4 5 6 7 8 9

CALENDAR...

DATE EVENT FEATURING LOCATION CONTACT / REGISTRATION

Oct. 16 MFA Outlook 2014 Agenda and speakers to be announced.The Pierre Hotel,New York

http://bit.ly/1n2FxZa

Oct.21-23

Salt Asia Conference John Paulson, Ben Bernanke, Larry SummersMarina Bay Sands,Singapore

www.saltconference.com

Oct.20-22

Global Arc BostonSpeakers include Myron Scholes, JosephStiglitz, Paul Volcker.

Boston www.global-arc.net

Oct.22-23

Goldman Sachs Asset ManagementSymposium

Agenda and speakers to be announced. New York Private event by invitation only.

Oct. 22,6:45pm

A Leg To Stand On's 11th AnnualRocktoberfest NYC

"Rock & roll and acoustic music performed bykey players in the hedge fund industry."

Capitale,New York

http://bit.ly/1i69rVs

Oct.23-24

Sohn Canada/Capitalize for KidsLee Ainslie, Larry Robbins, Jamie Dinan, MarcLasry.

Trump InternationalHotel & Tower, Toronto

www.capitalizeforkids.com

Oct.28-30 Alternative Asset Summit 2014 Agenda and speakers to be announced. Caesar's Palace,Las Vegas http://bit.ly/V0W6IX

Oct. 29,2:30pm

Sohn Conference San FranciscoPeter Thiel; Sandy Colen, Apex Capital; ScottFearon, Foundation Partners; Meridee Moore,Watershed Asset Management.

The Bently Reserve,San Francisco

www.excellencesf.org

Oct. 30 AsiaHedge Awards 2014"Celebrate the top performing hedge funds inthe Asia-Pacific hedge fund industry"

Island Shangri-La,Hong Kong

http://bit.ly/1r4fG4u

REGISTER TODAY: Tel:+44 (0)20 7017 7790Fax +44 (0)20 7017 7824 Email: [email protected]

For the latest programme or to register, please visit:

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THE FORUM FOR THENEXT GENERATIONOF HEDGE FUNDMANAGERS

Wednesday 22nd October 2014, Zurich

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SPOTLIGHT

Phillip Schaeffer, senior portfolio manager at$250 million New York-based Scotts Cove Man-agement LLC, which invests in U.S. corporatecredit, spoke with Bloombergs Kelly Bit aboutopportunities in smaller-size bond issues.

Q: Whats Scotts Coves universeof investments?

A:We invest in event-driven U.S. credit.We want most of the portfolio to be in moresenior and secured debt instruments. Wewill have unsecured debt that is equity-like,but we want that to be a modest part of the

portfolio. Were an absolute return fund, bythat we mean our target return is 10 percentper year with the goal of not having a mean-ingfully losing year. Preservation of capital isa key goal. We also focus on smaller bondissues, the $150 million to $400 millionissue size. We think those smaller bondissues are relatively inefficiently priced.Multi-billion dollar funds typically dont focuson those kinds of names. When it makessense, we can invest in larger mega bondissues in companies.

Q: Are you seeing a robust market forthe smaller bond issues?

A:Yes, were probably seeing fewer opportu-nities than in certain other parts of the cycle.Were looking at the relatively small niche ofthe U.S. high yield market, where some-things going on in the company that resultsin its bonds being inefficiently priced. Evenwhen times are relatively robust, theres still20 to 50 names in the high yield marketwhere there are events going on that resultis us being able to understand the situationand the bonds are inefficiently priced.

Q: What are you focused on froma macro perspective?

A:Were probably concerned about whatmost people are concerned about inter-est rates being driven lower by the Fed.We have, in the past, hedged for macroconcerns and are prepared to do that. Wesaw in 2007 that it was a generational timeto reduce longs and to increase shorts. Wedont feel that today. The U.S. economy and were totally U.S. focused is doingreasonably well and, in our view, likely todo reasonably well. For our companies,

Scotts Cove PM Phillip Schaeffer on Inefficiently Priced U.S. High Yield Bond Issues

Age:59

Education:University of Virginia (BS); Harvard Business School (MBA)

Professional Experience:CFO, A & W Restaurants, Inc.; Founder,

Scotts Cove (and predecessor firms), 1991

Family:Wife; son in college

Mentor(s):John Quelch and Bill Poorvu, Harvard Business School

Favorite NYC restaurant:Jean Georges

we dont want to make an investment if thecompany has to have a dramatic improve-ment in earnings or there has to be adramatic improvement in the economy. Ifthe U.S. economy continues to do okay orbetter, we think operating characteristicsof our companies will do reasonably well.The bonds in which we invest will havehigh single-digit or double-digit coupons inrelatively short maturities. The events werelooking to unlock the value theyre six to18 months into the future. While were con-cerned about the macro environment, eachof our 40 names has a story as to why thebonds are mispriced.

Q: Give an example of a company youreinvested in.

A:One situation was a printing companywe first got involved in a few years ago. Itwas perceived being very much a commod-ity printing company, low margin with obvi-ously not much of a future. Managementcame in and began morphing the companyinto a specialty printing operation propri-etary printing that cant be done in houseby corporations. Over time they announceda number of initiatives, we would call themevents. As those initiatives happened, their

earnings went higher and the bond priceswent higher. Were presently in that. Thiscompany did a number of things that werenot easily predictable they bought a majorcompetitor, did a couple of refinancings.

Q: Any others?

A:Theres a book distributor whose bondsa couple of years ago were trading in 50sto 60s. Theyve done a very good job of de-veloping software so that the way they get

their books to colleges and universities andpublic libraries is very much a function ofthe quality of their software. We think theyrenumber one in a number of respects. Whenwe bought the bonds maybe in the 50s,we thought the bonds would be worth 70or 80 because of the trajectory we thoughtthe companys operations were on. Wethought we were getting a free option on thecompany doing better. As it turned out, thecompany did do better and we increasedour position over time.

Q: What else are you seeing thematically

that you want to take advantage of?A:The types of events were looking atwould be bankrupt situations. There areany number of chronological points in abankruptcy where security prices may gohigher or lower. There are not too manysituations that are deeply distressed orin bankruptcy right now. Were short onebond of a company in bankruptcy. Its veryevent-driven and its a bond we think willturn into the equity of the reorganizedcompany. Its an industrial company with amanagement team that over the past yearshasnt been able to generate a significantamount of new cash flow. Its the impact ofplant closures, refinancings, litigations, newmanagement teams coming, old manage-ment teams going. There are so manytimes these events are instinctively con-sidered positive, a new management teamisnt necessarily a positive event. Thereare environmental concerns people have.Those trends are not likely to reverse. Righnow the robustness in the overall market ispretty strong. In the past, weve been muchmore short.




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BloombergBrief HF Newsletter 201459

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