Saturday, March 26, 2016

Alt Investment: "How to Buy Bill Ackman, Dan Loeb on the Cheap"

I wouldn't touch the former, a little voice keeps saying Ackman is nothing more than fortuitous leveraged beta with a sidecar of front-running but it's an interesting way of looking at things. Having said that out in public, it'll probably double.
As to Loeb, maybe.
From Barron's:

Closed-end funds run by these hedge fund pros trade at a discount to net asset value.
Few prominent investors have performed as badly in recent years as Bill Ackman of Pershing Square Capital Management. Battered by the collapse of Valeant Pharmaceuticals International and other stock losses, Ackman’s publicly traded, overseas-listed closed-end fund, Pershing Square Holdings, fetched $14 a share late last week, down from an August 2015 peak of nearly $30. The fund’s net asset value was down 25.2% this year through March 22, after a loss of 20.5% in 2015. The Standard & Poor’s 500 index was about flat last year.

While many investors want nothing to do with the controversial Ackman, intrepid buyers could score with shares of the $3.8 billion fund, which trades in Amsterdam (ticker: PSH.Netherlands) and on the Pink Sheets (PSHZF). The fund offers the best way for retail investors to play a possible rebound in Ackman’s fortunes, via a concentrated portfolio of stocks that includes Air Products & Chemicals (APD), Zoetis (ZTS), Canadian Pacific Railway (CP), Restaurant Brands International (QSR), and Valeant (VRX).

The fund trades at an 11% discount to its NAV of $15.69 a share as of March 22, and is well below its October 2014 offering price of $25. It has investments and performance similar to Ackman’s main hedge fund, Pershing Square

Pershing Square Holdings and activist investor Dan Loeb’s Third Point Offshore Investors (TPOU.UK), a closed-end fund listed in London, offer retail investors access to hedge fund strategies with some key advantages over regular hedge funds. These include daily liquidity, no minimum investment, and a discount to NAV.

In the U.S., individual investors often need to be “qualified”—that is, have substantial income and liquid net worth—in order to buy hedge funds. The Ackman and Loeb funds, in contrast, can be purchased through many brokerage firms, including Merrill Lynch and Fidelity, without restrictions. Charles Schwab allows purchases with some restrictions, but Morgan Stanley allows only qualified investors with a net worth of $25 million or more to buy the two funds, as they aren’t registered in the U.S.

Third Point Offshore also trades lightly on the Pink Sheets (TPNTF). It traded around $13.25 last week, a 16% discount to its Feb. 29 NAV of $15.81. The NAV probably has risen since, as the S&P 500 is up 5% so far in March. The fund invests directly in Loeb’s main Third Point hedge fund.

In the case of Pershing Square, investors also benefit from an elevated “high-water mark.” Since Pershing Square Holdings is way below its peak level, the NAV would have to rise about 70% for Ackman to start earning his incentive fee. “This offers investors a substantial performance-fee-free recovery,” wrote Jefferies analyst Matthew Hose earlier this month. He has a Hold rating on the fund.

Pershing Square Holdings charges an annual base fee of 1.5% and a performance fee of up to 16%. Third Point Offshore has an annual base fee of 2% and a 20% incentive fee, the same as Loeb’s hedge fund.
While the rewards could be substantial, there are plenty of risks associated with Pershing Square Holdings, stemming from its concentrated positions, use of leverage, and Ackman’s investment style, which included an outspoken defense of Valeant, even as the drug company’s sales practices came under fire.

The fund sold $1 billion of debt last year to leverage its holdings, and Standard & Poor’s recently threatened to downgrade the bonds’ triple-B credit rating because of declining asset coverage. That prompted Ackman to raise $835 million for the fund by selling 20 million shares of Mondelez International (MDLZ), the packaged-foods company.

It remains to be seen how well Ackman can hold together his organization, given the poor performance and bad publicity. He couldn’t be reached for comment, but in his annual shareholder letter, released on Thursday, he wrote that, at the current discount to NAV, Pershing Square Holdings investors are “paying almost nothing for our investment in Valeant” and that the fund’s overall portfolio is “at a substantial discount to the intrinsic value of the companies we own.”

THIRD POINT OFFSHORE INVESTORS might be a better play than Ackman’s overseas vehicle. The $750 million fund could be the only way to get exposure to Loeb’s investing, as his main hedge fund is closed to new investors. When open, the fund’s minimum was a stiff $10 million. Loeb’s firm runs $16 billion....MORE
And as to Greenlight Re and Third Point Re, based on our overall view of the re/insurance biz and depending on what specific hazards they have insured, they might be shorts.