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from Alison Frankel:

Sotheby’s shareholders defend activist investors in suit vs board

The heat surrounding so-called activist investors -- hedge funds that buy up big chunks of a company's stock, then leverage their position to mount proxy campaigns or otherwise force boards to change the way the company is managed -- could hardly be more intense than it is now. Well, okay, maybe there would be even more controversy if Michael Lewis wrote a book about a genius upstart who defied accepted deal conventions and revolutionized corporate takeover battles. But putting aside the Wall Street tizzy inspired by this week's publication of Lewis's new book about high-frequency trading, the deal world's favorite topic remains activist investors like Carl Icahn, Paul Singer, William Ackman and Dan Loeb.

Just in the last two weeks, Chief Justice Leo Strine of the Delaware Supreme Court published his extraordinary essay on shareholder activism at the Columbia Law Review, the Wall Street Journal did a fabulous story on hedge funds tipping each other off about their targets, and Martin Lipton of Wachtell, Lipton, Rosen & Katz -- whose avowed disdain for short-term investors has recently manifested in litigation with Icahn -- revealed at the Tulane M&A fest that there are actually a couple of activist funds he respects. (He said he wouldn't go so far as to say he "likes" them, though.)

A new shareholder derivative complaint against the board of the auction house Sotheby's is the latest contribution to the furor over activist investors. Two of the most successful shareholder firms in the game, Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer, filed the class action Tuesday night in Delaware Chancery Court on behalf of St. Louis's employee pension fund. The suit squarely aligns shareholders with activist investor Loeb and his Third Point hedge fund, which owns nearly 10 percent of Sotheby's stock and has launched a proxy contest for three board seats at the auction house.

Like Loeb, who brought his own suit against Sotheby's board last week, shareholders want to invalidate the company's poison pill, which was apparently enacted in response to Loeb's stock acquisition and triggers when an activist investor crosses a 10 percent ownership threshold. (One of the purported problems with the pill: It permits passive investors to own up to 20 percent before the pill kicks in so it overtly discriminates against investors like Loeb.)

from Bethany McLean:

Is Steve Cohen the real target in this trial?

The fate of Mathew Martoma, the former SAC Capital portfolio manager charged with the biggest insider trade in history -- more than $275 million in profits and avoided losses, says the government -- is now in the hands of a 12-person jury, which began deliberations in a Manhattan courthouse Tuesday afternoon.

But whatever the verdict for Martoma, the trial has been bad news for someone else: Martoma’s former boss, SAC head Steve Cohen. Given the slow, but relentless, nature of the government’s actions against Cohen, it might be worth remembering the old adage: It ain’t over til it’s over.

from Unstructured Finance:

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you're the typical investor, it's probably time to be a little bit more cautious.”

from Unstructured Finance:

Berkowitz, Ackman bets on Fannie and Freddie puzzle investors and policy buffs

On Thursday, the United States threw cold water on Bruce Berkowitz's daring proposal to recapitalize mortgage finance behemoths Fannie Mae and Freddie Mac, saying the only way to revamp the home loan market is through proper housing finance reform.

Berkowitz's Fairholme Capital Management said it wants to buy the mortgage-backed securities insurance businesses of Fannie and Freddie by bringing in $52 billion in new capital, in a bid to resolve the uncertain future of the mortgage financiers by freeing them from U.S. government control. For its part, the government said the way forward would be to create a new housing finance system in which private capital would play a pivotal role.

from Unstructured Finance:

This summer, it’s the John Paulson show

Hedge fund manager John Paulson has shunned the limelight in recent years but in recent weeks it's a different story, with the 57-year-old manager not only giving his first ever TV interview, he's also set to take the stand in one of the most closely-watched trials in the country - the civil case against former Goldman Sachs trader Fabrice Tourre.

Tourre's lawyer Sean Coffey said in a Manhattan federal court on Friday morning they intended to call Paulson to testify in the trial. The U.S District Judge overseeing the trial estimated Paulson would probably take the stand August 1.

from Unstructured Finance:

Daniel Loeb surfing to the top of the hedge fund charts again

Something must be in the water over at 399 Park Avenue, where Daniel Loeb’s hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

from Unstructured Finance:

Hedge fund scorecard 2012: Mortgage masters win, Paulson on bottom again

Mortgage funds roared home with returns of almost 19 percent last year, trouncing all other hedge fund strategies and beating the S&P 500 stock index, which rose 13 percent.

BTG Pactual's $245.5 million Distressed Mortgage Fund, which invests primarily in distressed non-agency Residential Mortgage-Backed Securities (RMBS), returned about 46 percent for the year, putting it at the top of HSBC Private Bank's list of the Top 20 performing hedge funds and making it one of 2012's best performing funds.  Bear in mind the the average hedge fund gained only 6 percent last year.

from Unstructured Finance:

Daniel Loeb goes long Chesapeake bonds; leaves activism to others

Daniel Loeb, who runs $8.7 billion at his hedge fund Third Point, has been an opportunistic buyer in the bonds of Chesapeake Energy, the embattled natural gas producer, according to sources familiar with the matter.

But Loeb, known to rattle the cages of companies for years (see: war with Yahoo), isn’t piggybacking on Carl Icahn’s or O. Mason Hawkins’s activist role in Chesapeake, demanding changes in management or the overhaul of its business practices.  Indeed, all the elements are there for a veteran agitator like Loeb, as Chesapeake has been embroiled in scandal over a controversial investment program involving CEO Aubrey McClendon.

from Unstructured Finance:

The hedge fund world’s version Elvis plays cupid

You know Bill Ackman as a hedge fund rabble rouser, but did you know on the side he likes to play cupid. Here's Svea Herbst-Bayliss with a post on the Pershing Square Capital manager's softer side:

By Svea Herbst-Bayliss

Bill Ackman is known as many things: investor, corporate nudge and quick-talking television pundit. But matchmaker?

from Global Investing:

Three snapshots for Monday

Photo

China's trade balance plunged $31.5 billion into the red in February as imports swamped exports.  It followed reports on Friday that inflation cooled in February while retail sales and industrial output fell below forecast, all pointing to a gradual cooling.

Investors ploughed more money into hedge funds over the past month as performance has picked up after last year's losses.

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