Funds Hub
Money managers under the microscope
Morning line-up: Cadbury, Lords, The Terminator
News and views on the hedge fund sector from Reuters and elsewhere:
Trust the Cadbury trustee to get a deal
Warren Buffet may think Kraft isn’t doing a good deal by taking over Cadbury. With Kraft shares falling, Cadbury’s shareholders may not think the deal too sweet either and some disgruntled British consumers may be appalled that a much loved brand will be sold to a non-British group – and one that sells chocolate symbolised by a lilac cow at that.
But one party is sure to get a good deal: the Cadbury pension fund trustees.
While Cadbury fans are digesting the takeover news, the trustees have lost no time in seeking a dialogue with Kraft to make sure they do get a good deal for the workers they represent. Call it fiduciary duty if you like but be sure pension trustees, used to a sponsor that “stood behind the pension fund for more than a hundred years”, will give Kraft a hard and cold look to assess its credentials as a sponsor – what the pension industry calls in vaguely biblical terms “the covenant”.
In theory there is no need for a fight — Kraft was swift to assure it would honour “the existing contractual employment rights, including pension rights”. But did the multi-national really know what this pledge would cost, at least in pension terms?
Almost certainly no, because truth to tell the pension trustees themselves do not know. The fund is waiting for the results of its triennial valuation, which should give an accurate picture of the fund’s financial shape. Independent consultant John Ralfe told me he thought trustees could present Kraft with a cash injection bill of £200 million or more.
Whether the assessment of an independent consultant not involved with the scheme in question proves right or not, it is fair to assume this kind of money would still be a small price to pay for the successful completion of a £11 billion deal.
If it turns out to be more, Kraft will still be careful not to antagonise the pension trustees because they may not be able to scupper a deal recommended by the board, but a prolonged struggle could attract the attention of The Pensions Regulator.
Morning line-up
News and views on the hedge fund sector from Reuters and elsewhere:
Morgan Stanley to raise capital for hedge fund clients – Reuters
GLG Partners opens offices in Asia - Reuters
Cadbury deal to start debate on hedge funds’ role in takeovers – Times
US bank clamp-down rattle hedge funds – FT
Short-sellers back in the money for now
For better or worse, hedge fund returns have a tendency to follow markets, in part because most long-short funds are net long most of the time.
So after a huge rebound in the stockmarket this year, which has helped hedge funds make up some much-needed ground, October proved a difficult month when the market fell in the second half of the month.
After all 2009′s growing optimism, investors were suddenly concerned that a withdrawal of government stimulus would harm an economic recovery in its early stages.
So, after a bumper 2008 and a miserable 2009 for short-sellers, it was they who leaped to the fore again in October - dedicated short bias returned 1.61 percent, while long-bias funds lost 0.38 percent and long-short funds were flat.
However, the long bet may not be over for hedge funds. John Paulson, the man who made billions betting on the subprime crisis and profited last year from shorting banks, is going long Cadbury.
With 2.54 percent of the chocolate maker, Paulson’s move may show that, despite this year’s huge rally, there may be more upside left in some stocks.
They say “go on now go”, “walk out the door”,
“Just turn around now, ’cause you’re not welcome anymore”
Weren’t you the one who tried to stick to the strategy,
That read that if you get advised by us, we’ll throw some debt in there for free”
I should have split the firm apart,
I should have sold it bit by bit,
Like all the analysts told me,
Now it’s all just gone to shit,
At least I’ve got my options when I leave,
Although they don’t amount to much today,
But once I’m gone the price will soar,
And I’ll get my sky high pay day.
Morning line up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Ex-Bear Stearns hedge fund managers acquitted – Reuters
Paulson & Co raises bet on Cadbury – Reuters
Morning line-up
Hedge fund stories from Reuters and elsewhere:
New players spur hedge fund secondary market – MarketWatch
Hedge funds got it right – Washington Post
Arbs say Cadbury price hopes overblown – Reuters
Hedge funds remain defensive – Seeking Alpha
Pessimists pay the price – WSJ
Hedge funds avoid sticky situation in Cadbury
Figures from Data Explorers today show hedge funds have again been largely right in their short positions, this time in Cadbury.
Shares in the world’s second-biggest chocolate and sweets maker shot up around 38 percent today after it snubbed a 745 pence a share bid but many funds had long since closed their shorts.
Data Explorers’ figures show stock out on loan — a strong indication of short interest — in Cadbury fell from from more than 4 percent in May to just 1 percent by last Thursday.
However, this had crept up from around 0.5 percent in July, indicating a few funds had been betting on a price fall, perhaps to balance out long positions in more cyclical stocks that were rallying.
Meanwhile, hedge funds continue to profit as their short bet on VW’s ordinary shares continues to profit — today the shares touched a year low.
(See also VW drops as hedge funds move in and Caught short)
