Hedge Fund Liquidations are on the Rise
For anyone wondering whether there is growth opportunity in hedge funds after a stint at say, an investment bank or a law firm, well, these trends don't bode well...
Airlines. Another European airline jumps into administration (the third this year).
Community Health Systems. This just keeps getting better and better.
Fairway Market. Perhaps it will avoid its (inevitable) Chapter 22 thanks to John Catsimatidis.
Family Offices. Long them.
Nordstrom. Struggling with its attempts to go private.
Offshore Drilling. Not much of a US focus, but some are bullish. We were surprised by this.
Payday Lenders. Peace out...if this happens.
Toys R Us. Thanks to advisory fees, perhaps the private equity sponsors didn't fare as poorly as many think.
No, this is not a reference to some secret lair in Arizona or New Zealand. If you don't know what we're referring to, Google it. We can't do everything for you. No, we're referring to tax prep. We feel so sorry for Steven Cohen and his $20b of AUM.
This doesn't bode well for prices. "The record gas resources assessed by the PGC, in addition to robust domestic production levels and booked reserves, paint a picture of strong supply of natural gas in the U.S. for many years to come." A lot of hedge fund hotshots sitting on panels talking up their nat-gas and oil books aren't gonna be swinging so large go-forward. Likewise oil. Short Hamptons homes.
Abercrombie & Fitch ($ANF) see-sawed its own stock after proclaiming that it would seek a buyer (stock went up) but then, a mere few weeks later, indicating that it had terminated the sell-side process. The shares plummeted 21%.
Halcon Resources Corp ($HK) plans, per Reuters, to sell its North Dakota operations for $1.4b in cash as part of a broader (and smart) plan to shift its focus to the lower cost-basis Texas' Permian Basin. The stock popped on the news. The piece makes it sound like this is the CEO's grand vision - as if he's not getting a tremendous amount of pressure from his new(ish) credit-oriented short-term-oriented overlords.
Hedge Funds. Apparently the business isn't as bad as previously thought. That is, unless these investments in Puerto Rico bonds crater.
India (Geographical arbitrage). Hey you. Yeah, you, Associate sitting in New York with a 15 year path to partnership. You may want to consider moving to India and becoming an expert in the new Insolvency and Bankruptcy Code there. Apparently nobody there has a clue what the hell is going on. You may be able to fast-track your career. We want credit if you pull the trigger.
Professional Athletes (Short Personal Finance Wherewithal). Livan Hernandez, who made $53mm over the course of his baseball career, has filed for bankruptcy. Seriously, what the hell is wrong with these guys?
Sears Canada. C'mon. Eddie Lampert, the King of Bad-Money-After-Good (aka all things Sears ($SHLD)), is reportedly considering a deal for Sears Canada. Officially, the company has hired a joint venture between Gordon Brothers Canada ULC and Merchant Retail Solutions ULC for the liquidation of inventory/FF&E of 45 locations and is actively pursuing a transaction: over 20 parties have signed NDAs.
Tea (Short Retailing it). Small potatoes relative to the universe we typically cover but given that Capital Teas Inc. was once a 22-store retailer of, well, tea, and is now bankrupt, we figured we'd note it. We particularly love how the company didn't even bother to update its "bio," of sorts, noting that it was honored as a member of The Inc. 5000, "the nation's fastest growing private companies." Well, not anymore, obvi. The company plans to shutter 10 locations as part of the bankruptcy. If that is considered "fastest growing," the US is even more effed than we thought.
True Value. This is not a distressed candidate - not with $1.51b of revenue in '16 - but the fact that the private company is reportedly looking to market itself is telling in this age of Amazon. The home improvement space is largely thought to be impervious to the "Amazon Effect." At least, that is the narrative behind investing inHome Depot ($HD) and Lowe's Companies Inc. ($LOW). Perhaps people are worried about the narrative? Perhaps they're just looking to take advantage of a potential strategic acquirer tapping capital markets? Interesting.
WeWork. We admit: we're obsessed with this company. On the heals of closing its $760mm Series G round valuing the company at $20b, this startup now officially has a larger valuation than publicly-traded office REITS like Vornado Realty (which we covered here) and Boston Properties. Makes. Total. Sense. Jokes aside, it has inserted itself as a platform for companies like GM, IBM, Spotify and Salesforce, effectively being the office manager of choice. Interesting model. Can't imagine this remaining in a downturn when companies need to look for ways to cut costs.
Maybe the SEC will approve a quadruple levered index fund that effectively shorts hedge funds. $111 billion has been withdrawn from hedge funds as they, collectively, fail to match the S&P Index. The linked article cites Pershing Square Capital Management, Perry Capital, Eton Park Capital Management and Paulson & Co. as examples of fallen stars; it also highlights the ridiculousness of paying these guys 2-and-20 to go long in a hedge fund hotel like Valeant ($VRX). You can just as easily lose your money in a pharma index. As Matt Levine from Bloomberg says, "The giants of the earlier, more romantic age of investing are on their way out -- retired, running family offices, reinventing themselves as quant managers, or just reeling off consecutive down years." Zing. On the flip side, Steve Cohen is whipping it out and flicking off the regulators starting in '18 (firewall). So, there ARE growth prospects in the industry so long as you're already rocking billions of your own seed funding, some celebrity, and a f*ck you attitude that translates, in the minds of the fickle, into "alpha." Yield is yield and ya gotta get it somewhere. Who cares how?
- Default Interest. Eric Goodman and Joseph Esmont of Baker & Hostetler LLP chime in on the recent Ninth Circuit decision on the subject.
- Hedge Funds. The Boston Consulting Group discusses the challengesfacing the beleaguered masters of the universe.
- Marblegate/Trust Indendure Act. An analysis - from a capital markets perspective - from the fine lawyers at Sidley LLP.
- Roust. Myles MacDonald from Cole Schotz PC summarizes the recent Roust Corp. bankruptcy case, concluding that the speed of it is not "generalizable."
- Artificial Intelligence. Throw the phrase "AI-based" in front of anything and all of the sudden it's like gold. Including retail. We're pretty sure we'll start seeing established companies start rebranding to curtail further devolution, e.g., neiman-marcus.ai or Macy's.ai. After all, we have MacGuyver back on TV and Luke Skywalker back in the theaters...might as well get nostalgic for .com-style frenzy.
- Boutique IBanking. An interesting review of the stock performance of one of the original public boutique investment banking firms out there: Greenhill & Co.
- Coal. Longview Power CEO Jeff Keffer's assessment of the industry. TL;DR...at least under Trump there's a chance...
- Conflicts. Believe it or not, conflicts DO exist in bankruptcy court. We're just as shocked as you, but in the Transtar bankruptcy cases, Willkie Farr & Gallagher LLP submitted a motion seeking to withdraw from the case after it determined that "in responding to requests by the Examiner in the course of its investigation, WF&G's own interests may conflict with the interests of the Debtors, or create an appearance of such a conflict." Pinch us. Jones Day LLP is apparently taking Willkie's place for the debtors.
- Hedge funds. This about sums it up: "No matter what initial capital you give the hedge fund to start with, the hedge fund will become richer than you since its real talent is transferring your wealth into its coffers..." Indeed, with 2/20, a hedge fund making 10% will make more money than its investors in 17 years.
- Malls. We probably give the impression that we really love to shop given all of the mall talk lately. But, c'mon, you can talk to us until you're blue in the face about A Malls and C Malls but the truth is that A-LL malls are looking increasingly screwed. There are so many experiential possibilities.
- Neiman Marcus as a High Yield Sinkhole. The debt is plummeting: some holders are hitting eject on high yield retailers. And more concerns about liquidity in the bond market.
- Taxis. So, the Uber effect is contagious? Seemingly so. Capital One Financial holds a distressed (and distressing) taxi medallion lending portfolio. Ugly chart here. Clearly the business traveler has embraced non-taxi options.
- Fast Forward: We feature the US Postal Service in this week's "Fast Forward" because the business model is simply unsustainable - as these numbers illustrate.
- Rewind I: Wind. We weren't kidding about wind power going to New York.
- Rewind II: Retail. We've talked about the Amazon Effect. This week Crain's New York Business released an article entitled, "Amazon and High Rents are Killing New York City Retailers." Not just New York City, fellas. Otherwise in Amazon news, it remains to be seen to what degree the Amazon Go concept impacts tradition grocers, if at all. We covered this a few weeks ago. In the face of this new competition, Kroger isn't slowing down or scaling back.
- Rewind III: This doesn't bode well for Dick's Sporting Goods: apparently the alleged low hanging fruit left by The Sports Authority is a bit harder to pick than expected. In other retail trainwreck news, Wet Seal is indeed closing and likely headed towards Chapter 22. Why? Well, private equity, of course.
- Chart of the Week: Good news for natural gas producers as prices are expected to rise in '17 and '18...