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ALPHA GENERATORS: The Proliferation of Activist Strategies

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As part of our Chasing Alpha series, SWFI is covering the proliferation and adoption of activist strategies. Increasingly, sovereign wealth funds (some of the biggest) and pensions are allocating more capital to activist managers, eyeing historical outsized returns over long periods of time. Despite notable activist managers getting “smoked” in performance in August and September such as Bill Ackman’s Pershing Square Capital Management, David Einhorn’s Greenlight Capital and Leon Cooperman’s Omega Advisors, the rise of assets in these strategies has maintained momentum post-financial crisis. Hedge fund activists funds, once known as corporate raiders or one-trick ponies, are estimated to be over US$ 200 billion in assets compared to US$ 10 – US$ 15 billion a decade ago. Publicly-traded companies like Samsung are on watch. Without regard to size or industry, major companies such as Apple, Yahoo, Transocean, Qualcomm and eBay have been in the crosshairs of activist investors. JANA Partners, which is run by Barry Rosenstein, has repeatedly moved to affect change at semiconductor company Qualcomm as the company continues to fall in share price. JANA Partners, which oversees US$ 11 billion in assets under management, is trying to urge Qualcomm management to increase share buybacks and cut costs. Another prime example is billionaire hedge fund manager David Tepper who runs Appaloosa Management L.P. In November, Appaloosa Management holds senior notes and shares in Bethesda-based TerraForm Power, a diversified owner of clean power generation assets, such as wind and solar, in markets such as the United States and Canada. Tepper penned a letter criticizing SunEdison’s “cozy” relationship with TerraForm Power, specifically accusing SunEdison of pushing unattractive energy projects onto TerraForm Power. These are known as drop-down transactions.

According to SWFI research, around 45% of hedge fund activist capital comes from pension and sovereign wealth fund investors.

Long-Term Capital: Sovereign Funds and Pensions

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GIC Sells Arizona Biltmore to Blackstone

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Blackstone Real Estate Advisors, part of the Blackstone Group, acquired the 740-room Arizona Biltmore hotel, located in Phoenix, for US$ 403.4 million. The deal closed on April 20, 2018.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Acquires Stake in Growing Hedge Fund Phoenician Capital

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Mubadala Investment Company, through its unit Mubadala Capital, purchased a minority stake Phoenician Capital, LLC. Although terms and size of the deal were not disclosed, the agreement grants Mubadala Capital rights to invest in a fund managed by the New York-based firm, which generated respective returns of 40.8% and 33.0% in 2016 and 2017, against benchmarks of 12.0% and 21.8% for the S&P 500. The hedge fund runs the Phoenician Offshore Fund Ltd.

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Large Asset Managers Continue to Move Operations Out of California

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In the 2010s, Fisher Investments, an investment firm run by Ken Fisher, moved a large number of employees from the Woodside and San Mateo campuses to a town called Camas in Washington, near Portland. Vanguard has a large operational presence in Arizona, while Charles Schwab Corporation has expanded its technology operations and client services in places like Denver, Dallas, Austin and Phoenix. Dimensional Fund Advisors moved its headquarters in 2008 from Santa Monica, California to Austin.

While asset managers reap profits and try to lower employee head count costs, looking to fly-over country seems appealing.

The Pacific Investment Management Company (PIMCO), part of the Allianz family, selected Austin, Texas as its new office to hire more client services and technology talent. The PIMCO Austin office will open later in 2018. PIMCO is headquartered in Newport Beach, California, with an office in New York City.

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