| James Dinan, York Capital Management (Bloomberg) |
James Dinan’s New York-based hedge fund firm, York Capital Management, got off to a strong start this year, making it perhaps the best-performing multistrategy firm in the first half of 2014, thanks to gains in its special situations positions, among others. Its York Investment fund is up 12.1 percent through the first six months of the year after gaining 5.5 percent in the second quarter. The firm’s York Credit Opportunities fund is faring even better, posting a 12.8 percent gain for the year. York declined to comment on the results. And it is unclear whether the funds will have been affected by the so-called “Arbageddon” event earlier this week, when a number of high-profile merger deals fell through.
Both funds were invested in many of York’s biggest winners for the first half. The portfolios benefited from a wide array of investments. York Investment’s special situations book fared the best, thanks to three disparate stock positions: American Airlines; Banca Monte dei Paschi di Siena, an Italian bank; and NXP Semiconductors. All three were also big winners for York Credit, according to quarterly letters from two fund-of-funds firms with investments in the York funds. Both the York Investment and York Credit funds also cashed in on the rally in TXU Energy Retail Co. bonds, after the power company filed for bankruptcy in April, and from the rally in Lehman Brothers Holdings bonds, due in part to an April distribution.
York Investment’s merger arbitrage strategy also fared well due to the increase in deal activity, according to one of the fund-of-funds firms. “The fund’s focus is typically on the contested, open-ended deals that offer more upside to those who analyze the situation correctly,” the fund-of-funds firm tells its investors. It cites as an example the bidding war for the Hillshire Brands Co., which York owned. Hillshire is finally being acquired by Tyson Foods.
On the downside, York suffered losses in Pfizer and AstraZeneca when their apparent merger deal fell apart.
York Credit cashed in on two European distressed situations, Banca Monte dei Paschi and autoBahr, a Canadian auto repair chain. The investor stresses that once both of these companies are reorganized, York will own “a significant stake in the new equity of each company.”
On the other hand, York Credit lost money last quarter from S&P 500 options, which were used as a hedge to the fund’s equity exposure. “Given the low level of market volatility, using options to hedge is relatively inexpensive today,” the fund-of-funds firm notes, stressing that the position cost York Credit 20 basis points for the quarter. The fund also lost money on the post-reorganization equity in Ally Financial, W.R. Grace & Co., Stallion Oil Field Services, and the Co-operative Bank.
The fund-of-funds firm points out that in general, York gravitates to larger, more liquid situations in the U.S., while its investments in European restructurings are usually “smaller and require more sourcing work if the securities trade at all.”
Last year York’s various funds gained roughly 18 percent. As a result, Dinan qualified for Alpha’s annual Rich List ranking of the industry’s highest-paid managers for the second straight year, earning a combined $585 million over the two-year period.
