It’s no secret that the largest, most high-profile hedge funds that are best known for their shareholder activism got badly roughed up in August.
Three of them fell into negative territory for the year after posting big losses last month, including William Ackman’s Pershing Square Capital Management and Richard (Mick) McGuire III’s Marcato Capital Management, both of which were down more than 9 percent in August, and Barry Rosenstein’s Jana Partners.
David Einhorn’s Greenlight Capital extended year-to-date losses to nearly 14 percent through August, and Daniel Loeb’s Third Point was barely profitable going into September. Both funds sometimes engaged in activism, although Third Point has somewhat morphed into a multistrategy fund.
However, two lesser-known hedge fund firms that only occasionally dabble in activism fared much better in August and continue to enjoy a pretty good year.
Scott Ferguson of New York–based Sachem Head Capital Management posted a 2.39 percent loss last month in his Sachem Head fund, but it is still up nearly 12 percent for the year to date.
A pair of funds from New York–based Soroban Capital Partners also have fared well. The Soroban Fund returned 0.49 percent in August and is up 7.22 percent for the first eight months of the year, while the Soroban Opportunities Fund, launched on August 1, 2014, gained 0.03 percent last month and is up 4.99 percent for the year. The firm, which managed $8.5 billion as of the end of July, is headed by Eric Mandelblatt and Gaurav Kapadia.
Ferguson became a partner at Pershing Square before leaving in 2012 after nine years at the firm to start Sachem Head. Like his former mentor and many other activists, Sachem Head — which returned 22.5 percent in 2014 — runs a very concentrated portfolio; it owns just six stocks in its roughly $1.5 billion U.S. equity portfolio.
Its largest position by far is CDK Global, accounting for about 45 percent of these assets. The software company, which serves the auto industry and was spun off from Automatic Data Processing in October 2014, is very popular among the activist set.
Besides Sachem Head, the largest shareholder, other major investors in CDK Global include New York–based activist firm Fir Tree Partners, New York–based Elliott Management Corp. and New York–based Blue Ridge Capital. The company’s stock is up roughly 20 percent this year.
Sachem Head’s second-largest position is in drug giant and activist favorite Allergan, while its next two largest stakes are in stocks that are targets of Ferguson’s mentor: animal health care company Zoetis, and Air Products and Chemicals. Ackman is the largest shareholder in both companies.
Soroban’s Mandelblatt was one of the founding partners and portfolio managers of TPG-Axon Capital Management, and Kapadia is a former TPG-Axon partner. Soroban is more of an occasional activist, generally specializing in so-called event-driven situations.
Soroban runs a much more diversified portfolio than Sachem Head and other full-time activists. However, three stocks account for more than one quarter of its more than $14 billion in U.S. equity assets — Kinder Morgan, Time Warner Cable and the Williams Cos.
In May, Time Warner Cable announced its merger with Charter Communications in a cash and stock deal. The stock was down 2 percent in August but has surged nearly 25 percent this year. Energy giant Kinder Morgan is down nearly 30 percent for the year. However, despite the collapse in oil prices, shares of Williams are essentially flat for the year.
In 2014, Soroban and Keith Meister’s Corvex Management reached an agreement with Williams, which appointed Mandelblatt to the board of directors last December. He serves on the company’s finance committee and nominating and governance committee. The two hedge fund firms also agreed to a standstill provision and other provisions and not to launch a proxy fight at the 2014 annual meeting or any subsequent meeting as long as their representatives serve on the board.
Earlier this year Soroban disclosed that it owns 9.98 percent of California Resources Corp., a producer of oil and natural gas in California. It did not make any recommendations in its filing, and the stock is a very small part of the firm’s overall portfolio. This is the only 13D Soroban has filed since its inception.
