The union representing workers at AT&T, one of Paul Singer’s most recent activist targets, is asking investors in his Elliott Management hedge fund to resist locking up their money.
Saying that its activist investments are taking longer to bear fruit, Singer’s Elliott Management hedge fund has asked some investors in its $40 billion hedge fund to lock up their capital for 18 months — albeit with a lower management fee — or face a mandatory redemption, according to Bloomberg. These investors have until October 1 to move their money from a share class that allows them to cash out with only 60 days’ notice. If not, they’ll be booted out of the fund.
Elliott, which has been raising money on a longer-term basis for years, has good reason to want the money locked up for longer. One of its most successful plays, Citrix, took five years to turn a 150 percent gain, while more troubled ones, like its five-year-long struggle with Arconic, are still ongoing. The average holding period is 26.46 months, according to 13d Monitor, which tracks activist bets by hedge funds.
One big recent bet — AT&T — also appears to be going particularly slow. AT&T is trading around $33, a 10 percent decline from the $36.79 it closed on the day Elliott announced its initial 1.22 percent stake in the telecom giant last September.
Elliott did not disclose the price it paid for the stake, which also included synthetic derivatives that swelled its value to an estimated $3.4 billion at one point.
Now the Communications Workers of America, which represents AT&T’s workers, and the Private Equity Stakeholder Project have sent out a letter to 134 Elliott investors asking them to resist locking up their capital for 18 months to give Elliott more time.
“Investors should closely scrutinize Elliott’s recent track record before acceding to this request,” the letter said, noting the fund has sold some of its AT&T stake.
“Elliott essentially halved its disclosed economic interest in AT&T, indicating that it may be less bullish on its ability to execute on one of its most aggressive activist plays,” it continues.
The hedge fund’s most recent 13F filing with the Securities and Exchange Commission showed that it had cut its disclosed economic interest in AT&T from 5 million shares and 20,250,000 call options in 2019 to 5 million shares and 10,500,000 call options at the end of the first quarter of 2020.
The stake was still worth more than $450 million, making it the sixth largest in Elliott’s $5.4 billion U.S. publicly traded equities portfolio at quarter’s end. And the current size of its swaps position that made up the bulk of the stake is unknown.
But things have not gone particularly well for Elliott at AT&T. Since the hedge fund first targeted AT&T, the union letter noted that the company has resisted Elliott’s demand for major divestitures. Then plans for the $30 billion in stock buybacks Elliott was demanding were canceled in the wake of Covid-19.
The union noted that some investors, like the University of California investment office, are already in the process of yanking their cash from Elliott. As of June 30, 2019, the University of California endowment and pension funds had more than $450 million invested with Elliott. New Jersey’s Division of Investment is another that is getting out of Elliott.
The list of 134 investors that received the union’s latest letter include such diverse names as the City University of New York endowment plan, the Rockefeller Foundation, the Koch Industries Employees’ Pension, and the Korea Investment Corp., a sovereign wealth fund.
Elliott “oversold its aggressive activist strategies,” said Hudson Muñoz, senior strategic research associate at the CWA. “Investors should take this opportunity to examine their investments in Elliott and consider reallocating capital away from a hedge fund that seeks to strip down companies like AT&T that are a source of middle-class jobs.”
The plea may fall on deaf ears as Elliott has had no trouble luring institutional investors despite middling returns. Last year, when it made a paltry 6.88 percent as the stock market soared, it raised an additional $6 billion.
Elliott’s selling point seems to be that it won’t lose investors’ money, even when markets turn. This year, for example, Elliott was flat in March, up 2.73 percent through April, and it also made money in May.
A spokesman for Elliott declined to comment.
