High Water Marks Bring Yet Another Bias To Hedge Fund Returns

November 3, 2009

Survivorship and backfill bias in hedge fund returns have been written about extensively. A recent article in Hedge Fund Alert drew out attention to yet another problem with the reporting of hedge fund returns. It turns out that last year’s carnage has left so many hedge funds underwater that the returns posted for this year are not actually what you will earn if you are a new investor.

Hedge funds have high water marks so that managers do not receive the 20% performance fee until the fund has reached its prior high. That is one of the reasons why so many managers simply shut down their funds and launch new ones not subject to that constraint. But it also leads to difficulties with the reporting of returns. Performance fees Read the rest of this entry »


American Community Properties Trust May Attract A Higher Bid

October 6, 2009

American Community Properties TrustSurprise, surprise! American Community Properties Trust (APO) is selling itself. And you won’t even get market value for your shares: while ACPT trades between $8.35 and $8.50 the buyout will happen at $7.75.

The sudden sale at a discount to the market price comes out of the blue for shareholders who still remember the failed attempt by the Wilson family, the 50.68% owners, to take the company private in 2007. The Wilsons had engaged a financial adviser Read the rest of this entry »


Bidding War Looming At Entrust If Shareholders Oppose Thoma Bravo Buyout

July 14, 2009

In a surprise move, private equity firm Thoma Bravo increased the price it is willing to pay for Entrust (ENTU) from $1.85 to $2.00 on Friday. We had forecast that shareholders would vote down the transaction in this post last week, and we suspect that a rejection of the $2 buyout will lead eventually to a bidding war over Entrust. Three other bidders expressed interest in Entrust during the go-shop period at prices higher than Thoma Bravo’s, but the board decided that these proposals were not “superior”. Therefore, we think that there is enough interest in Entrust to make it a candidate for a bidding war if shareholders vote down the current deal. Read the rest of this entry »


Will Shareholders Vote Down Entrust’s Private Equity Buyout?

July 5, 2009

In another illustration of the pointlessness of “Go Shop” periods the board of Entrust (ENTU) ignored three buyout offers received in the 30-day go shop period that were higher than that of the group that includes the CEO. Moreover, the Entrust management buyout shows all that is wrong with buyouts by private equity funds where management remains with the firm and has an incentive to lowball the buyout price. Shareholders expected an increase of the $1.85 merger consideration, and shares traded as high as $2.10 during the go-shop period. We believe that due to the high level of dissent from shareholders and even a board member it will be difficult for management to achieve the required approval by 2/3 of the shareholders. Read the rest of this entry »


Looking For Outperformance? Invest With An Emerging Manager!

June 1, 2009

An ill-advised, persistent and costly error among institutional investors and their consultants is their reliance on large brand name money management firms to look after their assets. We had the privilege of attending and speaking at the recent Emerging Manager 2009 conference, from where we return with some very persuasive statistics that show the outperformance of small money managers over the large mainstream firms. Read the rest of this entry »


SPAC Liquidation Arbitrage: How To Profit From Hedge Fund Redemptions

January 28, 2009

Among the least-damaged victims of the boom’s unwinding are SPACs, which arguable were among the worst manifestations of the irrational exuberance driven by excess liquidity. Despite their relative resilience to the bust, their cash hoards coupled with limited life offer an interesting arbitrage opportunity with yields that, in some cases, reach well into the double digits.

SPACs are an outgrowth of blank check companies, which got a bad name when some were scams run through boiler room operations. The SEC Read the rest of this entry »


In Defense Of Securities Class Actions

September 24, 2008

Former shareholders of Chaparral Resources should receive the proceeds of the settlement with Lukoil (LUKOY) in the next few days. The settlement checks were mailed on Monday, we were told by a lawyer involved in the case. We have written about Lukoil’s shenanigans in the acquisition of Chaparral Resources before. As majority shareholder, Lukoil manipulated Chaparral to depress its stock price and acquire it at a low price. Shareholders filed a class action and are now, two years after the fact, finally receiving compensation. Read the rest of this entry »