Updates on Previous Posts
Endowment Fund: A couple of months ago, I wrote about the Endowment Fund (“Overweight Duck: The Leaden Version of the Endowment Model”), a fund of funds designed to emulate the performance and characteristics of a foundation portfolio. The fund has experienced poor performance, and was forced to invoke a gate in order to prevent investors from withdrawing their money. This week we learned that the Endowment Fund has terminated Mark Yusko as the fund’s CIO. Mr. Yusko continues to sit on the investment committee for the fund, and remains the CIO for his own firm, Morgan Creek Capital Management. The Endowment Fund’s decision is no surprise. When funds experience performance problems, replacing the manager is a common way of trying to placate investors. It seldom works.
|Investor Letter 1 (2009)|
Hostess Cakes went into liquidation after failing to reach a labor settlement with its workers (“Twinkies Sink A Private Equity Investment”). The private equity firm Ripplewood had its investment wiped out in the process. There’s an auction underway to sell the company’s assets, and private equity firms are sniffing around the business. Apparently, Apollo Global Management is interested in buying the Hostess assets (The company’s bread business has already been sold). After the company’s asset pass through bankruptcy, someone like Apollo will probably make good money off of Twinkies and SnoBalls.
SAC and Insider Trading: Prosecutors are continuing to circle SAC, the hedge fund owned by Stephan A. Cohen. Mathew Martoma, the former portfolio manager (“The Temptation of Insider Trading”) pleaded not guilty to insider trading charges. The number of convictions and prosecutions is rising, but they have yet to reach Mr. Cohen. Meanwhile, investors are leaving. Citigroup and Blackstone intend to withdraw their clients’ capital. By mid-February, SAC will know how much client money will be redeemed. You have to imagine that the redemption queue will be extremely long.
|Investor Letter 2|
Norwegian Cruise Lines completed its IPO, which was hugely successful. The deal was priced at $19, and the stock has jumped to over $28 in its first week of trading. This is the company owned by Apollo and TPG that has a special arrangement to pay the management a special bonus for getting Apollo’s capital out of the deal (“The Most Favored Passenger: Private Equity”). The rise in the stock price is probably a reflection of the small number of shares that are actually available to trade. Institutional investors are bidding up the stock as they try to build a meaningful position in the company. When Apollo and TPG finally sell their shares we may see the stock come under a bit of pressure. For now, Apollo and TPG aren’t allowed to sell (known as lock up), so supply is limited
Firearms: New York City’s public pensions have joined Chicago and Philadelphia in divesting companies that manufacture firearms. However, NYC’s ban is only on companies that manufacture assault weapons. Meanwhile in Washington, D.C., Senator Diane Feinstein of California has introduced a bill to ban assault weapons. The bill’s prospects are already dimming as Democrats from states with a high number of background checks are hedging their support. Senator Joe Manchin went home to West Virginia and found little support for even modest gun control measures.