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You Say 'Bully' Like It's A Bad Thing

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CFO has an article on a subject near and dear to our hearts (of stone) today: bullies. Specifically, activist hedge-fund manager bullies, though we prefer to simply call him “dad.” Who they are, what they do, how to live with them, how to make love to them. There’s the old guard, which includes Carl “You’ll Never Work on Wall Street Again, Mollusk” Icahn and Nelson “Feels Like An Arby’s Night” Peltz. They’re the ones the new class looks to for guidance with regard to how one should go about badgering, threatening and generally intimidating smaller or weaker people (/companies). For example, Ichan’s full-page ad in the Wall Street Journal that included a lambasting of Motorola’s management for “a critical failure in oversight and leadership and a crotch shot of Motorola CEO Ed Zander’s bulldog, Maude (as taken from Google’s Street View).
Then there are the new guys, a motley-crew led by Robert Chapman. He spices up Securities and Exchange Commission filings with filthy language, hires private investigators to dig for dirt on managers and black mails them with the results, and calls 78-year-olds "helpless Mr. Magoo–like figure[s]." CFO believes him to be the Simon Cowell of activist hedge-fun(d) managers which is the sort of thing that makes us embarrassed for both of them but can over look because he’s such done so much for the industry. Ralph Whitworth and David Batcheleder, co-founders of Relational Investors are two other up and comers.
Why are the Icahnettes and activist funds in general so hot right now? According to one of our well-documented idols, Philip Goldstein, “After Enron and WorldCom, management lost its halo…activist funds are less encumbered by the rules that make it harder for mutual funds and pension funds to influence companies. And the Internet has dramatically cut the cost of shareholder campaigns (See: Tom Hudson, Aquila, free tee-shirts).”
They’re also sneaky little guys who use things like the flexibility of 13-D forms to be vague about what their intentions are.

The forms must be filed and mailed to the SEC within 10 days after a hedge fund buys more than 5 percent of a company's voting equity with the purpose of acquiring or influencing its control. But the 13-D permits the fund to state its purposes in the broadest possible terms — such as merely wanting to discuss the company's direction with the board or monitor changes on a regular basis.
Much tougher to detect are hedge-fund managers who pursue activism without seeming to do so. They can, for instance, quietly amass large holdings in a company in preparation for an activist move without actually filing as an activist, though a fund that manages more than $100 million in securities must report its holdings to the SEC on Form 13-F within 45 days after the last day of each quarter. Unlike 13-D, however, the form doesn't ask for information about the fund's intentions. A hedge fund can also hide its identity as a shareholder by requesting confidential treatment from the SEC to protect its investment strategy, says Adam Gale, a lawyer with Orrick, Herrington, — Sutcliffe in New York, though such treatment is hard to obtain.

If, for some reason, you feel the inexplicable need to keep the bullies at bay, CFO has a few tactics you might try:
1.Create a team whose sole purpose is to deal with HF activism and "fire drills" to maintain a state of readiness.
2.Perform well.
3.Don’t say stuff like “Bring it, Chapman,” to the press.
4.Don’t pay executives $150 million/year for spending 4 hours a day in the handicapped bathroom.
But we really have no idea why you’d wouldn’t want to hang with these guys (they love to party). Which bring us to our next question:

Opinion Polls & Market Research

Hedge-fund Bullies []


You Say "Voldemort" Like That's A Bad Thing

Do you think that Bruno Iksil, when he woke up in Paris on Friday looking forward to trading from home in his black jeans, expected to become an international celebrity? The evidence suggests not. You may remember Iksil - possibly under other names like "Voldemort" or "the London Whaleâ„¢" as the JPMorgan chief investment office trader who has sold protection on $100bn of notional of a CDX investment grade index to ... hedge ... JPMorgan's massive short position in credit ... or ... something?* Anyway a lot of people are mad at him because that's just too much protection to sell on that index and so they are complaining to Bloomberg and the Journal about how he is manipulating the market and also taking huge proprietary risks with JPMorgan capital that should obvs be regulated out of existence. This is weird in a lot of ways but one of them is that you can distill a lot of the Volcker-Rule complaints into "my God, you're telling me that JPMorgan is exposed to $100bn of credit risk on investment-grade debt issued by a diverse mix of 121 U.S. companies!?" No! JPMorgan is exposed to something like $750bn of credit risk on debt issued by a diverse mix of companies. Some of it's non-US. Some of it's not even investment grade. And that's just in its loan book.** Is writing $100bn of protection on the CDX.IG.NA.9 a terrible risk to take with investor and depositor and government-backstop money? Well, define "terrible risk." It's certainly less risky than operating the rest of JPMorgan.***

By Partybus Buenos AIres [CC BY-SA 4.0], via Wikimedia Commons

Party Like It's 2007

Ever so quietly, holiday parties on Wall Street are returning to their former splendor.