Curious about that surge in AutoNation trading volume this week? Well, I'm going to venture a theory, anyway: It may have something to do with ESL Investments' continuing campaign to teach redeeming shareholders to be careful what they wish for.
Edward Lampert used $393 million of shares in AutoNation Inc. to meet client redemptions from his main hedge fund, whose investment in Sears Holdings Corp. has led to volatile returns.
Lampert’s ESL Partners LP on June 10 distributed 9.09 million AutoNation shares, or about 41 percent of its stake in the auto retailer, to investors who were redeeming their interests in the fund, according to a regulatory filing June 12….
By issuing some of its holdings instead of cash to clients who are withdrawing capital, ESL Partners can avoid selling investments on the open market and protect its remaining clients from being hit with capital-gains taxes. In February 2012, the fund used $351 million of shares in AutoNation and AutoZone Inc. for withdrawals….
ESL in November distributed 5.9 million Sears shares to limited partners for 2012 redemptions, according to a regulatory filing. Lampert used $130 million of personal funds last year to acquire Sears shares held by ESL Investors LLC, a partnership that he formed for the Ziff family that follows the same strategy as ESL Partners.
As an added bonus, Eddie stuck in a few Orchard Supply Hardware Stores Corp. shares (down 74.22% this year).