Hedge fund investor Blackstone hopes to raise $227.4 million in a public offering of eight and a half million shares of its class A common stock. Blackstone Mortgage Trust, Inc., wants to buy up additional commercial mortgage loans and use the money for other general corporate purposes, the company said.
Underwriters have been given a 30-day option to purchase up to an additional one and a quarter million shares which will bring the total to $261.5 million. The offering is expected to close on January 14, 2014.
BofA Merrill Lynch, Citigroup, J.P. Morgan and Wells Fargo Securities are acting as joint book-running managers for the offering.
Also in Blackstone news, Blackstone Advisory Partners, an affiliate of the group, has hired James (“Jim”) Schaefer as Senior Managing Director of its Energy, Power and Renewables Advisory Practice in New York.
The investment giant will host a conference call for the media on Thursday, January 30, 2014 at 9:30 am ET to review fourth quarter and full year 2013 results.
Bloomberg Markets Magazine has compiled a list of the top hedge funds in 2013 with three lists of top performers: 100 funds with assets greater than $1 billion; 25 funds with assets of $250 million to $1 billion; and the 20 most-profitable large funds. Assets and returns were for the 10 months ended on Oct. 31.
Larry Robbin’s $1.8 billion Glenview Capital Opportunity Fund ranked #1 in the annual Bloomberg Markets ranking of the best-performing large hedge funds with a 84.2 percent gain through October 31.
Some highlights include:
- Three large Top Performing hedge funds include Glenview Capital Opportunity, Matrix Capital Management, Paulson Recovery.
- Top Midsize hedge funds are Senvest Partners, Marlin and SFP Value Realization.
- The Top 3 Most Profitable hedge funds are Bridgewater Pure Alpha II, OZ Master and The Children’s Investment Fund.
Steve Cohen’s SAC Capital International was actually the most-profitable fund in 2013, according to Bloomberg data, however Cohen isn’t on the most-profitable list this year because he is returning investors’ money as his firm settles criminal charges from the U.S. government.
Some of the biggest managers were the biggest disappointments in 2013. Ray Dalio, who runs Bridgewater Associates LP, returned just 6 percent through October in his $63 billion Pure Alpha II fund, according to data compiled by Bloomberg. The full lists are available here.
The SEC has published its 2014 NEP examination priorities for hedge funds, private equity funds, investment advisers and other self-regulated organizations.
Priorities specific to hedge funds:
- Annual exams mandated by the Dodd-Frank Act;
- The NEP will continue its assessment of funds offering “alternative” investment strategies, with a particular focus on: leverage, liquidity and valuation policies and practices;
- the staffing, funding, and empowerment of boards, compliance personnel, and back-offices; and
- the manner in which such funds are marketed to investors. The staff will additionally review the representations and recommendations made regarding the suitability of such investments.
The priorities listed for 2014 were selected based on a variety of information and risk analytics, including tips, complaints and referrals, including from whistleblowers and investors.
Other priorities include:
- For investment advisers and investment companies — advisers who have never been previously examined, including new private fund advisers, wrap fee programs, quantitative trading models, and payments by advisers and funds to entities that distribute mutual funds
- For broker-dealers — sales practices and fraud, issues related to the fixed-income market, and trading issues, including compliance with the new market access rule
- For market oversight — risk-based examinations of securities exchanges and FINRA, perceived control weakness at exchanges, and pre-launch reviews of new exchange applicants
- For transfer agents — timely turnaround of items and transfers, accurate recordkeeping and safeguarding of assets
- For clearing agencies designated as systemically important — conduct annual examinations as required by the Dodd-Frank Act, and pre-launch reviews of new clearing agency applicants
“We are publishing these priorities to highlight areas that we perceive to have heightened risk,” said Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations. “This document, along with our Risk Alerts and other public statements, help us to increase transparency, strengthen compliance, and inform the public and the financial services industry about key risks that we are monitoring and examining.”
The full text can be accessed here (11 pages).
JP Morgan was being charged by the prosecution for it’s involvement in the Bernard Madoff hedge fund ponzi scheme. The charges being settled are, according to Reuters, “..the bank violated anti-money laundering laws by failing to alert authorities to warning signs its employees encountered in dealings with convicted Ponzi schemer Bernard Madoff.”
The prosecution says that JP Morgan cut its exposure to Madoff’s hedge fund at the time in order to minimize losses, however, the mega-bank never informed US authorities about what turned out to be a $17.3 billion Ponzi scheme.
“The agreement would be the second time in a month that JP Morgan has been forced to acknowledge wrongdoing,’ The Guardian reports, “On November 19 the bank paid a record $13 billion to settle charges that it routinely bundled poor quality home loans into securities that were billed as high-quality to investors.”
The charges can be dismissed if the mega-bank pays its due and meets all the terms of the agreement.
The bank will pay a total of $2.6 billion, settling all criminal, civil and regulatory actions related to its business with Madoff.
An affiliate of hedge fund investor giant Blackstone has acquired $200 million in newly issued series A convertible preferred stock in innovative casual footwear company Crocs, Inc.
In connection with the investment, Crocs announced that it intends to revise its capital structure to accommodate a $350 million stock repurchase program approved by its board of directors.
Blackstone will be entitled to two seats on the Crocs board of directors.
“We expect Blackstone to contribute a great deal of value to our board through its financial, consumer, retail and brand experience and its global footprint,” Thomas J. Smach, Crocs chairman of the board, said. “While Blackstone’s investment will represent only 13% as-converted ownership at closing, we believe our company, shareholders, and employees will benefit.”
In its fourth quarter 2013 outlook, Crocs says revenue stands around $220 million. The CEO, John McCarvel, also announced his intention to retire in April, 2014.
“Blackstone sees tremendous opportunity in the Crocs brand and global franchise. The company has the infrastructure and products to enable continued growth across the wide range of geographies and channels through which it operates. Prakash Melwani, Senior Managing Director and Chief Investment Officer of Blackstone’s Private Equity Group said, “We believe our consumer and retail investing experience coupled with the network of value-added resources within Blackstone will make us a strong partner for Crocs. We look forward to working with the Crocs Board to deliver compelling long-term value to the company’s shareholders.”
The SEC and other federal regulars are reviewing whether or not certain CDOs backed by trust preferred securities should be subjected to new regulation under the final Volcker rules.
Reuters reports that this would be the first “tweak” to the new legislation known as the “Volcker rule,” which prohibits banking entities (and their investments in hedge funds) from making risky bets that solely benefit the banks and not the investor. The legislation comes into effect April 1, 2014.
The American Bankers Association filed a lawsuit warning of heavy losses if banks are forced to sell certain complex CDOs, Reuters reports.
“At stake are so-called collateralized debt obligations backed by trust preferred securities — or TruPS CDOs — which have hybrid characteristics of both debt and equity and can get a favorable tax treatment…. The regulators have to reply to the banks in court before 9 a.m. EST Monday [Dec. 30], but it was unclear whether the statement would alter the course of the lawsuit, in which the banks had asked for a stay of the relevant part of the rule,” Reuters says.
The SEC said it intends to address the matter no later than January 15, 2014.
The Volcker Rule is a specific section of the Dodd–Frank Wall Act originally proposed by economist and former Federal Reserve Chairman Paul Volcker to restrict banks from making certain kinds of speculative investments that do not benefit their customers.
Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law.
A Miami-based trader has been caught red handed with insider trading information in a large Chinese company. Charles Raymond Langston III was also caught conducting illegal short sales in the securities of three other companies.
“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it. Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.
The SEC alleges that Langston learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International’s stock. Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock. Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company’s public announcement that it had completed the secondary offering. To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina’s initial offering. Langston made $193,108 in illegal profits by trading on the inside information.
“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits,” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office. “The SEC is resolutely committed to pursuing those who violate Rule 105.”
Langston has agreed to settle the insider trading charges by paying disgorgement of $193,108, prejudgment interest of $22,204, and a penalty of $193,108.
U.S. fund managers participating in the 2013 Hedge Funds Review Service Provider Rankings have ranked Ogier number one among competitors for a third straight year.
“We greatly appreciate this latest recognition from the funds industry in the U.S., which is a key market for our firm and for the Cayman funds industry generally,” said Giorgio Subiotto, partner, Ogier Cayman and head of the firm’s global investment funds practice. “This is a massive vote of confidence by key players in the U.S. funds industry in the ability of the Ogier teams to provide the responsive and cutting edge support they require. It’s been a great year for Ogier Cayman; this news reinforces our already strong position.”
The 2013 Hedge Funds Review Service Provider Rankings reflect the opinions of more than 1,000 industry participants including asset and investment managers, single manager hedge funds and funds of hedge funds, providing views on a variety of service providers servicing the operational and technical sides of the hedge fund industry.
Ogier Cayman’s recognition under the 2013 Hedge Funds Review Service Provider Rankings follows its win in March 2013 for the ‘Best Offshore Regulatory Advisory Firm’ under the Hedgeweek 2013 Global Awards program; an honour it has also claimed for the third straight year.
Ogier has 850 people and provides advice on BVI, Cayman, Guernsey, Jersey and Luxembourg law and administration services through a network of offices that cover all time zones and key financial markets. These include Bahrain, BVI, Cayman, Dublin, Guernsey, Hong Kong, Jersey, London, Luxembourg, Shanghai and Tokyo.
The SEC over the weekend announced the agenda and panelists for its December 5 staff roundtable on the use of proxy advisory firm services by institutional investors and hedge fund investment advisers.
The roundtable panelists are:
- Karen Barr – General Counsel, Investment Adviser Association
- Jeffrey Brown – Head of Legislative and Regulatory Affairs, Charles Schwab
- Mark Chen – Associate Professor of Finance, Georgia State University
- Michelle Edkins – Managing Director and Global Head Corporate Governance and Responsible Investment, BlackRock, Inc.
- Yukako Kawata – Partner, Davis Polk & Wardwell LLP
- Hoil Kim – Vice President, Chief Administrative Officer and General Counsel, GT Advanced Technologies, Inc.
- Eric Komitee – General Counsel, Viking Global Investors LP
- Jeff Mahoney – General Counsel, Council of Institutional Investors
- Nell Minow – Co-Founder and Board Member, GMI Ratings
- Trevor Norwitz – Partner, Wachtell, Lipton, Rosen & Katz
- Harvey Pitt – CEO, Kalorama Partners
- Katherine Rabin – CEO, Glass Lewis & Co. LLC
- Gary Retelny – President, Institutional Shareholder Services, Inc.
- Michael Ryan – Vice President, Business Roundtable, and former president and COO of Proxy Governance, Inc.
- Anne Sheehan – Director of Corporate Governance, CalSTRS
- Damon Silvers – Director of Policy and Special Counsel, AFL-CIO
- Darla Stuckey – Senior Vice President of Policy and Advocacy, Society of Corporate Secretaries
- Lynn Turner – Managing Director, LitiNomics, Inc.
The roundtable will be held at the SEC’s headquarters in Washington, D.C., and is open to the public on a first-come, first-served basis. The event also will be webcast live on the SEC’s website and will be archived for later viewing.
“Members of the public are welcome to submit comments on the topics to be addressed at the roundtable.” The SEC said, ” Comments may be submitted electronically or on paper; please use one method only. Any comments submitted will become part of the public record of the roundtable and posted on the SEC’s website. ”
All submissions should refer to File Number 4-670 and the file number should be included on the subject line if e-mail is used.
A former analyst for hedge fund Diamondback Capital Management claims that he received a bonus of over $2 million the same year his insider trading tips helped the hedge fund earn over $3.8 million. The hedge fund has been out of business since January 2013.
Jesse Tortora, according to Bloomberg, also alluded to a “Fight Club” mentality that ran through the firm’s management. “Rule number one about email list, there is no email list,” Tortora wrote in a March 2009 e-mail introducing a newcomer to the group (Bloomberg). “Rule number two, only data points can be sent, no sarcastic comments. Enjoy. Your perf[ormance] will go up by 100% in 2009 and your boss will love you. Game theory … look it up.”
“Game theory is the collection of individuals working together will exceed the individual working alone,” Tortora said in court. “So the sum of the parts collectively will be greater than the parts of the sum individually. That is why we decided to work together. It allowed us to be more effective, more efficient, and more profitable.”
Also charged by criminal authorities and sued by the SEC were Spyridon “Sam” Adondakis, an analyst for Anthony Chiasson; Danny Kuo, a vice president and fund manager at Whittier Trust Co.; Jon Horvath, a technology analyst at Sigma Capital Management; and Sandeep “Sandy” Goyal of mutual fund company Neuberger Berman Group LLC. All of those individuals have pled guilty and settled the SEC’s claims.
Tortora says that he was motivated to testify to get leniency in his own case. He is the first of 4 analysts to be witnesses for the prosecution. The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).