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Hedge Fund News

Activist hedge funds are hardly a new phenomenon, and Bill Ackman of Pershing Square is certainly not a novice in the game. While activist funds have been on the scene for decades, the motives that lay behind the activism have changed dramatically.

Earlier versions of activism were analogous to private equity plays, in which the fund’s stake was typically little more than holding a promising stock for a long-term gain. For the reader who is unfamiliar with the motives of today’s activist hedge fund, in general, or Bill Ackman in particular, please take a moment to review this Hedge Fund Marketing Association article for further insights.

Today’s Activism

Activism in the 21st century has taken a different tack and Ackman’s game plan for ADT is likely not to be one for the long-term. Automated Data Processing (ADP) is, by all accounts, a quality enterprise. Founded in 1949 by Henry Taub and launched as Automatic Payrolls, Inc., the company grew to achieve almost $12 billion in annual revenue in 2016.

On word of Ackman’s involvement, ADP’s stock rose 2.9 percent. One can readily calculate the monetary gain on Pershing Square’s eight percent stake. It is in the millions of dollars, practically an overnight windfall.

Ackman’s Goal

Although current ADP CEO, Carlos Rodriguez, has increased share value over his tenure, beat earnings estimates in the last three quarters, and grown gross revenue over the past three years or more, Bill Ackman feels the company can do better.

His stated intentions are to seat at least three board members, accelerate the firm’s growth, improve the quality of its software, enhance customer service, slash operating costs and increase the company’s efficiency overall, thereby increasing the company’s value to shareholders and customers.

These are lofty goals, and there are impediments. First, and foremost, Carlos Rodriguez doesn’t plan to go quietly into that good night. The board has already rebuffed Ackman’s request to extend its August 10 deadline for board nominations, which could force Ackman to sit on his plans for almost a year or, alternatively, gain the support of one-third of ADP’s shareholders in order to call for a special shareholder meeting.

Given the excellent record of accomplishment that Rodriguez has achieved in his 6-year tenure, the prospect of securing the votes of one-third of ADP’s shareholders seems a daunting task.

What About Hedge Fund Jobs?

While the relationship between hedge fund activism and hedge fund jobs is not necessarily a straight line, one can certainly understand how the in-house talent required by an activist firm may be more diverse than may those required in other fund strategies.

As the 2017 Hedge Fund Compensation Report demonstrates, people gain entry into the hedge fund industry from diverse backgrounds and activist funds are one reason that this is the case.

As for Bill Ackman, this isn’t his first rodeo and, more to the point, if he succeeds in ousting Carlos Rodriguez, it won’t be the first notch in his gun. Ackman has engineered the demise of CEOs at Air Products and Canadian Pacific Railway.

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In the wake of countless glowing articles touting hedge fund gains through the first half of 2017 as well as new industry records for assets under management, hedge fund managers can’t help but be pleased—and who can blame them?

Here Are the Facts

Hedge fund gains have been in positive territory for the past eight months, with cumulative gains through the first six months of 2017 reaching 4.87 percent. Looking at the most recent twelve months, we see average hedge fund gains in double-digit territory…10.91 percent! Hedge Fund Research reported this eight-month run of positive gains as being the longest since early 2004… and that’s not all!

According to eVestment’s recent Assets Flow Report, the hedge fund industry gained $20.65 billion through the first half of 2017, which brought industry assets under management to a new record high of $3.12 trillion.

Here Is the Pushback

No one will argue that positive gains are not a good thing. However, 4.87 percent through the first half is not a number that excites when one considers that the S&P 500 was up 8.2 percent, the DJIA was up 8 percent and NASDAQ was up 14.1 percent in the same period, according to MarketWatch.

Another troubling fact is that although asset flows were indeed positive through the first half, investors withdrew almost $7 billion from hedge funds in June.

Finally, the number of hedge funds closed in the first half of 2017 outpaced the launches of new funds for the sixth consecutive quarter. However, many hold the opinion that this is actually a positive for the industry, recognizing that poorly performing hedge funds should shutter, thereby improving aggregate gains for the industry.

Regardless of your take on this matter, the fact remains that the total number of hedge funds and funds of funds stood at 9,691 at the close of the first half, down 4.45 percent from its previous high of 10,142.

In spite of all this good news, the Illinois State Board of Investment has dropped hedge funds as a separate investment.

Will the Bloom Return?

Only time will tell! However, there are many reasons to be optimistic regarding the future of the industry. Asset flows and gains are the primary concerns. According to HFR, mid-July gains stand at 0.73 percent, and if asset flows remain positive as well, the hedge fund industry could reasonably expect increased inflows from institutional investors, pension funds, endowments and high net worth individuals. Some suggest this is already occurring. If true, the bloom will indeed have returned to the rose.

What About Hedge Fund Jobs?

Positive returns and positive inflows can only be positive for hedge fund job seekers. However, we cannot forget that annoying problem of hedge fund closures outpacing hedge fund launches. The industry will require time to adjust. While it may not be the best of times to be seeking a hedge fund job, it is certainly not the worst of times. Demand may be somewhat diminished and competition may be heightened, but this is not to say that genuine talent cannot find a way through the door.

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What Will Be the Upshot of MiFID II on Hedge Fund Jobs?

June 26, 2017

Just as the regulatory mists were beginning to dissipate under President Trump’s Sharpie and the House’s legislative action, a new fog is rolling across the financial sector—MiFID II. Although driven by European regulators, it cannot be ignored by any financial organization that engages the European markets, and this includes the hedge fund industry. What Is […]

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Can Hedge Funds Help Pension Funds Meet the $400 Trillion Challenge?

May 29, 2017

A child born in 2007 can look forward to a lifespan in excess of 100 years. Although this is marvelous news for those born in this millennia, it only adds to the woes of pension fund managers struggling with monumental shortfalls, estimated to be in the range of $400 trillion worldwide. The U. S. share […]

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Trump Executive Order Puts Dodd-Frank in the Cross Hairs

May 1, 2017

President Trump’s executive order, signed January 30 of this year places Dodd-Frank squarely in the administration’s cross hairs. The impact of this executive order would not be so daunting if the legislative process had not been outsourced to the Federal agencies charged with implementing the legislators’ perceived wishes through regulation—a defect that future lawmakers might […]

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Hedge Fund Jobs and the Rise of the Machines

April 3, 2017

Robots, once the bane of blue-collar workers, may now threaten the livelihoods of hedge fund professionals. Taxi and Uber drivers are menaced by driver-less technology, fast food workers are marginalized by robots capable of making a burger in less than ten seconds, and BlackRock, Inc. is implementing data-driven, artificial intelligence (AI) programs that will ultimately […]

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Surprisingly Investors Remain Bullish on Hedge Funds

March 5, 2017

After an inglorious 2016, many pundits jawbone about a continued investor exodus from the so-called overpriced and underperforming hedge fund industry. However, the facts are in stark contrast to the rhetoric. January 2017 redemptions total $5.2 billion, about one-quarter of the $19.3 billion outflow the hedge fund industry experienced in January 2016. Furthermore, a substantial […]

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