Elon Musk’s Twitter Buyout Was A Billion Dollar Windfall For These 13 Hedge Funds

Illustration by Gracelynn Wan for Forbes; Photos by Rodolfo Glcksberg/EyeEmby/Getty Images; Imran Kadir/Getty Images

For many hedge funds, Elon Musk’s $44 billion “forced” purchase of Twitter represented an easy money trade.“You didn’t have to be a genius to realize that he was going to finish that deal,” said Carl Icahn at the Forbes Iconoclast Summit on November 3, adding that he would have considered waging a proxy fight if the deal fell through.

Icahn told the audience at New York’s Historical Society that he made a profit of around $250 million by investing in Twitter this summer. But he was far from the only one to benefit. Regulatory filings show that billionaire-led hedge funds including Citadel Advisors, Millennium Management, D.E. Shaw and Third Point built large positions in Twitter in the second and third quarters, as well as other firms like Pentwater Capital and Farallon Capital.

Musk signed a merger agreement to buy Twitter for $54.20 per share in April, but the stock was trading as low as $32.65 by July when he tried to terminate the deal. That created an arbitrage opportunity for as much as a 66% return for investors who doubted Musk had much of a chance in the Delaware Court of Chancery to back out.

Icahn’s third-quarter 13-F filing with the SEC shows that he owned 12.5 million Twitter shares as of September 30. He said at the Forbes summit he bought in the mid-$30s–if he bought at an average price of $35 per share and made a $19.20 profit on each one when the deal closed at the original price of $54.20 per share on October 28, he would have netted a $240 million profit.

The only fund that made a bigger bet than Icahn was Naples, Florida-based Pentwater Capital Management, founded by Matthew Halbower in 2007. It bought 18.1 million shares during the second quarter and added another 5.3 million shares as of the end of the third quarter.

If it bought those 24 million shares at Twitter stock’s median closing price of $40.16 in the first quarter and $41.05 in the second quarter and held them through the completion of the acquisition in October, it would have made $324 million in profit, though its 13-F filing shows it hedged some of those gains by buying put options as well. Pentwater didn’t respond to a request for comment.

In all, Forbes found 13 hedge funds that spent upwards of $100 million adding to their Twitter stakes between the end of the first quarter and the end of the third quarter this year. We reached out to each fund to ask for average purchase prices, and estimated that they bought at Twitter’s median closing price in each quarter if more precise information wasn’t available. These funds cumulatively purchased more than 10% of the company in the six months leading up to September 30 and likely made well over $1 billion in profits on the deal.

These numbers don’t include any additional shares the firms may have purchased in October, when the margins were slimmer while Musk finalized the acquisition, and don’t include possible trading that took place within each quarter. 13-F filings show a simple snapshot of each firm’s long stock holdings on the last day of each quarter and don’t provide enough information to pin down exact gains and losses, but often represent the most thorough picture of what funds are buying and selling.

The biggest winners included Hong Kong-based Segantii Capital Management, founded by British investor Simon Sadler, and Farallon Capital, the San Francisco-based firm founded by Thomas Steyer in 1986 and now run by Andrew Spokes.

David Einhorn’s Greenlight Capital initiated a position of 4.3 million shares in the third quarter, his 13-F filing shows, and he wrote in a letter to investors viewed by Forbes that the average purchase price was $37.24 per share. He expected that the Delaware Court of Chancery would be wary of inviting future buyer’s remorse suits if it let Musk walk away.

“The case law on this is quite clear. If it were anyone other than Musk, we would handicap the odds of the buyer wiggling out of the deal to be much less than 5%,” Einhorn wrote in the letter prior to the completion of the deal. “At this price there is $17 per share of upside if TWTR prevails in court and we believe about $17 per share of downside, if the deal breaks. So, we are getting 50-50 odds on something that should happen 95%+ of the time.”

Musk saw the writing on the wall and reversed course in October, agreeing to pay the full price as these investors expected. His first weeks as Twitter’s owner have been marked by confusion and complaints after he opened verification to anyone willing to pay $8 per month, causing a wave of “verified” parody accounts, and laid off 3,700 employees, almost half of its staff. He has warned Twitter’s staff that “bankruptcy is not out of the question,” but if his $44 billion equity investment goes up in smoke, the hedge funds he paid that cash to will be laughing all the way to the bank.

I’m a reporter on Forbes’ money team covering investing trends and Wall Street’s difference-makers. I’ve reported on the world’s billionaires for Forbes’ wealth team

Source: Elon Musk’s Twitter Buyout Was A Billion Dollar Windfall For These 13 Hedge Funds

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Low Fee Hedge Fund ETF Gives Investors A Bear-Market Refuge With 22% Return This Year

With both stocks and bonds falling sharply this year, investors becoming discouraged by a standard 60/40 portfolio are beginning to pile into one three-year-old ETF that has served as an effective hedge for this year’s bear market.

New York-based Dynamic Beta Investments’ managed futures strategy ETF has gained 22% this year, far outperforming the S&P 500 Index’s 10% decline and the Bloomberg U.S. Aggregate Bond Index’s 10% drop. Managed futures funds are actively managed portfolios of futures contracts for assets ranging from stock indexes to commodities like oil and gold. Dynamic Beta’s fund aims to replicate managed futures strategies at 20 other hedge funds and investment firms and charges a mere 0.85% in management fees.

Dynamic Beta’s founder and co-managing member Andrew Beer, who runs the firm with a Paris-based partner Mathias Mamou-Mani, boasts that a podcast recently dubbed him the “Jack Bogle of hedge funds.” “No one has figured out how to pick which hedge fund’s going to do well, just like they haven’t figured out how to pick which stock is going to do well,” Beer says.

“The most reliable way to outperform is by cutting fees.” Most managed futures hedge funds charge limited partners 20% in performance fees based on profits and 2% administration fees per year. Managed futures funds have largely fallen out of favor in the last decade, lagging behind stocks during the bull market following the Great Recession. Societe Generale’s CTA index tracking the 20 largest such funds at firms like Clifford Asness’ AQR and Systematica Investments has gained more than 7% in a year only once since 2010.

But when the stock market plunged in years like 2002 and 2008, the index returned double digits. Many of these hedge funds are out of reach for retail investors, with high account minimums and management and performance fees that eat away at returns. Beer contends that Dynamic Beta’s ETF, trading under the ticker DBMF, can come close to replicating their portfolios for a fraction of the cost.

Dynamic Beta’s model analyzes daily data on returns for the 20 funds in the managed futures index and maps it to the market’s daily fluctuations to approximate how long or short the hedge funds are in futures contracts for various stock indexes, bonds, currencies and commodities. The ETF rebalances every Monday based exclusively on this algorithm. It’s grown from $65 million to $418 million in assets this year, with heavy inflows through June and July.

The biggest driver of DBMF’s gains this year has been its heavy short position on the Japanese yen, which has declined 14% against the dollar in 2022. The fund is also short the euro, short U.S. Treasuries and short the S&P 500 and international stocks. Its only long position is in crude oil. DBMF’s portfolio is simple, with just 10 futures contracts included, but that macro picture can replicate 90% or more of the pre-fee returns of leading hedge funds, Beer says.

“We’re not trying to say these guys have X amount in pork bellies and copy that. We’re basically saying, what are the big trades?” Beer says. “You don’t need to pay somebody 4% or 5% to do the big trades. We’ll do it and we’ll do it efficiently.” Beer started his career out of Harvard Business School in 1994 in the traditional hedge fund world, landing a job working for Seth Klarman’s Baupost Group.

In the early 2000s, he tried his hand at branching out on his own, cofounding two small hedge funds: commodity trading firm Pinnacle Asset Management and China-focused Apex Capital Management. After a few years, he started the venture that would become Dynamic Beta in 2007 as Belenos Capital Management. Its initial fund did well in the recession, but growth was slow for the first decade while its assets were housed in managed accounts with higher minimums.

It didn’t help marketing that managed futures flopped for the next several years. In 2018, French firm iM Global Partner bought a 50% stake in Dynamic Beta. IMGP scours the world for unique asset managers to partner with and was looking for a footprint in the “liquid alternatives” space. With their help, Beer and his staff launched the managed futures ETF in May 2019, and an equity long-short ETF came next in December of that year, aiming to replicate the gross returns of 40 equity hedge funds.

That fund hasn’t generated as much traction, with just $16 million in assets, and it’s down 1.6% this year. With three UCITS products–effectively mutual funds which are based in the European Union–as well, Dynamic Beta now manages $1.2 billion altogether. There are no other managed-futures ETFs close to the size of DBMF, though the firm does have competition in the broader hedge-fund-replication sector.

New York Life subsidiary Index IQ offers a hedge multi-strategy tracker ETF (QAI), down 7% this year, which seeks to replicate a variety of tactics. It has 0.75% management fees and $730 million in assets. Beer is hopeful that any of Dynamic Beta’s products could scale to become multi-billion dollar funds as investment advisors look beyond traditional stock-and-bond allocations.

“We believe that there are thousands or tens of thousands of RIAs who are now looking at the collapse in 60/40 portfolios and saying, I need something to add to this,” Beer says. “The next step is to get a big following in the wirehouses and the Morgan Stanleys and Merrill Lynches of the world.”

I’m a reporter on Forbes’ money team covering investing trends and Wall Street’s difference-makers. I’ve reported on the world’s billionaires for Forbes’ wealth team and was previously an

Source: Low Fee Hedge Fund ETF Gives Investors A Bear-Market Refuge With 22% Return This Year

Critics by Benzinga.com. Benzinga

Among the certainties on Wall Street are the following: Hedge funds usually carry high fees while exchange-traded funds usually carry low fees.

Some ETFs grant investors exposure to hedge fund strategies or stocks held by hedge funds without the punitive often found in the hedge fund space. For example, the Goldman Sachs Hedge Industry VIP ETF (NYSE: GVIP), which debuted in November, gives investors hedge fund-esque access at a somewhat reasonable fee.

Finding A VIP In GVIP

“GVIP’s 10.7 percent gain year to date through May 4 was ahead of the S&P 500’s 7.4 percent,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “While constructed from the bottom up, information technology (32 percent of assets) and consumer discretionary (27 percent) stocks are most prominently held. Consumer staples (4 percent) and industrials (4 percent) stocks were underweighted relative to the S&P 500. There are currently 19 stocks that were now in the ETF at the end of 2016.”

GVIP follows the Goldman Sachs Hedge Fund VIP Index and holds the 50 stocks that appear most frequently in 13F filing as top hedge fund holdings. GVIP charges 0.45 percent year, or $45 on a $10,000 investment. That is nearly double the average fee for U.S.-listed ETFs, but still cheap compared to a direct hedge fund investment.

Going With The GURU

The Global X Guru Index ETF (NYSE: GURU) is one of the seasoned names among hedge fund ETFs, having debuted nearly five years ago. The ETF follows the Solactive Guru Index. GURU holds stocks that are deemed to be “high conviction” hedge fund ideas.

GURU, “with approximately $60 million in assets, but down from a year earlier is a more established way individuals can invest in stocks held by hedge funds. GURU launched in 2012 and is comprised of the top US listed equity positions reported on Form 13F by a select group of hedge funds that the index provider Solactive deems as having moderate turnover rates and other characteristics,” said Rosenbluth.

CFRA has Market-Weight ratings on GURU and GVIP. GURU charges 0.75 percent per year, or $75 on a $10,000 stake.

Related links:

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Founders of $10 Billion Crypto Hedge Fund Have ‘Ghosted’ After Bets Go Bad

The co-founders of an influential multi-billion-dollar crypto hedge fund have suddenly gone MIA right at the moment that people want their money. Days of swirling rumors have been followed by harder evidence that Three Arrows Capital, or 3AC, is ghosting its business partners as it attempts to avoid insolvency after the firm overleveraged itself ahead of the recent “crypto winter,” which has plagued the industry and led to a steep decline in crypto prices.

Now, firms are scrambling to distance themselves from 3AC to assure customers that their funds won’t go down with the ship run by Zhu Su and Kyle Davies, two childhood friends who suddenly found themselves wielding billions in the Wild West of emerging crypto markets. “Losing a bet is one thing, but at least be honorable and not drag others into your bets who have nothing to do with it. Certainly don’t ghost on everyone since potentially, they could’ve helped you,” the head of trading at a firm that does business with 3AC said on Twitter.

The largely self-funded hedge fund has become a prominent investor in almost all arenas of the cryptocurrency industry, as well as a prolific borrower, making its inability to meet margin calls over the last week—money a firm has to pony up to cover losses—a subject of concern throughout the sector.

Rumors of issues at 3AC started to percolate over the last week, as crypto prices plunged and evidence emerged that the firm was frantically unloading tokens. “They’re not responding to anyone,” an unnamed source at a crypto trading firm told The Financial Times. As the frustration grew louder, 3AC’s normally prolific co-founders went silent, until Su sent out a cryptic and ominous tweet on Tuesday. “We are in the process of communicating with relevant parties and fully committed to working this out,” he wrote, without any additional context. He has not tweeted since, nor has Davies.

The head of trading at the Hong Kong-based firm 8 Blocks Capital, Danny Yuan, released a statement on Wednesday saying that 3AC had stopped responding after 8 Blocks requested a large withdrawal on Monday, June 13. After 3AC didn’t respond, a member of Yuan’s firm noticed that “~1m was missing from our accounts with them.” Additional attempts at contact went nowhere, and 8 Blocks Capital went elsewhere for information.

“What we learned is that they were leveraged long everywhere and were getting margin-called. Instead of answering the margin calls, they ghosted everyone. The platforms had no choice but to liquidate their positions, causing the markets to further dump,” Yuan said. In other words, 3AC had bet on crypto prices going up with borrowed funds (or “leverage” to use financial speak) meaning that any gains are higher but losses hurt much more. Yuan then called on platforms holding funds associated with 3AC to freeze them.

Zhu and Davies made their first public comments in an interview with the Wall Street Journal published on Friday morning, where they said that they were exploring asset sales and “rescue by another firm,” the outlet reported, and hoped to secure an arrangement with their creditors to give the firm some runway.

The apparent crisis afflicting 3AC is already sending ripples through the industry. On Thursday, the yield generation platform Finblox said that the company would pause reward distributions and limit withdrawals for all customers as it evaluated the effect of 3AC’s financial stress on its platform. 3AC is an investor in Finblox, the company said. 

The crypto lender BlockFi would not confirm if BlockFi had liquidated 3AC’s position, saying in a statement to Motherboard that it is against company policy to “comment on specific counterparties.” But BlockFi added that it “exercised our best business judgment recently with a large client that failed to meet its obligations on an overcollateralized margin loan.” (Unnamed sources told The Financial Times that BlockFi had indeed liquidated 3AC’s position.)

The stench of 3AC is so strong that even those who are not attached to the company have felt it necessary to distance themselves. Tether, the stablecoin currency, for one, issued a statement calling rumors that it had lending exposure to 3AC “categorically false.”  

The question is whether 3AC is a canary in the coal mine for crypto hedge funds, or just an overzealous fund that took too many risks. Mike Novogratz, the founder of Galaxy Digital Holdings, for one, has said he expects two-thirds of crypto hedge funds to soon fail.

Since its founding in 2012, 3AC has become one of the largest crypto hedge funds in the world, and its demise could cause trouble throughout the sector. Zhu and Davies, friends since high school who attended Columbia and joined Credit Suisse as derivatives traders together, started the fund while they lived in an apartment together, and have since become rumored to be “among the world’s biggest crypto holders,” according to Bloomberg.

3AC mostly (and maybe only) managed the co-founders’ own money, which Zhu claimed allowed 3AC “the ability to make very good decisions on market timing.” It also allowed for unusually large, risky bets, and for a while, the firm achieved astonishing results. The analytics firm Nansen estimated 3AC held $10 billion in blockchain assets as of March, and the company has investments all over the crypto ecosystem. As of December, that included a stake in the world’s biggest Bitcoin fund, the Grayscale Bitcoin Trust, that reportedly exceeded 5 percent.

 To increase the size of its bets, 3AC borrowed money from a number of firms, dramatically increasing its potential windfall. But when the crypto market started to crash, 3AC got hit hard. The hedge fund had invested in places like the play-to-earn game Axie Infinity and the Solana blockchain, whose token values have crashed in recent months. It also invested in Celsius, a crypto bank that has suspended withdrawals indefinitely amid rumors of insolvency. 3AC’s worst bet may have been Luna, a cryptocurrency that plummeted to near-zero in a dramatic implosion.

Now, 3AC appears to be scrambling to find money wherever it can, such as by selling massive amounts of tokens. One NFT fund the company had backed even moved all of its 70 pieces of digital art on SuperRare, which it had spent more than $20 million collecting, to a single address, indicating asset consolidation.

Ahead of the crash, Zhu and Davies professed an almost religious devotion to the potential of cryptocurrency. The libertarian Su had repeatedly pushed his “supercycle” thesis publicly, claiming crypto prices would continuously rise as it gained prominence relative to government currencies. “I also think we are entering an era where the potential of Bitcoin to become one of the key reserve currencies of people and nations is becoming clearer than ever,” Zhu told Bloombeg in April. “It will not be a smooth ride, but it will be a highly meaningful one for those who take the journey.”

On May 27, Zhu admitted that his grand supercycle theory was “regrettably wrong,” adding that “crypto will still thrive and change the world every day,” comments that Davies echoed in the Wall Street Journal. “We have always been believers in crypto and we still are,” he said.

By Maxwell Strachan

Source: Founders of $10 Billion Crypto Hedge Fund Have ‘Ghosted’ After Bets Go Bad

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JPMorgan Says Bitcoin Is Undervalued By 28%, Says Cryptocurrencies Are Now A ‘Preferred Alternative Asset’

Bitcoin price action might not reflect it, but the leading cryptocurrency by market cap could be massively undervalued, according to a variety of fundamental metrics that focus on coin issuance. Any asset – be it stock, currency, commodity, or otherwise – goes through boom and bust cycles; bull and bear markets. These cycles are more rapid and take place more frequently in crypto than they do in traditional market counterparts.

The reason is both due to the always-on 24/7, global crypto market and the speculative nature of Bitcoin, Ethereum, and other top coins. Even with adoption taking place, they’re still far from achieving their potential.When speculative assets reach a peak of a bull cycle, they are typically far more overvalued than they should be, which causes such an extreme correction back down toward the “mean.” During bear cycles, speculative assets tend to overcorrect as things appear worse off than they actually are.

These tools are widely known, but when combined paint a clear picture that backs up any chance that the top coin by market cap is actually undervalued at $40,000 per BTC.

Despite the crypto slump, banking giant JPMorgan says bitcoin is massively undervalued. Maintaining its estimate of bitcoin’s fair value at $38,000, the bank today reiterated the assessment it gave the asset in February when the cryptocurrency was trading around $43,400. This price is approximately 28% higher than its current level of $29,757.

In a note to clients issued Wednesday, the bank has also stated that it is replacing real estate with digital, or crypto, assets as its preferred alternative asset class along with hedge funds, citing “potential lagged repricing” in private equity, private debt and real estate. Alternative assets typically refer to ​​investments that aren’t stocks, bonds or cash.

The appraisal is a nod of confidence to bitcoin, which is currently trading at less than half its all-time high of $68,721, and the broader category in general. In addition to rising interest rates and the fallout from the war in Ukraine, the cryptocurrency market is grappling with the $50 billion collapse of algorithmic stablecoin TerraUSD and its sister token LUNA. The total market capitalization of cryptocurrencies currently sits at $1.3 trillion, a dramatic decline from $3 trillion in November.

“The past month’s crypto market correction looks more like capitulation relative to last January/February and going forward we see upside for bitcoin and crypto markets more generally,” the bank’s strategists, led by Nikolaos Panigirtzoglou, noted in the report.

The strategists also believe that “the trajectory for VC funding would be crucial in helping the crypto market to avoid the long winter of 2018/2019”, which followed the initial coin offerings boom. Just today, Ethereum scaling startup Starkware raised $100 million at an $8 billion valuation and venture giant Andreessen Horowitz announced a $1.5 billion allotment for crypto investments as part of its larger $4.5 billion fund.

“Thus far there is little evidence of VC funding drying up post-Terra’s collapse. Of the $25 billion VC funding year-to-date, almost $4 billion came after Terra,” the strategists noted. “Our best guess is the VC funding will continue and a long winter similar to 2018/2019 would be averted.”

I report on cryptocurrencies and other applications of blockchain technology. I also edit the weekly Forbes Crypto Confidential newsletter and contribute to our premium research service

Source: JPMorgan Says Bitcoin Is Undervalued By 28%, Says Cryptocurrencies Are Now A ‘Preferred Alternative Asset’

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In Defence of Cryptocurrency – Christine Lagarde, Are You Serious?

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Russia’s Creditors May Have To Choose Between Getting Paid In Rubles Or Not Getting Paid At All

Russia’s creditors face the unappetizing prospect of accepting debt payments in rubles after the U.S. Treasury decided Monday to block the Kremlin from using its dollar reserves.

The Russian currency crashed 40% in the days after President Vladimir Putin’s unprovoked attack on Ukraine but has mostly bounced back since. A default on the $636 million debt payment and further sanctions tied to alleged Russian atrocities could trigger another nosedive in the ruble’s value.

“If they can’t get their dollars, either because they’re blocked or Russia won’t pay them, and they are offered rubles and they can get access to them, they’d be smart to take the rubles,” said Jay Newman, a former portfolio manager for Elliott Management who spearheaded the hedge fund’s 15-year battle with the government of Argentina over bond payments. “Rubles at least are worth something.”

The U.S. Treasury froze Russian central bank assets held in the U.S. in February after the invasion of Ukraine, but made an exemption for debt payments that was set to expire on May 25. With Russia continuing its offensive for more than a month, however, and new images showing horrifying scenes of bodies of civilians on the streets of Bucha, Ukraine, the U.S. accelerated that timeline, blocking Russia from making debt payments to investors.

Until then, JPMorgan Chase and BNY Mellon, two New York-based banks, acted as go-betweens for Russian payments to creditors. Putin’s government continued to make payments on time throughout March, most recently with a $447 million coupon payment last week. Both JPMorgan and BNY Mellon declined to comment.

“On the one hand, there’s a sense that if a sanction target wants to use scarce resources to pay U.S. creditors back, why should we object?” said Robert Kahn, director of global macroeconomics at the Eurasia Group. “But if we’re making life easier for them by opening up these doorways, I do think that at moments like this, particularly in the context of the awful images we have seen in the last few days, the interest of creditors is just not given a very high priority.”

The Kremlin dismissed the notion on Wednesday that it’s at risk of not being able to make the payments during a 30-day grace period. Spokesperson Dmitry Peskov said Russia has “all necessary resources to service its debts” and insisted that payments could be paid in rubles if necessary. A U.S.

Treasury spokesperson said the move will deplete the resources Putin is using to continue the war. “Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,” the Treasury spokesperson said.

If Russia elects not to pay, it wouldn’t be the first time — a 1987 Forbes story covered a 96-year-old woman who was still waiting to be paid for czarist bonds her husband had bought in 1919 shortly after Russia defaulted on its debt during the Bolshevik Revolution.

Anton Siluanov, Russia’s minister of finance, said on state TV in March that about $300 billion of the country’s $640 billion in gold and foreign reserves has been frozen by sanctions. If Russia still has access to about $340 billion in reserves, the country appears to have more than enough to cover its total of $40 billion owed in international bonds, but Kahn said it’s not that simple and expects defaults to begin in the coming weeks.

“Dollars in a Chinese bank or gold in Moscow may be in principle unblocked, but it’s hard for them to take those and use them to buy the things they need,” Khan said. “My sense is that the usable reserves are really far lower than what the minister said.”

Russia will still be able to use revenue from sales of commodities like wheat, palladium and oil to meet its debt obligations. The U.S. has blocked imports of Russian oil, but other importing countries haven’t followed suit.

Meanwhile, trading in dollar-denominated Russian corporate bonds has skyrocketed, with investors hunting for bargains despite the reputational risk. The average daily value of trades as of March 24 was double the same period a year before and the most in two years, according to Bloomberg.

I’m a reporter on Forbes’ money team covering the wealthiest people and most influential firms on Wall Street. I’ve reported on the world’s billionaires for Forbes’ wealth team and was

Source: Russia’s Creditors May Have To Choose Between Getting Paid In Rubles Or Not Getting Paid At All

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