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The Hedge Fund Report: Trading to a Major Quarter

Garbage Men

Hedge funds' appetite for junk food is well-known. As James Altucher noted at a recent conference, Pershing Square loves McDonald's (MCD); Nelson Peltz is a Wendy's (WEN) aficionado; and David Nierenberg is hungry for Mexican Restaurants (CASA) -- the list goes on and on.

Now, in addition to junk, we learn that managers also love garbage. John Quirk, a managing director with investment bank Morgan Joseph, said that market valuations for many privately owned solid-waste companies have risen more than 40% in the past two years, spurred by eager buyers among private equity firms and cash-rich hedge funds.

According to the National Solid Wastes Management Association, the industry generates more than $43 billion in revenue, with 76% of it by the private sector. "Hedge funds are attracted by the industry because of the stable and predictable cash flows, the recession-proof characteristic of the business and also because it's a very fragmented sector," said Quirk. Acquisition opportunities also exist, he said, because major firms in the industry have significantly reduced their purchases of other companies and are focusing more on asset swaps.

In the public sector, solid waste companies have easily outpaced the major equity indices during the past six months, Quirk says. Apollo Advisors is the largest shareholder of Allied Waste Industries (AW), with a 20% stake in the company, according to filings with the Securities and Exchange Commission.

Cascade Investments, the investment firm that manages the Bill Gates Foundation, is Republic Services' (RSG) largest shareholder, with 14% of the shares. Other large hedge funds, such as Caxton Associates, Clinton Group, D.E. Shaw, Farallon Capital Management, Citadel Investment Management and S.A.C. Capital Advisors, own shares in some of the largest public solid-waste companies, according to BigDough.com.

Big Launch

Man Group, the world's largest publicly held hedge fund, recently raised more than $2.3 billion for a new investment product. The launch exceeded the $2 billion expected in the preclose trading statement. "This is by far the largest global private client launch of a hedge fund product ever done," said Stanley Fink, Man's chief executive.

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