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The Hedge Fund Report: Bitten by the Activist Bug

Also, comings and goings at Citadel, Man and the drama around Geac Computer.

Editor's Note: This is the first in a series of occasional columns on hedge fund news, trends and gossip by Emma Trincal,'s hedge fund reporter.

Fall is approaching, and with the new season comes some notable hedge fund launches.

The highest-profile debuts continue to be in strategies that employ shareholder activism. Bob Chapman, the well-known activist who took a sabbatical last year, is readying a fund for launch in January. Another is the soon-to-be launch is RLR Partners, a new activist vehicle based in New York, headed by Robert Rosen, according to industry officials.

With Carl Icahn's run at

Time Warner


grabbing headlines and Ed Lampert's work at

Sears Holdings


the stuff of legend, activism is enjoying a golden age. One thing driving the enthusiasm is the large amounts of cash that many companies are carrying on their balance sheets. The sums are tempting to managers dreaming of stock buybacks and other shareholder-friendly moves. The strategy's proliferation causes a snowball effect, too: the more activists there are, they more power they can wield as groups.

Who You Know

When new funds aren't notable for their strategies, they are notable for who leads them. The press is printing to-do lists for investors on how to avoid being in the next Bayou fund. One way is to give your money to someone whose track record and reputation are well established.

Such is the case when two ex-Perry Capital managers leave the firm to create their own shop. William Feil and Richard Crosby, two former equity managers at multibillion-dollar hedge fund Perry, are prepping HomeField Capital, an event-driven fund, according to an industry executive. Feil and Crosby left Perry earlier this year, and the launch could be sometime next month.

At Perry, Feil was a managing director covering the insurance sector, while Crosby was the head trader. Together, they were managing a $1.3 billion pool of assets focusing on equity restructuring, according to a source.

Leaving the Fold

With about $10 billion under management, Citadel Investment Group is another giant fund complex. It's not easy to leave Citadel, a nest of talented minds where the noncompete agreement lasts a year or more, by some estimates.

Anyone walking away from the fortress is certain to be noticed, and that's the case with Alec Litowitz, Citadel's former head of risk arbitrage and an event-driven expert. According to investors familiar with his upcoming fund, Litowitz left Citadel more than a year ago and has kept out of the market since then. He is now back preparing a new fund called Magnatar, which will operate out of Chicago. Litowitz's fund is expected to be a big startup with potentially $1 billion to $2 billion raised at launch, says one executive.

Elsewhere, Chris Chambers, CEO of Man Investments, the alternative investment division of the Man Group, stepped down this week. He will be replaced by Man Investments' head of marketing and client services, John Morrison. This is not a small move. Chambers' division manages $43 billion, and Man, along with UBS, is one of the largest hedge fund of funds in the world. Chambers not only stepped down as a CEO but also as a director of Man Group. The

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Financial Times

wrote that Chambers had been overshadowed by Man Group's CEO Stanley Fink and Chairman Harvey McGrath, an assertion strongly denied by a Man Group spokesman in London.

Meanwhile, Man Group is mulling the sale of Man Financial, its brokerage arm. The company is considering the option but nothing has been decided yet, according to its spokesman.

Geac Squad

An interesting proxy battle erupted recently between Eric Rosenfeld, manager of the activist Crescendo Partners, and

Geac Computer


, a Canadian software company with $870 million in market capitalization that trades on both the Toronto Stock Exchange and



Rosenfeld, who is also fighting on a different front against

Computer Horizons


, has had a busy summer. While Rosenfeld opposes the merger of Computer Horizons with

Analysts International


, at Geac it is simply the possibility of a bad marriage that bothers him.

Defending his company and its current management, Charles S. Jones, president and CEO of Geac, says, "Rosenfeld says he and his colleagues need to be on the Geac board because he is worried that Geac will pay too much for acquisitions, yet he has no factual basis for that concern." If anything, adds Jones, Geac paid a very good price when it purchased Comshare, its last acquisition, for 0.66 times revenue, a multiple well below comparable transactions at the time.

Rosenfeld's reply is that while Comshare was a "good acquisition," the acquisition of California-based Extensity was not. "They're looking for an acquisition and they have admited that they have a problem finding an acquisition at a good price," he says.

Crescendo disclosed a 5% stake in Geac last month. Rosenfeld filed a proxy demand for board seats for himself and one of his men, Gerry Smith. The battle got complicated a few days later when Rosenfeld dropped Smith from his team, noting an affiliation with Updata Partners, a venture capital firm, that would have represented a theretofore unnoticed conflict of interest. Trouble is, Updata denied having any affiliation with Smith. So Geac jumped on the opportunity to accuse Rosenfeld of "misrepresentation."

Amid all the drama, Geac's stock remain a decent performer. Since August 2003, Jones notes, when the bulk of the current management team joined the company, the stock is up 134%. At $10 a share, it's up 34% year to date.

Advancing Hordes

Whatever the popularity of various strategies, hedge funds continue to draw oodles of money, and its proponents say the trend has just begun. The industry's assets -- $1 trillion, roughly -- will hit $6 trillion by 2015, predicts George Van, president of Van Hedge Fund Advisors International. Van's schedule contemplates $2 trillion in assets within four years and $4 trillion in eight years.

Skeptics may think he's crazy but Van has some credibility. No one believed him when he said that hedge fund assets would hit $1 trillion by 2005, and they did. Capacity will expand because demand will expand, he says. One interesting argument, according to his study, is the impact on growth of the upcoming hedge funds regulation by the

Securities and Exchange Commission

. Van expects a proliferation of public securities that track or behave like hedge funds. As a result, the size and the liquidity of the market will increase. Perhaps the SEC is on the side of hedge funds for once.