Archive for the ‘Investing’ Category

Sohn Investment Conference London Oct 2013 – Hedge Funds vs Pediatric Cancer

First Published in BBeyond Magazine 1/2014 – Download PDF

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Conversations with John Altorelli – Wall Street’s leading corporate lawyer

December 25, 2013 Leave a comment

First Published in BBeyond Magazine October 2013 – Download PDF – John Altorelli

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Dell LBO Update:

July 21, 2013 Leave a comment

As an update to my previous post regarding the Dell LBO, I received the Notice of Special Meeting of Stockholders in the post sometime back and am entitled to vote on the buyout for which I intend to vote against. The meeting was postponed, but with rumors that Dell and SL  not seeking additional financing. Either this is a head fake, and Dell’s already got some cash reserve for a last minute deal sweetener, which really should tow this buyout past the finish line. An offer of 14 would seal the deal without doubt (since Icahn offered 14 with public stub and claimed it to be superior). Perhaps they may offer 13.8 just before the next meeting (which was meant to have occurred last week)?  A marginally increased offer and Michael Dell’s personal last minute ‘wheeling and dealing’  and arm twisting should easily suffice. Because frankly, I believe the shareholders fear the failure of Dell – SL buyout as much as they fear Icahn being in control. An increased offer would be acknowledging Dell – SL could have offered higher in the first place – a sort of tacit acknowledgement that Icahn the vulture did provide a positive service to shareholders (not to mentioned his own profit). So I suspect, if a higher offer is to come, it will not allow anyone the chance to counter offer. Plus Dell & SL is so close to the finish line now that any PR damage or additional costs from a deal sweetener that could shut dissenting shareholders and Icahn up is probably worth paying for in their opinion.

I previously accumulated shares before the buyout was announced and added to my position (past the voting cut-off date). As it stands, if the buyout goes through at 13.65, it is not in my interest because I bought a lot of cheap put options (Sep 20 – 13 Puts, Jan 17 – 13 Puts, Feb 21 – 13 Puts). The profits will be offset by the losses arising from options expiring worthless. However, if  shareholders vote down the buyout with the intention of supporting Icahn, they still have to ‘vote in’ Icahn’s proposal which is an even longer shot by any yardstick. The interim volatility will benefit my options position. Dell as we know it will be ‘destroyed’, saddled with debt and run by a ‘corporate raider’. Perhaps profitable parts sold off? The fact of the matter is – right now, Dell probably has more ‘intrinsic value’ to interested buyers if it was broken up and sold in pieces . A recent FT article published 3 days ago basically said the exact same things that I wrote months earlier, including using the exact sentence  almost verbatim “Dell’s legacy is at stake…”.

As much as I’d like Dell to succeed, I am voting against it (in my own ‘selfish’ interest). I would not be surprised if other shareholders think and do the same. Which is why I believe any marginal last minute sweetener would secure Dell-SL the successful buyout.

I did not once look at the valuations, financial models or forecasts (I just didn’t have the time). Price action and game theory told me enough. Anyone trading this on fundamental valuation would have gotten crushed. The key was buying the put options for next to nothing when Dell was trading above offer price (market expected Dell-SL to increase their bid), when that did not happen and sentiment turned I accumulated more Dell shares – slowly levering up my position every time the market sentiment changed.

UPDATE: Well, guess what? Dell offered 13.75 + special dividends of 0.13, and Q3 dividend of 0.08 which will still be paid (since this has been dragging on) for effectively what is just shy of an all out offer of 14 which I wrote will all but surely seal the deal. If you read my original post, everything had came to past… Icahn was in for the quick buck, and he was right. The problem for Michael was, his cards were pretty awful to begin with even though he could call Icahn’s bluff. Icahn just had the upperhand all along. Icahn had the chips and was willing to go all in, Michael knew that. Problem was,.. Icahn knew that Michael knew that too.

FT Game Changers

May 27, 2013 2 comments

Henry Kravis & George Roberts of KKR. Copyright belongs to Financial Times Limited. 

Categories: Economics, Finance, Investing

UPS and TNTE failed merger counter arbitrage

January 15, 2013 Leave a comment

When mergers and acquisitions fail it turns to Murders & Executions for merg-arb desks. And when there is blood on the streets, even if it is your own blood, buy…

When the news of European Union anti-trust regulators blocking the potential UPS and TNT Express merger filtered through the newswire, the markets were not open. Prior to this, I have neither followed this industry nor the two respective companies. I brought up the charts of TNTE and noted the “undisturbed price” of TNTE, the target company that was being acquired, was around 6 Euros. The offer price by UPS was 9.5 per share. The shares of TNTE were last trading around 8.5 Euros. I made a mental note that if TNTE fell way below its undisturbed price – somewhere in the region of 20-25% below its undisturbed price of 6 euros, I would fade the trade and long it. This 20-25% represents my margin of safety. Implicit in this assumption and my trade rationale is that the market is fairly efficient in pricing-in information – that the undisturbed price represents fair value given TNTE’s prospects and outlook.   As it turned out, TNTE opened at 4.160 when trading resumed. I transmitted a market buy order (yeah, I know I just broke my own rule of never using market orders – but hey this is a “Special Situation” and rules are made to be broken) and got filled at 4.35. The following day, I closed the position out at 5.10. Although this is only a small stake and I made 17% return on capital with limited downside risk in one day, I never actively sought this trade out. Had TNTE opened down at 5 Euros or even 5.5, I probably would not have put this trade on. I did not have time to look at the fundamentals of either company. All I knew was, the merge-arb guys who believed the deal was going through would be crushed and had to dump their TNTE holdings in a market with no buyers thus depressing the stock way beyond its ‘fair value’. What is fair value? I don’t know. It is a subjective concept.  As the day wore on and I scanned the newswire, I noted that even though TNTE was trading at 8.5 before the announcement by EU regulators, the market was pricing in information that told me the market is not extremely optimistic that the deal would go through. Needless to say, this did not affect my rationale as I was already in the trade and my trade was based solely on a special situation and understanding of the dynamics of strategies pursued by merg-arb desks. Everyone knew TNTE would slump on the open, the question was by how much? And is that margin of safety something I was comfortable with? Was I willing to lose half my capital staked on this trade if it opened at 4 and traded down to 2? Compared to making 50% return if it traded back to 6? Which was a more likely scenario considering UPS made an offer of 9.5? As it turned out, it was a trade that I was comfortable with and made a quick profit. Why did I not buy pre-open with the chance of getting filled at a lower price say around 4.160 and maximise my profit? Well, I let the market tell me what to do. It could have easily opened at 4.16 and traded down to say 3.75. This would have messed up my conviction and trading psychology. Equally why did I take profits so early? Well, I recall a ‘market wizard’ once noted “the first 1/8 and the last 1/8 of a move are the most expensive ones”. I am not trading to be right and I am not great at timing the inflection point of the market. I am trading to be profitable and was happy with the return.




Book Review: Global Macro Theory and Practice

November 21, 2012 1 comment

Perhaps most of you have heard of the term Sovereign Wealth Fund (SWF). It was a term coined by Andrew Rozanov in 2005 to describe government-owned funds that invest in whole or in part outside their home country. Global Macro Theory & Practice is a book compiled and edited by Rozanov, an expert and advisor to sovereign wealth funds and intuitional investors on asset allocation, portfolio construction, risk management and alternative investments. Contributors include current practitioners from discretionary and systematic managers, prime brokerage specialist, investment consultants, funds of funds (FoFs) managers and institutional investors.

The book begins with a brief overview of the origins of Global Macro investing starting from John Maynard Keynes who managed the King’s College endowment fund at Cambridge to hedge fund legends in the late ’80s and ’90s, such as George Soros, Michael Steinhardt, Julian Robertson, Louis Bacon and the ‘Commodities Corporation Mafia’. The Commodities Corporation (acquired by Goldman Sachs Asset Management) has produced legendary traders such as Paul Tudor Jones, Bruce Kovner, Michael Marcus, Ed Seykota and Jack Schwager, author of the Wizards quadrilogy books on trading. The author touched briefly on some of these traders who have really come to epitomise the term Global Macro in the late ’80s, ’90s and early part of the noughties. Those interested in reading more on the trading styles of these global macro legends should refer to books by Jack Schwager. This chapter concludes with the future prospects of global macro.

The next two chapters are written by a discretional macro manager and a systematic macro manager. They cover asset allocation, CTAs and the differences between systematic and discretionary macro strategies.  The fourth chapter provides more colour to the different shades of Global Macro investing and how it fits in within a global tactical asset allocation (GTAA) profile. The fifth chapter evaluates the role of a global macro strategist from behavioural school economics’ standpoint.

Chapter six covers global macro in the emerging markets context with rich examples from relatively recent economic developments. Chapters seven and nine offer perspectives from a risk manager and prime brokerage specialist whilst chapter eight describes a theoretical framework for navigating geopolitical risks. The last four chapters bring together various elements of global macro investing, its inherent leverage and the case for global macro in institutional portfolios.

This book is the first of its kind to attempt to shed light and build a framework to describe current global macro practices – ‘a loose term that has come to mean different things for different investors’.  As global macro investing continuously evolves, this book offers a fresh look through the prism of leading current practitioners in the field that is grounded in both theory and practice.

Interview with Michael Keer-Dineen, CEO of Cheviot Asset Management

November 15, 2012 Leave a comment

This article was first published in B Beyond 2012/3 (page 78) by BB Publications – a niche publisher catering for the global HNW and UHNW community. (

B Beyond’s David Wong caught up with Michael Kerr-Dineen, CEO and co-founder of Cheviot Asset Management.

Michael Kerr-Dineen is one of those financiers whose focus on class and quality can only be overshadowed by his determination to deliver on his promise. He has demonstrated this by walking away from giants such as UBS to prove that business can be done with complete honesty and integrity. As the former Chief Executive Officer of UBS Liang & Cruickshank, Michael led 80 bankers out the door when he left UBS to form Cheviot in 2006. In less than five years, Cheviot became one of the UK’s largest independently owned investment firms with over £3.8 billion in assets under management.

Before he founded Cheviot Asset Management, Michael’s career path took many interesting turns. He started in the business intelligence department of the Bank of England. Moving to the British National Oil Corporation, he then transferred to the Guinness Peat, Crédit Lyonnais and UBS. Having experienced both French and Swiss bureaucracy, Kerr-Dineen decided to set up a true partnership – Cheviot – embodying qualities of a ‘class act’, as he himself refers to, in his latest venture.

B Beyond’s David S. Wong, in an exclusive interview with Michael Kerr-Dineen, covered some of the most burning issues around the changing financial landscape.

BB Having been involved with so many prominent financial institutions, would you say it is harder to run your own independent firm now?

MKD No, it is much easier. Now I think it is traditionally acknowledged that the partnership structure is absolutely the best way to deliver to clients two things they want. One is a genuine personal service – which is what everyone says they offer, but in practice, constraints of big banks mitigate against them being able to do so. Personal service ensures there is absolutely no conflict of interest of any kind and that is even more important on the investment management side where we can be sure that the processes are entirely ours and we are totally independent. There is no forcing into funds. Of course, being independent does not mean you are always right but it gives you a much better chance to get it right and genuinely tailor services to clients’ needs on individualised basis.  The second thing is ‘class and quality’ – which we like to think we are about.

BB I would like to ask you about your views on the current Euro Debt Crisis.

MKD I am very bearish about the whole thing with its political side. Europe was in denial about it for a very long time and I think they are probably just coming out of the denial stage. You just cannot engage in quantitative easing without longer-term implications. The fact is, whatever they do in relation to piling money into the economies, the debt simply will not go away.

It is down to Germany, who has obviously benefited from the whole situation. They are famous for taking decisions in their own economic interest, almost prepared to subjugate their political freedoms for their economic interest. However, for the first time you see splits within the German elite as to whether this is a good idea or not. It was always unwise to have a single currency without a genuinely integrated fiscal and monetary policy as well. So inherently there was a flaw from day one. Greece, Ireland and Portugal were relatively minor problems. Italy is obviously a big problem, Spain is a big problem, and the French banks too, both in their domestic markets and their sovereign lending. Even without the benefit of hindsight, it was always ridiculous to have a single currency system without integrating fiscal and monetary policies. Interest rates will continue to remain low for the foreseeable future.

BB The finance industry as a whole has been tarred by the same brush. How do you address that at Cheviot?

MKD Banks have rightly taken responsibility for a large part of the first bit of the crisis. But that is not all banks’ fault. It is not the banks’ fault that the Greeks and Italians have a relatively early retirement age. And also there are issues such as over-reporting, overspending and funding. From the asset management perspective it is the big banks that have got the real problem. I think clients now realise that if they want their money properly managed, a private bank is not the best solution. If clients want to go to a private bank to avoid taxes, and keep their money offshore (in bonds or cash) and have someone pay their bills in Monaco, that’s fine. It is a service provided by the private banks. But this service is miles away from genuine management and running of assets in the markets for the purpose of generating the appropriate returns. At Cheviot, we have got a very good partnership structure in place. We have good organic growth and the brand name is strengthening, so we must be getting something right. The equity ownership of Cheviot by our partners is a unique selling point where we have good people willing to put their names and reputation on the line – something which is not found in most firms. Our growth mandate, our balance mandate and our cautious mandate are all in the top deciles in the last one, three and five years, so there is real substance behind the theory.

BB What advice would you give people looking to set up their own firm like yourself?

MKD It is tough. It is perfectly clear that the trend is to move away from big organisations into smaller boutique firms. Part of the reason why it is difficult to start a fund is that you need a brand and a track record. It’s difficult to differentiate yourself from the rest and I think in some ways we have managed to do that at Cheviot. You will also need strong relationships and a credible base team to establish a critical mass.

BB What do you think is the greatest pitfall of the finance sector as a whole? Or the greatest opportunity going forwards?

MKD The IFA (Independent Financial Advisors) and RDR (Retail Distribution Review) debate will certainly create big opportunities for the discretionary fund managers like us. The IFAs are just bailing out, which will create opportunities for us. I think the structure of investment management firms is also important and I like to think that we have got it. There is still a lot of money out there that is not managed by anyone and accessing it through IFAs is a distinct possibility. Most of the inflows we get are generally new money. People are also moving to a more personal approach due to the bad performance of mutual and pension funds. Structural changes in the industry will force private banks and some wealth managers to move up the value chain, quit the market or seek a managed exit.

BB Just to finish up, can you please tell us a bit about your investment ethos?

MKD The asset allocation is key. Of course it all depends on the individual clients and the benchmarks they follow.  Our investment process combines strong disciplines with flexible asset allocation and stock selection. Our belief is that the best results come from a mix of styles adapted to the market cycle. So I suppose it is more top-down than bottom-up and it really is a matter of a close understanding of our clients’ individual investment objectives.

Six months after the initial interview was conducted, Michael’s bearish outlook of the European Debt Crisis from the political perspective continues to unfold. Spain and Italy’s borrowing costs continue to soar as the European Central Bank cut interest rates to a record low of 0.75%. The US Federal Reserve is expected to keep short-term interest rates close to zero “at least through to late 2014”.  Cheviot Asset Management won the Best Performing Fund Award for its Libero Cautious Fund in March 2012. Cheviot’s Liverpool office, its first office outside of London, attracted £170m of funds under management in its first year.

For more information on Michael Kerr-Dineen and Cheviot, please visit:


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