The multi-strategy hedge fund Eton Park scored a +1.1% return in the second quarter, which led to a total gain of 1.4% for the first half of the year. The famous hedge fund with $15 billion in assets, was founded by former Goldman Sachs partner Eric Mindich.
In the quarterly investor letter seen by ValueWalk, the fund remarks on the diverse course that economic policies are taking around the globe. The fund was the most profitable in America but incurred the largest loss in European positions. Eton Park made the highest return in Japan among Asian countries, where the fund was increasing exposure. The quarterly letter was optimistic about Japan’s progress and noted that the new tax hike had fewer detrimental effects on the economy than feared, which is a good sign.
Winning again in Cheniere Energy
Eton Park’s biggest driver of profit in the last quarter was Cheniere Energy, Inc. (NYSEMKT:LNG), as the company is set to receive favorable regulatory approvals. With changes in the Department of Energy’s review process, Cheniere Energy is now likely to have prioritized consideration for its Sabine Pass Trains and Corpus Christi facility. In Eton Park’s view, Cheniere’s applications are likely to get approved in August and October this year. Eton Park and a bunch of other hedge funds are all making a fortune in Cheneire as the company has announced more projects and shares have gained 70% YTD. Seth Klarman’s Baupost Group, James Dinan’s York Capital, Dan Loeb’s Third Point, Tiger Cub and Blue Ridge Capital all have positions in Cheniere Energy.
Baupost Group initiated a major stake in Cheniere Energy, Inc. (NYSEMKT:LNG) in the first quarter this year. The fund’s holding amounts to 5.66 million shares. According to 13F filings, Eton Park holds 4.53 million shares of the company. Other equity names that boosted Eton Park’s profits during the second quarter were Williams Companies, Inc. (NYSE:WMB), SanDisk Corporation (NASDAQ:SNDK) and Hillshire Brands Co (NYSE:HSH).
Eton Park makes quick profits through M&A activity
Eton Park’s position in Hillshire Brands Co (NYSE:HSH) is new and was built after the company received an unsolicited bid from Pilgrim’s Pride Corporation (NASDAQ:PPC). The hedge fund made a quick exit and held the investment for under two weeks. Eventually Tyson Foods, Inc. (NYSE:TSN) won the bidding war by offering a 40% premium to Pilgrim’s initial offer. According to the letter, the fund bought shares between $45 and $53 and sold at $62 per share.
Another quick-entry, quick-exit investment was Protective Life Corp. (NYSE:PL), which the company bought at $58 and sold at $69. Eton Park initiated an investment in Protective Life after a Japanese newspaper reported that it was an acquisition target for Dailchi Life.
Eton Park has also invested in Covidien plc (NYSE:COV), which received a bid from Medtronic, Inc. (NYSE:MDT). That bid is under review in Washington. The fund is sticking to this investment for now. Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s hostile bid for Allergan, Inc. (NYSE:AGN) led the fund to initiate an investment in the latter as well. The letter said that the deal is likely to happen and that holding Allergan’s shares have limited downside.
The fund was previously unsuccessful in cashing in through merger activity when Pfizer Inc. (NYSE:PFE)’s $100 billion offer for AstraZeneca plc (ADR) (NYSE:AZN) failed.
Eton Park wins in RMBS
SanDisk Corporation (NASDAQ:SNDK) made several favorable announcements during the last quarter. The company committed to returning capital to shareholders, raised guidance and acquired Fusion-IO, Inc. (NYSE:FIO) in late Q2. The fund’s second largest winner, Williams Companies, has been performing well since major hedge funds jumped in last year. Corvex Management and Soroban Capital have activist holdings in the company.
Eton Park’s RMBS portfolio was also a winner in Q2. The fund cut down its exposure to this sector by 25% while still holding positions where it sees future profits. Eton Park’s structured credit funds were up 1.3% in Q2. The letter noted,
“Our RMBS positions have been helped by general macroeconomic improvement and continued low rates. Low mortgage rates have also resulted in higher voluntary prepays and higher home prices as affordability remains significantly elevated from pre-crisis levels.”
Losses in American Realty, Vodafone, eBay
The losses the fund suffered were in American Realty Capital Properties Inc (NASDAQ:ARCP), Marathon Petroleum Corp (NYSE:MPC), Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD) and eBay Inc (NASDAQ:EBAY).
Eton Park’s losses in American Realty Capital came as the company issued an equity offering which depressed its valuation. The fund believes that in the long-term, this will help the company in de-leveraging and will remove the overhang on the stock. To Eton Park’s benefit, Mick McGurie’s Marcato Capital Management has been pressuring American Realty, which has resulted in changes in administration and a promise to curb acquisitions this year. Activist involvement has brought some improvement in ARCP’s share price.
Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD) has plagued hedge fund returns in the past quarter due to disappointing earnings and lower guidance. However, this has not deterred any hedge fund, and investors continue to believe that this is a short-term lag that the company is going through. Eton Park said that the company’s aggressive strategic investment program, which will depress profits for some time, will have long-lasting benefits. Vodafone is in the process of signing multiple deals and is establishing its footing in next-generation network technology. Eton Park said that Vodafone is front-running the telecom consolidation wave in the European region.
Eton Park is hiring
The hedge fund notes:
Eton Park’s team is currently 131 people strong. We continue to selectively hire in all three of our offices across both the investment and business teams and feel well-positioned to handle the opportunities and challenges ahead.
Eton Park Special Investments
In the ‘SPECIAL INVESTMENTS’ appendix, Eton Park had more to say about returns and positions. The return for our Special Investments in Eton Park Fund, L.P. was (4.12)% for Q2 2014 and (5.52)% YTD 2014, according to the letter.
Furthermore, the hedge fund states:
Since the beginning of 2012, we have realized or partially realized 21 investments representing approximately $650 million in proceeds. During the second quarter of 2014, we achieved full or partial realizations from our investments in Ally Financial, Bharti Infratel, Markit Group, a US healthcare company, and a Russian industrial company. In aggregate, these five investments were realized at levels representing approximately 97% of original cost.
Eton Park formally ended the Special Investments fund in 2012 and has been looking for opportunities to liquidate its holdings over the past couple years. The remaining top ten positions amount to $786 million, roughly 90% of the assets in this portfolio. Eton Park tells investors that it will take more time to exit two of its special investments, Ruch and HydroChile. The hedge fund thinks that both businesses need more capital to grow and only then they can be sold at a reasonable level. Eton is looking for third party fundraising to fill the gap while using investor capital.
HydroChile is an hydro-electric power company based in