Lansdowne Partners Loses Big on Glencore Bet -- Update
September 23 2016 - 1:58PM
Dow Jones News
By Laurence Fletcher
LONDON -- Hedge fund firm Lansdowne Partners (UK) LLP is one of
the biggest losers from the sharp rebound in Glencore PLC shares
this year.
Lansdowne, one of the world's biggest hedge-fund firms with
around $20 billion in assets under management, has been betting
against Glencore's shares for three years or more, according to
regulatory disclosures.
It benefited from their steep fall in the second half of last
year on worries about the company's debt levels.
This year the mining giant's shares have come roaring back. They
are up around 130% this year to GBP2.12. And this has hurt those
hedge funds that continue to hold a 'short' position and bet on a
price fall.
Since the start of the year Lansdowne has lost approximately
GBP250 million ($326 million) on the position, according to
calculations by The Wall Street Journal based on regulatory
disclosures and closing share prices.
A spokesman for Lansdowne declined to comment.
Based just off London's expensive Berkeley Square, the media-shy
investment firm has made double-digit gains in each of the past
four years in its flagship Developed Markets fund, run by Peter
Davies and Jonathon Regis.
This year to September 16 it is down 13.2% after a series of
missteps.
Lansdowne's most recent letter to investors, reviewed by the
Journal, showed its main fund was running a bet against shares in
the basic materials sector.
Overall hedge fund bets have come down sharply this year as
Glencore's shares have recovered and are now at less than one-third
of the levels seen in February, according to data group Markit.
However, some investors have profited handsomely from Glencore's
rebound.
David Herro, international chief investment officer for U.S.
asset manager Harris Associates LP, more than doubled its stake
following the share issue last September. Harris has since trimmed
its position to just under 6% from 8%, Mr. Herro said. "We still
think the stock is worth well over 400 pence once copper begins to
normalize," he said.
Van Eck Global, which holds roughly $200 million of Glencore
stock, made a 64% or $15.5 million return on shares bought and sold
since September 2015, according to Journal calculations based on
FactSet data.
"People didn't understand what was going on with the business at
that point," said portfolio manager Charl Malan. People didn't
realize that the company had a credible plan in place to reduce net
debt, he added. "There is upside to their cash flow....They're
going to return money to shareholders. You watch," he said.
The rise in Glencore's share price this year has been driven by
rising commodity prices, particularly in zinc and coal. The company
has also taken steps to cut its debt burden. This year's rise marks
a revival in fortune. On Sept. 28, 2015, its shares fell 29% in one
day, to 69 pence, because of concerns it would struggle to pay down
almost $30 billion in net debt. The company's stock had been
steadily declining since its initial public offering price of 530
pence in 2011.
Glencore responded to investor concerns by announcing a raft of
measures to cut debt, including an equity issue, dividend
suspensions and billions of dollars in asset sales. The plan is
bearing fruit, with analysts expecting net debt to drop to well
within the company's guided range of $16.5 billion to $17.5 billion
by year-end, down from $23.6 billion at June-end and $29.6 billion
a year before then.
Rising commodity prices have also been a boon to earnings. As
the world's largest exporter of thermal coal and zinc miner,
Glencore has benefited from the rise in zinc and coal prices, two
of its key earnings drivers.
Write to Laurence Fletcher at laurence.fletcher@wsj.com
(END) Dow Jones Newswires
September 23, 2016 13:43 ET (17:43 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Glencore (LSE:GLEN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Glencore (LSE:GLEN)
Historical Stock Chart
From Sep 2023 to Sep 2024