By Juliet Chung and David Benoit
When hedge fund manager Daniel Loeb needed help making a $3.5
billion wager on Nestlé SA, he turned to the man who is behind some
of Wall Street's biggest activist bets: Gregg Hymowitz.
The chief executive of EnTrustPermal in May approved a $650
million investment in Nestlé alongside Mr. Loeb's Third Point, a
huge sum for a single investor.
Mr. Hymowitz's willingness to write such large checks on short
notice makes the 51-year-old a potent weapon when managers are
quietly trying to amass meaningful stakes in companies.
The New York investment firm this year has backed Trian Fund
Management's $3.3 billion Procter & Gamble Co. stake and Mantle
Ridge's $1 billion CSX Corp. investment, among others. The $650
million Nes tlé investment, which includes money from sovereign
wealth funds and state pensions, is its biggest co-investment to
date, giving EnTrustPermal a total of more than $6 billion tied up
in such single-bet wagers, or co-investments.
EnTrustPermal, with $24.5 billion in assets under management, is
primarily a fund-of-hedge-funds firm; it pools clients' money and
invests in a range of hedge funds, charging a layer of fees on top
of the fees charged by hedge-fund managers themselves.
Increasingly, EnTrustPermal is focusing on co-investments,
including activist campaigns and corporate debt restructurings.
Such concentrated wagers can offer clients fatter returns at
lower fees, though they also carry more risk and lock up investors'
money for years. Some investors say they don't try to source these
deals themselves because their staffs are already stretched
thin.
EnTrustPermal's emphasis on co-investments is intended to help
it survive a shakeout among funds-of-hedge-funds. Investors have
been pulling money from these funds each year since 2007, according
to research firm HFR, and their number has slumped by 40% over that
period to roughly 1,500 at the end of March. The hedge funds they
invest in have posted disappointing returns on average, and
clients' willingness to pay an additional layer of fees has
shrunk.
EnTrustPermal hasn't been immune to the pressures. Its assets
under management through the end of March dropped about 15% since
January 2016; the firm's co-investment funds have fared better than
its traditional funds-of-hedge-funds.
Clients in its traditional funds-of-hedge-funds also make
co-investments through EnTrustPermal, and the co-invests have drawn
new clients to the firm, Mr. Hymowitz said.
Critics say co-investments require investors to pay extra fees
to hold easily accessible stocks, then lock up their money for
years. There also are risks to taking concentrated bets.
EnTrustPermal lost more than 5% on its co-investment with Corvex
Management LP in energy-pipeline operator Williams Cos., after an
agreed upon sale to Energy Transfer Equity failed last year.
EnTrust later backed Corvex's bet on Yum Brands Inc. and more than
recouped the losses, according to people familiar with the
matter.
Firm executives say some activists stay quiet, and clients can
benefit from changes managers make behind the scenes. The firm also
partners on less-accessible deals and tries to protect clients by
negotiating fees.
Mr. Hymowitz hails from Bellmore, on Long Island, and speaks
with a New York accent. He and three of his daughters sport "H"
tattoos, a nod to their last name, a person familiar with the
matter said.
Formerly on a team of private managers to the wealthy at Goldman
Sachs Group Inc., he and two others left in 1997 to start EnTrust
Capital. One partner later retired; Mr. Hymowitz bought out the
other.
He says he found his business motto when he met the singer Usher
in 2012 at a friend's wedding weekend. Seated at Usher's table, Mr.
Hymowitz says he asked the performer how he made the transition
from child artist to adult star. Usher, he recalls, told him his
philosophy: "Evolve or evaporate."
"Ever since that lunch, I've used that," Mr. Hymowitz said. "You
have to evolve or evaporate with this business."
When an activist pitches a new idea, Mr. Hymowitz doesn't grill
him on valuations or specifics, managers said. He leaves the
detailed vetting to others at the firm and focuses on the manager
and the idea. "He's there to smell you," one activist said.
He agreed in 2016 to combine his then-$12 billion firm with Legg
Mason's roughly $17 billion fund-of-hedge-funds business, Permal
Group. Legg Mason paid about $400 million for a 65% stake in the
combined entity.
EnTrust's recent surge in co-investments coincides with
ramped-up activist activity, as the biggest funds go after giant
companies. Third Point's Nestlé bet and Trian's P&G investments
are their biggest wagers and rank among the largest-ever activist
campaigns.
Many of Mr. Hymowitz's clients are pension funds that oversee
money for private and public workers. These investors can balk at
the idea of helping Wall Street activists, who often turn to cost
cutting to improve a company's results.
One such client, the $7 billion United Food and Commercial
Workers International Union, based in Washington, D.C., said it
steers clear of co-investing in activist campaigns targeting food
companies because they might result in job losses or pay cuts for
some of its members. But the multiemployer pension has co-invested
in other activist bets offered by Mr. Hymowitz.
"It helps us juice the returns a little bit without necessarily
increasing our risk profile too much," said UFCW President Marc
Perrone, which has roughly $100 million with EnTrustPermal.
(END) Dow Jones Newswires
July 14, 2017 09:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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