Elliott Management Corporation
|Founded||New York City
|AUM||US$ 22 billion (2013)|
Elliott Management Corporation is the management affiliate of US hedge funds Elliott Associates L.P. and Elliott International Limited. Elliott was founded by Paul Singer, who also serves as CEO of the management company, which is based in New York City. From inception Elliott has generated for its investors a 14.6% net compound annual return, compared to 10.9% for the S&P 500 stock index, and now has more than US$21 billion in assets under management. Elliott's portfolio, led by Delphi Automotive and BMC Software, was worth $3,271,965,000 in the third quarter of 2012.
Paul Singer created Elliott Associates in January 1977, starting with $1.3 million from friends and family. In its earliest years, the firm focused on convertible arbitrage. However, since the 1987 stock market crash and early 1990s recession, the firm has focused primarily on distressed debt investing, and is therefore commonly referred to as a vulture fund.
Elliott is noted for its relatively high returns and low volatility. The New York Times has called Paul Singer ‘one of the most revered’ hedge fund managers on Wall Street. Elliott returns have generally outpaced the annual growth of the S&P 500. From inception, Elliott has generated for its investors a 14.6% net compound annual return, compared to 10.9% for the S&P 500 stock index, while having only one-third of the index's volatility. The firm is currently closed to new investors. As of mid-2008, Elliott counted 175 employees in New York, London, Tokyo and Hong Kong and is one of the oldest hedge funds under continuous management.
Affiliates and units
- Hambledon, Inc. is a Cayman Islands corporation controlled by Singer.
- Kensington International Ltd. is a subsidiary of Elliott Management.
- Maidenhead LLC and Warrington LLC are US entities that are completely controlled by Singer.
- Elliott Advisors (UK) Ltd. is “a London-based advisor to Elliott.”
- Elliott Advisors (HK) Limited is “the Hong Kong arm of Elliott Management.”
Early in its history, Elliott focused on convertible arbitrage, refocusing primarily on distressed debt investing following the 1987 stock market crash and early 1990s recession. Elliott is known for working hard to restructure such U.S. firms as TWA, MCI, WorldCom, and Enron as well as overseas companies including Telecom Italia SpA and Elektrim.
In 2003, Elliott believed P&G was not offering a fair price to all preferred shareholders for German hair products company Wella AG. Elliott joined other funds in opposing the deal, including Germany's second-largest fund manager, Deka Investments. After several years of legal and shareholder battles, P&G raised its offer for Wella AG for all preferred shareholders. According to the Borsen Zeitung, Elliott said its goal was to "protect the rights of minority shareholders."
In April 2005, Wisconsin-based retail chain Shopko announced that it had agreed to be acquired for approximately $1 billion by a private equity firm at a price of $24 per share. This and a subsequent offer at $25 were rejected, according to the Milwaukee Business Journal, "after several dissident shareholders threatened to vote down the transaction, claiming the bid was too low." Elliott joined other hedge funds in opposing the sale because the price was too low and had concerns about conflicts of interests on the board. Elliott eventually participated in purchasing ShopKo at $29 per share.
Staffing company Adecco announced in January 2006 it had secured a 35 percent stake in DIS AG, at a price of €54.5 per share, making an offer at that price for all shares. The company also announced that the DIS CEO and CFO had signed lucrative management agreements that eventually would make them CEO and CFO, respectively, of Adecco. Adecco attempted to de-list DIS but was blocked in court by a number of hedge funds, including Elliott. The funds also raised concerns about conflict of interest by the CEO and CFO. Eventually Adecco offered €113 per share, which was accepted.
In December 2011 it was reported that Elliott was suing the Vietnamese shipbuilding firm Vinashin in a British court. The company had defaulted a year earlier on a $600 million loan backed by the Vietnamese government, then offered to pay bondholders 35 cents on the dollar. Elliott was suing for the full amount.
In late 2012, Elliott criticized the oil company Hess for its use of capital and for being “distracted” from oil exploration and production by other activities. In January 2013, Elliott called on Hess to sell certain assets and asked Hess investors to vote for five new directors as part of an effort to reconfigure the oil firm and thus boost its share price. “Buried within Hess Corp. is one of the premier U.S. resource play-focused companies,” Elliott wrote. In March, Hess announced that it was acting on some of Elliott's suggestions, but Elliott said that Hess's changes fell far short of what was needed. In April, it was reported that Hess would close its London office on Elliott's advice.
Sovereign debt deals
A small portion of Elliott's distressed securities trading has been in sovereign debt, most recently Argentina in 2012 (see Ghana incident) and Republic of Congo. Elliott is well known for its investment in the distressed debt of Peru. Elliott aids in the fight against corruption by "exposing in court the corrupt networks of government officials, providing a much-needed check on mineral-rich states." When nations win debt relief without being held more accountable, they are more inclined to repeat the same mistakes and end up in debt once again.
After Argentina defaulted on its sovereign debt in 2002, Elliott, which owns Argentine bonds that have a face value of $630 million and that are now worth $2.3 billion, refused to accept its offer of less than 30 cents on the dollar. Elliott has since won judgments against Argentina in various US and UK courts but has not yet been able to collect. In October 2012, an Elliott subsidiary, NML Capital, arranged for the seizure in Ghana of the ARA Libertad, a $10 million, 3,700-ton Argentinian naval vessel with a crew of over 200, which it intended to confiscate in accordance with court judgments awarding it over $1.6 billion in Argentinian assets.
Argentina's Foreign Affairs Minister, Héctor Timerman, condemned Singer in a November 2012 Huffington Post piece as a “scavenger” and “the inventor of vulture funds.”and, apropos of the seizure of the ARA Libertad, charged that “a piece of Argentina's national patrimony has been detained, in clear violation of international law.” Timerman said that while Argentina “will pay the overwhelming majority of debt holders, who have agreed to a debt swap that has contributed to Argentina's recovery,” it “will not reward loan sharks who bought defaulted bonds for next to nothing and have refused a deal that would have represented a clear profit, asking much more, even several times the amount they spent.”
A November 2012 trial which ended in a ruling by the New York Second Circuit Court of Appeals in favor of NML and against Argentina was described by legal experts as the “sovereign debt trial of the century.” On 28 March 2013, the New York Post reported that Argentina, which had been given a 29 March deadline to present a new payoff plan, was “weighing an 'enhanced' offer” to NML, even though President Cristina Kirchner had earlier called Elliott “vultures” and sworn not to pay them anything. When the new plan proved to be essentially identical to previous offers, Kirchner was accused of “thumb[ing] her nose at the US court system—setting up a legal showdown that could result in another default on the country’s debt.”
As a result of the showdown with Elliott, reported the Seattle Times, “Argentina's shaky economy hangs in the balance.” In April, the New York court gave NML three weeks to respond to Argentina's offer. On 5 April it was reported that NML was expected to reject Argentina's latest settlement offer, “potentially leaving Buenos Aires with a huge bill.” In a letter published in the Financial Times on 7 April, legal experts Andreas F. Lowenfeld and Peter S. Smedresman refuted Argentina's arguments and defended NML's position. On 15 April, Bloomberg reported that Argentina might “get a U.S. Supreme Court hearing in its legal battle with a hedge fund seeking to collect $2.5 billion owed by the South American country on defaulted bonds.”
In March 2013, Argentina offered a new plan that was judged unlikely to be acceptable to the New York court. On August 23, 2013 the U.S. Court of Appeals for the Second Circuit affirmed the lower cout's verdict and dismissed said plan. Jay Newman, senior portfolio manager at Elliott, called the numbers Argentina came up with "a complete fabrication" and reiterated it's history of providing inaccurate economic statistics to the US government.
Congress has urged the Justice Department to not side with Argentina in the case in support of Elliott. Argentina claims that the case tests the ability of the United State's court systems to "compel foreign countries to honor their financial obligations".
Argentina has spent a substantial amount of time detailing the price at which Elliott bought its debt and the profit it would make if it got it's proposed $750 million. Elliott's actions were not in any way illegal. Elliott Management states that Argentina, because of its surplus in natural resources, "has recovered from its financial troubles and can afford to pay the fair value of the debt."
Elliott exposed corruption in Republic of Congo in its efforts to enforce judgments totaling more than $100 million in defaulted bank debt. In 2008, Elliott Management bought $32.6 million in loan debt incurred by the Republic of Congo, allegedly for less than $2.3 million.[dead link] In 2002 and 2003 a British Court awarded Elliott Management more than $100 million for these debts, $39 million of which was subsequently recouped by interception of proceeds of the sale of oil by the Congo to Glencore International, a Swiss commodities and raw materials supplier. Elliott states that it only targets countries that can afford to pay, but have decided not to, and has emphasized its efforts to root out corruption in countries like the Republic of Congo. Brice Mackosso, a campaigner for greater transparency in the Congo Republic's government, stated that "if it were not for these vulture funds, we would not know any facts about the way our country’s wealth is being taken away. We don’t agree with their ultimate aims, but they are the only ones capable of exposing the truth.”
In 1995, Elliott bought $20 million face value of defaulted Peruvian bank debt. After extensive and costly litigation and numerous attempts by Elliott to settle, the Court awarded $58 million to Elliott, including past due interest.
Congo's government eventually paid Elliott $90 million on a debt for which the firm paid less than $20 million.
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