U.S. Markets

Singer's Elliott sees opportunities in activist stock picks

BOSTON/NEW YORK (Reuters) - Paul Singer’s Elliott Associates told investors last month that the $27 billion hedge fund is finding new companies where it can flex its activist muscle, as well as possible opportunities in distressed credit investing.

“At present we continue to find opportunities in activist equity, and we are noticing the beginnings of potentially interesting situations in stressed credit,” the letter, dated Oct. 27 and seen by Reuters on Monday, said.

The New York-based fund, one of the industry’s most secretive, said its Elliott Associates portfolio was up 2.8 percent for the first nine months of the year, a touch more than the 2.4 percent gain put up by its Elliott International Limited portfolio.

Many hedge fund managers are just now sending out their third-quarter letters, roughly coinciding with the time they are tabulating gains or losses for October.

Elliott has been telling its clients that it sees “attractive opportunities” in the activist equity area for some time, having more recently included the phrase in its second- quarter letter released in July. At that time, the firm had lost a campaign to block the merger of two Samsung affiliates in Korea.

One example of Elliott’s recent activism includes throwing its weight behind Dell Inc.’s [DI.UL] plan to buy data storage company EMC Corp, one of the hedge fund’s biggest positions.

The firm, like other hedge funds including Daniel Loeb’s Third Point, also expects that recent market volatility is here to stay. “When you watch episodes like August 24, 2015, in stock markets (when some of the biggest stocks in the world were down 15-20 percent in minutes), and the recent flash crashes in bond markets (euro bonds and the U.S. 10-year note), it is highly probable that you are observing the future,” the letter said.

Recent turbulent conditions, where many hedge fund managers were caught off guard by fears about slower growth in China and falling oil prices, also underscore Elliott’s commitment to hedging its portfolio, the letter said.

The fund also isn’t being lulled into making investments only because stocks are really inexpensive and said it is keeping cash reserves for future opportunities.

“In fact, during a downturn, rather than add new positions, it is often our preference to concentrate on the assets and securities about which we have the most knowledge and confidence, whose prices often drop further, making them more attractive and justifying putting additional capital into them.”

Reporting by Svea Herbst-Bayliss; Editing by Alan Crosby