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Pardus Capital Management - Activist investment firm

2008-03-31

Count of distinct funds: 1
Capital base: $2 bn
Loss: 40% from peak

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stories: marketwatch.com, wsj.com

It has been reported that Pardus Capital Management has suspended redemptions:

Pardus Capital Management LP has suspended investor redemptions because the $2 billion hedge-fund firm has been hit by market volatility this year, a spokesman said Monday.

Pardus is an activist investment firm that takes big positions in a small number of companies and often pushes for strategic changes.

...

"Because our investment portfolio has always consisted of a small number of high-conviction, capital-structure agnostic corporate positions in which we have taken a long-term investment perspective, the funds have been disproportionately affected by recent market volatility," a spokesman for Pardus said in an emailed statement.

"The actions we have taken will allow us to protect the funds and their investors from the external short-term pressure of the broader financial markets and focus on realizing value on our portfolio companies for investors over an extended period of time," he added.

(Marketwatch)

Humorously, Pardus' spokesman spun the redemption suspension as as "good news" for the companies in which Pardus has positions. I guess those companies should be happy to hear that Pardus is having to take evasive maneuvers to ensure they don't run out of capital. You know, maneuvers like liquidating positions.

The WSJ reports that Pardus owns positions in Delta and United Airlines, and has been trying for months to get the two to merge, to no avail. Both positions are down significantly. Pardus is also down big time (about 40%) on French auto parts company Valeo SA, on a 12 million share ($450M) position.

Pardus apparently does not use leverage. No matter. The WSJ further states on the selloff process:

The person close to Pardus said the firm will slowly sell some of its positions over the next two years to satisfy investor redemptions.

Some of that selling has started: Pardus late last week sold more than 10 million shares of London travel company Thomas Cook Group PLC, which was created last year by the merger of Thomas Cook AG and MyTravel Group PLC.

Pardus still holds more than 34.9 million shares of Thomas Cook, but that's down from 57.3 million shares in January. During the fourth quarter, Pardus sold all 12 million of its shares in another holding, struggling Ford Motor Co.

We've seen this dynamic before and we'll see more of it: funds will sell off their winning positions first, to meet redemptions, effectively bailing out the losing ones. This will drag down all securities and assets in all markets.

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Important: This fund is on our list of hedge funds that are apparently ailing or which we think are worth watching for any other reason. Ailing funds haven't shut down, but they've suffered significant value declines and/or temporarily halted redemptions. Funds on watch may not even have unusual declines, but may be posted if it is felt there may be risk of developing a more serious condition eventually.