A deep and surprising drop in Tiffany shares this week was fueled partly by a recent shakeup at billionaire Ken Griffin’s hedge fund Citadel Investments, The Post has learned.
After recently losing the head of one of its merger arbitrage desks, Citadel’s Surveyor Capital fund liquidated a major position in the New York-based jeweler, which agreed in November to be acquired for $16.2 billion by French luxury giant LVMH, according to sources close to the fund.
Last week, Tiffany shares briefly dipped below $110 — a 19-percent discount to its acquisition price of $135 a share. The steep selloff had fueled speculation that the LVMH-Tiffany deal might be in trouble amid the coronavirus crisis.
Indeed, LVMH was forced to issue a statement last week saying it was interested in buying Tiffany shares on the open market before its deal closed. In response, Tiffany shares recovered to close at $125.44 on Friday.
Behind the scenes, meanwhile, Citadel’s Surveyor Fund had recently lost the head of its merger arbitrage desk, Maulin Shah, insiders said. According to one source, Shah left the fund after making a bad bet on the Sprint-T-Mobile merger, which got a surprise boost last month when it was approved by a federal judge despite fierce opposition from state attorneys general.
A Citadel spokeswoman declined to comment on Shah’s departure. Shah couldn’t be reached for comment, but arbitrage traders say it’s standard practice for a fund to liquidate positions left by a departing trader who was most knowledgeable about the thinking behind them.
“When the head is gone the trades need to be gone too,” one such trader told The Post. “You don’t want their positions.”
The speculation comes as hedge funds eye their merger arbitrage desks — which take major positions in the stocks of merging companies, profiting from relatively small upticks when the deals are completed — as cash piles ripe for harvesting in case of a liquidity crunch, sources said.
With the coronavirus crushing stocks, hedge funds are eager to keep a healthy balance sheet to protect against redemptions and margin calls, sources said. Indeed, insiders say the crisis is beginning to reveal how many funds have piled into what industry insiders call “risk parity,” a strategy that seeks to lower risk through diversification while also pumping returns through leverage, or borrowed money.
This strategy has become a financial minefield as virtually every asset class has imploded and the credit market has seized up, forcing many hedge funds to make a mad dash for cash, experts say.
“The market action surrounding risk parity funds clearly shows that these guys were jammed into basically the same trades which have been unwound not by the portfolio managers that built these trades, but by the firms’ risk managers,” said Thomas Thornton of Hedge Fund Telemetry. “A lot of chatter out there that these portfolio managers have been shut down.”
It’s not just Tiffany shares that got hammered last week. Tech Data — an electronics distributor that was sold in November for $145 a share to buyout firm Apollo Global Management — saw its shares plunge below $100 last week. On Friday, they closed at $114.
Late Thursday, the Wall Street Journal reported that Citadel, which manages more than $30 billion, was among several firms hit by recent volatility in the “basis trade,” a normally low-risk play between Treasury securities and futures. Citadel’s global fixed-income unit lost “hundreds of millions” last week, although it has since recovered, the paper reported.
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