Monthly Archives: May 2014


Covestor

I am pleased to announce that a model portfolio from Cable Car Capital is now available on Covestor pursuant to a licensing agreement.

I have been managing a model portfolio for Covestor since August 2013, prior to establishing Cable Car. Performance has been strong* since inception, benefiting in part from the broad-market rally in 2013. Covestor has selected Cable Car to join its platform of over 100 active managers with a variety of styles and investment philosophies.

Covestor is an investment adviser that constructs multi-manager portfolios for individual investors using real-time trade replication. Outside managers, including Cable Car, license a portion of their trading data to Covestor using a model portfolio. Cable Car’s Hedged Value model on Covestor is a long/short portfolio limited to liquid, US-listed stocks. Cable Car continues to offer its broader investing approach directly to individuals and institutions. Due to its narrower mandate, the Covestor model may not have the same performance as Cable Car’s broader strategy.

I am excited to join the Covestor platform and hope to help support their continued growth. Covestor is a venture-backed startup with a compelling approach to the asset management marketplace. In recent years, several new investment advisory firms have attracted retail investors by providing online, automated asset allocation tools. Most of these so-called “robo-advisers” focus entirely on passive strategies, while Covestor fills an important niche by offering active strategies in managed accounts. While Cable Car does not recommend third-party advisers, I believe their model may present a good alternative for individual investors who value active management and managed accounts but would like exposure to multiple strategies.

In order to better explain the Covestor relationship and Cable Car’s other third-party distribution arrangements, I have added a new FAQ section regarding distribution, which is reproduced below.
 
* As of May 21, 2014, the Hedged Value model portfolio returned 18.7% net of fees for the 9 months since inception on August 22, 2013. Past performance may not be predictive of future results.

 

Distribution

Are Cable Car’s services available from third parties?

Yes. While Cable Car encourages prospective clients to establish a direct relationship, certain of its services are available to clients of third-party, unaffiliated investment advisers. Access to Cable Car’s services through a third party may be more appropriate for investors who have established, broader advisory relationships or prefer a more diversified, multi-manager portfolio. Cable Car may act as a subadviser to funds of funds and wealth managers. Cable Car has also entered into a limited licensing arrangement through which it provides trading data to Covestor Ltd. Cable Car’s relationships with third-party investment advisers are non-exclusive and are subject to negotiated terms that may differ from Cable Car’s general mandate. As a matter of policy, Cable Car does not select or recommend third-party investment advisers.

Who is Covestor?

Covestor Ltd is an investment adviser that operates a multi-manager managed account platform. Covestor licenses trade data from investment advisers in exchange for a portion of the management fee charged to its clients. Covestor is a third party unaffiliated with Cable Car that was acquired by Interactive Brokers in 2015.

What is Cable Car’s relationship with Covestor?

Cable Car licenses a subset of its trading data to Covestor on a non-exclusive basis for use in managing Covestor’s client portfolios. Clients of Covestor can subscribe to the Hedged Value model portfolio on Covestor’s website. Cable Car maintains a profile and occasional portfolio commentary on Covestor’s website.

What is the difference between Cable Car’s Covestor model and its primary strategy?

Cable Car licenses only a portion of its trading data to Covestor. At this time, Covestor models are limited to highly liquid stocks listed on US exchanges and do not include non-equity securities. Cable Car’s investments in smaller-capitalization securities, stocks listed on international exchanges, derivatives hedges, bonds, illiquid special situations, and other unsuitable investments are not included in the Covestor model. Covestor, under its sole discretion, may replicate trades in the model portfolio for its clients.

Within these constraints, the investment approach is the same, and the Covestor model portfolio managed by Cable Car is included in the Cable Car Composite. Larger-capitalization, US-listed equity positions held by Cable Car clients will generally be held in the model portfolio, although Cable Car undertakes no obligation to license any particular trade opportunity to Covestor. The performance of the model portfolio since August 22, 2013 includes personal account history that predates the formation of Cable Car Capital LLC. Cable Car’s principals have a beneficial interest in the model portfolio used to transmit trading data to Covestor. In keeping with Cable Car’s trade allocation policy, trades in the model portfolio are placed only after being executed for Cable Car’s other client accounts.

Who should consider subscribing to Cable Car’s Covestor model?

Cable Car manages separate accounts open to individual investors in part out of the belief that all investors should have access to hedged strategies. Covestor has a unique approach that is helping to democratize strategies traditionally limited to private pooled vehicles by offering individual investors access to multiple active managers in a single managed account.

As a matter of policy, Cable Car does not select or recommend third-party investment advisers. However, for investors who desire exposure to other managers or strategies, subscribing to Cable Car’s model portfolio as part of a broader asset allocation strategy could be appropriate.

Are subscribers to Cable Car’s Covestor model clients of Cable Car?

No. Cable Car’s relationship with Covestor is a licensing arrangement. Cable Car’s fiduciary duties are to its clients only. Subscribing to a model portfolio on Covestor does not create a client relationship with Cable Car. Client relationships with Covestor are governed by Covestor’s client agreement.

Can Covestor clients establish a direct relationship with Cable Car?

Yes. Please clearly indicate your status as an existing Covestor client when expressing your interest.


NYRT: a follow-up on odd lots 2

Disclosure: No position in HCT. Long NYRT (pending tender settlement). Watching GSOL.

I’m not going to write about every tender offer I come across with an odd lot preference (take a look at GSOL if you’re looking for one now) unless there’s something interesting to say. The HCT tender paid $11 to tendering holders. However, when I consider the price movement afterwards, I rather wish I had shorted the stock on May 2 instead:

HCT

A substantial decline in the share price after a tender offer is a relatively common outcome when companies tender for shares above market value. It can be very difficult to obtain a borrow on stocks with pending tender offers, and the price movement afterwards lacks the certainty of the price offered by the company. However, such a strategy would not suffer from the odd lot size limitation.

As a quick follow-up to the general discussion of odd lot tenders, I thought I’d highlight one other somewhat unusual occurrence that can similarly render the odd lot preference moot. Tender offers are not always oversubscribed, even if they take place above the market price. Continuing the analogy to the current market structure debate, just because a bid/ask spread is quoted does not mean that large quantities are necessarily available for purchase or sale at the NBBO. The depth of book matters too. When a company offers to repurchase shares above the market clearing price, there’s an element of price discovery that takes place: shareholders may not be willing to sell even at the higher price. This is of course extremely difficult to predict. But imagine if you could!

NYRT closed at $10.25 yesterday, the deadline to tender shares via guaranteed delivery for $10.75.

New York, New York, May 13, 2014 – New York REIT, Inc. (“New York REIT” or the “Company”) (NYSE: NYRT), announced today the preliminary results of its tender offer for the purchase of up to 23,255,814 shares of its common stock, which expired at 12:00 Midnight, Eastern Time, on May 12, 2014.

Based on the preliminary count by DST Systems, Inc., the paying agent and depositary for the tender offer, a total of 12,903,858 shares of the Company’s common stock were properly tendered and not properly withdrawn at the purchase price of $10.75 per share, including 1,119,855 shares that were tendered through notice of guaranteed delivery.

Based on the results of the offer, there weren’t 10.3m additional shares willing to sell at $10.75. But with average daily volume of 1.2m shares at a VWAP of $10.62 since listing last month, it would have been possible to accumulate and successfully tender a lot more than 99 shares. Food for thought.


April 2014 preliminary returns: +1.6%

Performance statistics are preliminary and unaudited. Returns are presented net of all expenses and fees, including accrued but unpaid performance fees. The Cable Car Composite includes all accounts Cable Car manages on a fully discretionary basis. The performance of individual client accounts can vary significantly from the performance of the composite. The timing of cash flows, the size and type of account, the fee arrangement, and the availability of investment opportunities for each account may lead to divergence from composite returns. Past performance may not be predictive of future results.