Pequot Capital Closes: Expect Downward Pressure on Top Holdings

by: Todd Walker

Pequot Capital Management, a highly successful and well-regarded hedge fund manager, announced yesterday that it was closing down amid on-going investigations by the Securities and Exchange Commission. In a letter yesterday to Pequot’s investors, the firm’s founder Art Samberg stated:

As you know, my trading in 2001 on behalf of the Core Funds has been the subject of investigations by the SEC and US Attorney's Office. Those agencies closed their investigations in 2006 without bringing any charges, but Pequot nonetheless suffered from adverse publicity. In late 2008, the government reopened its investigation. Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction. With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment advisor.

Over the next few months, the firm will liquidate its “Core Funds” and begin to return cash to investors. Importantly, the firm’s mortgage opportunities focused Matawin fund and Special Opportunities funds will be spun-off as independent entities.

The liquidation process is likely to place downward pressure on some of the top stocks in Pequot’s portfolio. As of 3/31/09, the firm reported with the SEC that it held $976.6 million across 192 US-listed Equity Securities. Since the firm does not segregate its SEC filings by fund, some of the top holdings are likely to be held in the surviving Special Opportunities funds.

At the end of the first quarter, the top holdings included:

  • Everest Re Group Ltd (NYSE:RE), $46.42 Million, 655,600 Shares, 1.0% Held;
  • McDonalds Corp (NYSE:MCD), $44.50 Million, 815,400 Shares, 0.1% Held;
  • Onyx Pharmaceuticals Inc (NASDAQ:ONXX), $32.04 Million, 1,122,386 Shares, 2.0% Held;
  • RenaissanceRe Holdings Ltd (NYSE:RNR), $28.85 Million, 583,500 Shares, 1.0% Held; Platinum Underwriters Holdings Ltd (NYSE:PTP), $26.90 Million, 948,500 Shares, 1.9% Held.

Positions where Pequot held the largest percent of share outstanding include:

  • Akorn Inc (NASDAQ:AKRX) - $13.21 Million, 15,357,705 Shares, 17.2% Held;
  • Ballantyne of Omaha Inc (NYSEMKT:BTN), $3.25 Million, 1,503,200 Shares, 10.7% Held;
  • GP Strategies Corporation (NYSE:GPX), $5.72 Million, 1,607,970 Shares, 10.2% Held;
  • Staar Surgical Company (NASDAQ:STAA), $2.13 Million, 2,125,500 Shares, 7.1% Held;
  • Vicor Corp (NASDAQ:VICR), $12.77 Million, 2,611,000 Shares, 8.7% Held; and
  • Imax Corp (NYSE:IMAX), $10.78 Million, 2,500,298 Shares, 5.7% Held.

Pequot Capital was founded in 1986 by current CEO Art Samberg and former partner Dan Benton as a division of what is now known as Dawson-Herman Capital Management. Pequot was spun off from Dawson-Herman in 1999. Co-founder Dan Benton then spun-off from Pequot in 2001 to found Andor Capital Management. In August of last year, the Andor announced that it was also shutting down.

For more information on Pequot, Andor and Dawson-Herman, please see’s Investor Directory.

Disclosure: No positions