Explain the procedure of how companies get listed on the London Stock Exchange.

Question 1

Activist hedge fund Marcato Capital Management, backed by Blackstone Group and billionaire William Ackman, is shutting down as assets have shrivelled after two years of poor returns. Richard McGuire, the firm`s founder and portfolio manager began telling investors of his decision to return outside capital a week before, and that he intended to send the money back quickly because the portfolio was largely in cash at that point, the sources said on condition of anonymity.

McGuire had been selling positions over the last months of 2019 to meet redemption requests.

The decision marks the end of a nine-year run for one of the hedge fund industry`s most celebrated newcomers who launched in 2010 with the backing of Blackstone Group, the world`s biggest hedge fund investor, and Ackman, his former boss at Pershing Square Capital Management. McGuire was the first former partner to leave Ackman, followed by Scott Ferguson, Roy Katzovicz and Paul Hilal, who have all set up their own firms.

McGuire over the years pressed companies ranging from DineEquity, now Dine Brands Global, which runs fast food restaurant Applebees, Bank of New York Mellon, auction house Sotheby`s, to footwear company Deckers Outdoor Corp for changes and won a fiercely contested proxy contest at Buffalo Wild Wings.

At its peak, Marcato managed roughly $3 billion in assets, but assets have now shrivelled to a few hundred million, one of the sources said.
Returns started to tumble since 2018, leaving the fund with a sizable loss for 2018, an investor said. In 2019, while strong at the start, also ended in the red after some of the firm`s investments that are vulnerable to the effects of the U.S.-China trade war, like Terex Corp, took a hit. Shrinking assets, while uncomfortable for all investors, are especially problematic for activist investors that push management to make changes ranging from buying back shares to selling off divisions to refreshing their boards.
The above information was obtained from the Reuters article of December 22, 2019.

Using the information above answer the following questions:

1) What is the difference between hedge fund, private equity fund, mutual fund and REIT (Real Estate Investment Trust)?

2) Explain fee structure of hedge funds and how it impacts on hedge funds performance.

3) Explain effects of 40 Act and how hedge funds can bypass it.

4) As stated in the above article, bankruptcies of such activist hedge funds as Marcato Capital Management are especially problematic. Why is that the case? Can you give an example of another activist hedge fund bankruptcy?

Question 2

London`s markets remained open and robust in the face of COVID-19 conditions. But at the time, there were questions about how the capital markets would respond to this traumatic shock for the global economy. Over this period, these questions have been answered and vital confidence provided.

London`s experience and capabilities as a mature, adaptable and innovative international finance centre have come to the fore, providing support to growth companies and multinational corporates as they seek to strengthen their balance sheets and liquidity positions, and to sovereign nations and multilateral agencies, as they respond to the economic and social impacts of COVID-19.

Vitally, the second quarter of 2020 has been notable for the robust participation by issuers and investors. Long-term capital has been delivered with efficiency and speed. This is reflected in the remarkable range of fundraisings: from follow-on equity issues that have raised between 5m and 2bn to social bonds to tackle COVID-19; and the GDR (Global Depositary Receipt) listing of China Pacific Insurance (Group) utilising Shanghai London Stock Connect.

London has shown itself to be a market that knows how to operate, even in such a changed environment. Its unique liquidity features have been optimal for issuers and investors in these fast-moving times. And, as the ecosystem has rapidly adapted, so capital has been readily available.

In the first half of 2020, 23.7bn has been raised in London through IPOs and follow-ons. Seven of the top 20 largest European transactions since 1 March have been executed on London Stock Exchange, with deals in London accounting for 43% of total capital raised across Europe during this period.

London stands out as Europe`s capital of recapitalisation. Since 1 March, 249 follow-ons have raised a combined 17.4bn. They ranged from 5m to 2bn, highlighting the sheer range and scale of capital that could be raised in a very short time.

Capital raising has happened quickly - often taking about one week. They have been orderly and have been executed with a level-headed approach to discounts. Since 1 March, the average discount to last close for transactions above 5m has been 5.3%. The accelerated bookbuilds of some companies - such as Asos, SSP and AutoTrader - were raised at a slight premium. The subsequent average price performance of 5m+ transactions since 1 March has been positive - up 8.6%.

The effects of the pandemic will continue to reverberate. Uncertainties remain. However, companies can focus on their future with the knowledge that the public markets are robust, responsive and able to support them.