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Thursday, March 28, 2024

Perry Capital Is Shutting Down

By Jacob Wolinsky. Originally published at ValueWalk.

Perry Capital closes after 28 years in the business reports Bloomberg News this evening. The iconic hedge fund founded by Richard Perry which recently experienced a big withdrawal of assets plans to shut down all its fund according to a letter to investors. In a statement echoing similar themes to those mentioned by Nevsky Capital (among others) Perry Capital states:

Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable,”

As Bloomberg notes further in the same piece:

Perry Capital closes Perry Capital paper valuations 0714

Perry Capital closes

But lately Perry Capital and many rivals have struggled to persuade investors that hedge funds are worth the high fees they charge. Over the past year his fund, which manages about $4 billion, has lost more than half its assets. Fortunes changed for Perry amid a reshuffling of top executives that started in 2014, and the fund, which focuses on investing around corporate and sovereign events, has lost money in each of the last three years.

Perry Capital closes – GSEs and paper uncertain

Perry Capital is involved in extensive legislation regarding the future of Fannie Mae and Freddie Mac as regular readers of this site know. It is unclear how the closing will impact those legal battles over GSE reform.

Perry Capital pitched a somewhat famous thesis a few years ago about value in the paper industry a few years ago which could lead to big gains. Below is an excerpt:

Perry Capital seeks to invest in securities that are undervalued and mispriced by the market. We have a history of investing in sum-of-the-parts and value-enhancing equity opportunities resulting from tax-advantaged structures, such as REIT conversions. Over the past few months, we have been conducting extensive due diligence on the paper and packaging industry. This led us to identify an opportunity that could revalue upwards the entire containerboard industry by 50-100%. In short, we believe that containerboard management teams can pursue Master Limited Partnership treatment for each company’s


domestic virgin containerboard mills. Virgin containerboard mills process logs and wood chips into containerboard, which is used to produce corrugated boxes. These mills are considered irreplaceable because it is prohibitive from both a permitting and economic perspective to build a new virgin


containerboard mill in the U.S.


A Master Limited Partnership, or MLP, is a partnership or LLC that has chosen partnership taxation and trades on a public exchange. MLPs that meet the Internal Revenue Service (IRS) qualifying income test do not pay corporate taxes; rather, the income is passed through to unit holders on a tax-free basis, resulting in one, not two, levels of tax. The IRS has defined qualifying income for MLPs to include income and capital gains from natural resource activities, including processing, refining and marketing of oil, gas, petroleum products, coal and timber. The IRS has released numerous private letter rulings pertaining to timber-related MLPs, including standing timber, sawmilling, wood chipping, pulp production and engineered wood products.


While the MLP market has grown rapidly both in terms of size and industry diversity ($500+ billion market with approximately 150 issuers), our research suggests that, to date, none of the containerboard producers has requested a private letter ruling from the IRS.

Perry Capital closes – If anyone has a full copy of the letter please send it (100% confidential and anonymous to jacob@valuewalk.com)

The post Perry Capital Is Shutting Down appeared first on ValueWalk.

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