Hudson Bay Capital Management

Last updated

Hudson Bay Capital Management LP
Company type Private
Industry Investment management
PredecessorGerber Asset Management
FoundedJune 2005;19 years ago (2005-06)
Founders
  • Sander Gerber
  • Yoav Roth
Headquarters Greenwich, Connecticut, U.S.
Products Hedge funds
Alternative investments
AUM US$31 billion (March 2024)
Number of employees
241 (2024)
Website hudsonbaycapital.com
Footnotes /references
[1]

Hudson Bay CapitalManagement (HBC) is an American multi-strategy investment management firm headquartered in Greenwich, Connecticut.

Contents

The firm has no relation to Canada's more well-known Hudson's Bay Company.

Background

In 1997, Sander Gerber, an equity options trader at American Stock Exchange started his own proprietary firm named Gerber Asset Management. In 2005, he and Yoav Roth founded Hudson Bay Capital. At the same time, Gerber Asset Management was dissolved and Hudson Bay Capital absorbed its resources and employees. [2] [3] [4] [5]

In 2013, HBC was one of over 20 companies accused by the U.S. SEC of violating short-selling regulations, specifically Rule 105 of Regulation M. It settled with the SEC. [6] [7] The settlement cost HBC almost US$950,000. [7]

In March 2020, HBC introduced a special share class based on a drawdown structure to take advantage of sharp share price decreases following then-recent historic highs. [8]

HBC was an investor of Digital World Acquisition Corp., which later became Trump Media & Technology Group. Gerber himself had donated to the Donald Trump 2020 presidential campaign. [9]

In February 2022, HBC received a $1.3 million state grant from the state of Connecticut to hire an additional 40 employees in Greenwich. [10]

In February 2024, HBC raised over $800 million for a special situations fund. It was a closed-end drawdown fund that would last six years. One of its investments was New York Community Bank, which at the time was struggling and had received a $1 billion equity injection from a group of investors that included HBC. [11]

In July 2024, HBC increased the lockup period for investor capital from one to two years. [12]

Firm operations

HBC manages the bulk of its assets in the multi-strategy fund, but also invests in distressed debt and has engaged in shareholder activism. [2] Struggling companies the firm has invested in include New York Community Bank, Plug Power, and Transocean. [2] It also provided a $155 million loan to MCR Hotels, Three Wall Capital, and Island Capital Group to refinance the Lexington Hotel . [13]

HBC has a risk framework that it calls "The Deal Code System," which was mainly designed by Gerber. It is designed to be a scalable and repeatable portfolio management system that manages the returns and losses of the firm. HBC generally does not use much leverage or borrowed money, or perform risky trades. [2] [3]

Bed Bath & Beyond

In February 2023, HBC received attention from the media after it arranged a fundraising deal for Bed Bath & Beyond which at the time was on the verge of bankruptcy. The deal worth over $1 billion involved the sale of convertible preferred stock and warrants to HBC and other investors. The deal had large potential upside if the company recovered and limited downside for HBC as its exposure was hedged. [2]

On March 30, 2023, Bed Bath & Beyond terminated its deal with HBC and instead tried to sell up to $300 million of common stock in the open market with the offering led by B. Riley Financial. Before the deal was terminated, Bed Bath & Beyond had raised at last $360 million where HBC had converted its preferred stock and warrants into at least 300 million new common shares and sold them on the open market by relying on retail investors. Bed Bath & Beyond and HBC amended the deal terms to preserve the deal even though the company stock had dropped below $1.00 which would have been a violation of the deal. However Bed Bath & Beyond stated it anticipated it would not be able to meet the conditions of the deal and terminated it. [14] By April 2023, Bed Bath & Beyond had filed for Chapter 11 bankruptcy. [15] [16]

In May 2024, Bed Bath & Beyond sued HBC to recover over $300 million in trading profits from their deal to pay off its creditors such as Sixth Street Partners. The lawsuit was filed under the short swing rule which was allegedly applicable to HBC as it was a shareholder that owned more than 10% of Bed Bath & Beyond's outstanding shares and therefore had to give any profits from short-term trading during a given six-month period to the company. The lawsuit alleged HBC orchestrated the terms of the deal so it could acquire a large stake in it at a deep discount without having to disclose the ownership. HBC aimed to make a quick profit by capitalizing on the company's popularity as a meme stock. In response, HBC stated Bed Bath & Beyond's creditors were behind the lawsuit and that it never owned more than 10% of its shares. HBC had ended up with almost 98% of the common stock underlying the preferred shares and warrants issued in the deal. While HBC incorporated blockers to prevent it owning more than 9.99% of Bed Bath & Beyond, the lawsuit alleges the company never enforced them as it had no incentive to do so as it needed cash and also had no mechanism to enforce them. As a result, the purpose of the blockers were alleged to help HBC defendants sidestep the disclosure and disgorgement obligations of federal securities laws. [15] [16]

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References

  1. ↑ "Form ADV" (PDF). SEC. Archived (PDF) from the original on June 21, 2023. Retrieved May 11, 2024.
  2. 1 2 3 4 5 Gladstone, Gregory Zuckerman and Alexander (February 7, 2023). "The Investor Behind the $1 Billion Bet on Bed Bath & Beyond". WSJ. Archived from the original on June 21, 2023. Retrieved May 11, 2024.
  3. 1 2 McElhaney, Alicia (February 18, 2022). "A Hedge Fund Manager Reluctantly Challenged — Then Collaborated With — Harry Markowitz". Institutional Investor. Archived from the original on May 11, 2024. Retrieved May 11, 2024.
  4. ↑ Harney, John (January 29, 2012). "Lauren Potter and Yoav Roth". The New York Times. ISSN   0362-4331. Archived from the original on June 22, 2023. Retrieved May 11, 2024.
  5. ↑ Trincal, Emma (January 17, 2008). "Ex-Amaranth COO Joins New York HF". www.canadianhedgewatch.com. Archived from the original on June 21, 2023. Retrieved May 11, 2024.
  6. ↑ "Firms to pay $14M on short-selling violations". dayton-daily-news. September 18, 2013. Archived from the original on May 11, 2024. Retrieved May 11, 2024.
  7. 1 2 Rawlings, Peter (November 18, 2013). "Hudson Bay CCO Advises On Rule 105 Procedures - Document - Gale General OneFile". go.gale.com. Archived from the original on May 11, 2024. Retrieved May 11, 2024.
  8. ↑ Porzecanski, Katia (March 25, 2020). "Hudson Bay Capital plans to raise funds amid 'outstanding opportunities' - BNN Bloomberg". BNN. Archived from the original on May 11, 2024. Retrieved May 11, 2024.
  9. ↑ Herbst-Bayliss, Svea (October 22, 2021). "Hedge funds score unprecedented gains on Trump's SPAC deal". Reuters. Archived from the original on December 6, 2022. Retrieved June 15, 2024.
  10. ↑ Schott, Paul (February 24, 2022). "Finance firm Hudson Bay gets $1.3 million state grant to add 40 jobs in Greenwich". CT Insider. Archived from the original on June 6, 2023. Retrieved May 11, 2024.
  11. ↑ Hudson, Erin (April 19, 2024). "Hudson Bay Closes $800 Million Fund to Bet on Special Situations". www.bloomberg.com. Archived from the original on April 19, 2024. Retrieved May 11, 2024.
  12. ↑ Tan, Gillian (July 23, 2024). "Hudson Bay Joins Hedge Funds Locking Up Investor Cash for Longer". Bloomberg.com. Retrieved September 5, 2024.
  13. ↑ Coen, Andrew (May 2, 2024). "Hudson Bay Capital Supplies $155M Refi on The Lexington Hotel". Commercial Observer. Archived from the original on May 11, 2024. Retrieved May 11, 2024.
  14. ↑ Gladstone, Alexander (March 30, 2023). "Bed Bath & Beyond Ends Hudson Bay Deal, Turns to Market for $300 Million to Avoid Bankruptcy". WSJ. Archived from the original on September 24, 2023. Retrieved May 11, 2024.
  15. 1 2 Weiss, Miles (May 10, 2024). "Former Bed Bath & Beyond Sues Hudson Bay for $300 Million in Trading Profits". www.bloomberg.com. Retrieved May 11, 2024.
  16. 1 2 Levine, Matt (May 10, 2024). "Bed Bath Strikes From the Beyond". www.bloomberg.com. Archived from the original on May 10, 2024. Retrieved May 11, 2024.
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