The Man Behind Activist Investors' Biggest Bets

When hedge fund manager Daniel Loeb needed help making a $3.5 billion wager on Nestlé SA, he turned to the man who is behind some of Wall Street's biggest activist bets: Gregg Hymowitz.

The chief executive of EnTrustPermal in May approved a $650 million investment in Nestlé alongside Mr. Loeb's Third Point, a huge sum for a single investor.

Mr. Hymowitz's willingness to write such large checks on short notice makes the 51-year-old a potent weapon when managers are quietly trying to amass meaningful stakes in companies.

The New York investment firm this year has backed Trian Fund Management's $3.3 billion Procter & Gamble Co. stake and Mantle Ridge's $1 billion CSX Corp. investment, among others. The $650 million Nes tlé investment, which includes money from sovereign wealth funds and state pensions, is its biggest co-investment to date, giving EnTrustPermal a total of more than $6 billion tied up in such single-bet wagers, or co-investments.

EnTrustPermal, with $24.5 billion in assets under management, is primarily a fund-of-hedge-funds firm; it pools clients' money and invests in a range of hedge funds, charging a layer of fees on top of the fees charged by hedge-fund managers themselves. Increasingly, EnTrustPermal is focusing on co-investments, including activist campaigns and corporate debt restructurings.

Such concentrated wagers can offer clients fatter returns at lower fees, though they also carry more risk and lock up investors' money for years. Some investors say they don't try to source these deals themselves because their staffs are already stretched thin.

EnTrustPermal's emphasis on co-investments is intended to help it survive a shakeout among funds-of-hedge-funds. Investors have been pulling money from these funds each year since 2007, according to research firm HFR, and their number has slumped by 40% over that period to roughly 1,500 at the end of March. The hedge funds they invest in have posted disappointing returns on average, and clients' willingness to pay an additional layer of fees has shrunk.

EnTrustPermal hasn't been immune to the pressures. Its assets under management through the end of March dropped about 15% since January 2016; the firm's co-investment funds have fared better than its traditional funds-of-hedge-funds.

Clients in its traditional funds-of-hedge-funds also make co-investments through EnTrustPermal, and the co-invests have drawn new clients to the firm, Mr. Hymowitz said.

Critics say co-investments require investors to pay extra fees to hold easily accessible stocks, then lock up their money for years. There also are risks to taking concentrated bets. EnTrustPermal lost more than 5% on its co-investment with Corvex Management LP in energy-pipeline operator Williams Cos., after an agreed upon sale to Energy Transfer Equity failed last year. EnTrust later backed Corvex's bet on Yum Brands Inc. and more than recouped the losses, according to people familiar with the matter.

Firm executives say some activists stay quiet, and clients can benefit from changes managers make behind the scenes. The firm also partners on less-accessible deals and tries to protect clients by negotiating fees.

Mr. Hymowitz hails from Bellmore, on Long Island, and speaks with a New York accent. He and three of his daughters sport "H" tattoos, a nod to their last name, a person familiar with the matter said.

Formerly on a team of private managers to the wealthy at Goldman Sachs Group Inc., he and two others left in 1997 to start EnTrust Capital. One partner later retired; Mr. Hymowitz bought out the other.

He says he found his business motto when he met the singer Usher in 2012 at a friend's wedding weekend. Seated at Usher's table, Mr. Hymowitz says he asked the performer how he made the transition from child artist to adult star. Usher, he recalls, told him his philosophy: "Evolve or evaporate."

"Ever since that lunch, I've used that," Mr. Hymowitz said. "You have to evolve or evaporate with this business."

When an activist pitches a new idea, Mr. Hymowitz doesn't grill him on valuations or specifics, managers said. He leaves the detailed vetting to others at the firm and focuses on the manager and the idea. "He's there to smell you," one activist said.

He agreed in 2016 to combine his then-$12 billion firm with Legg Mason's roughly $17 billion fund-of-hedge-funds business, Permal Group. Legg Mason paid about $400 million for a 65% stake in the combined entity.

EnTrust's recent surge in co-investments coincides with ramped-up activist activity, as the biggest funds go after giant companies. Third Point's Nestlé bet and Trian's P&G investments are their biggest wagers and rank among the largest-ever activist campaigns.

Many of Mr. Hymowitz's clients are pension funds that oversee money for private and public workers. These investors can balk at the idea of helping Wall Street activists, who often turn to cost cutting to improve a company's results.

One such client, the $7 billion United Food and Commercial Workers International Union, based in Washington, D.C., said it steers clear of co-investing in activist campaigns targeting food companies because they might result in job losses or pay cuts for some of its members. But the multiemployer pension has co-invested in other activist bets offered by Mr. Hymowitz.

"It helps us juice the returns a little bit without necessarily increasing our risk profile too much," said UFCW President Marc Perrone, which has roughly $100 million with EnTrustPermal.

(END) Dow Jones Newswires

July 14, 2017 09:14 ET (13:14 GMT)