U.S. hedge fund Paulson & Co, led by long-time gold bull John Paulson, is set to name a group of investors that will work together to try to drive changes and better returns from gold mining companies after years of dismal industry performance, according to people familiar with the situation.
The Shareholders Gold Council (SGC), expected to be launched as early as June, will have more than a dozen investors, including Delbrook Capital, Livermore Partners and Tocqueville Asset Management, one of the people said.
Delbrook confirmed to Reuters that it will be part of the group. BlackRock and Van Eck Associates, two of the biggest mining sector investors, are also in discussions to join the group of hedge funds and institutional investors, the source added.
BlackRock manages about US$6.3 trillion in assets. Paulson & Co had US$8.7 billion in assets under management in January, according to regulatory filings.
The Canadian gold-mining index has lost 40 percent of its value in the past decade, compared with a 9 percent gain in the benchmark TSX index and a 95 percent rise in the S&P 500. Gold has risen 46 percent in the same period.
Paulson & Co first announced its intent at an institutional gold conference last September. The alliance is unusual because there is no similar group of investors targeting a specific sector, activism experts say.
The group will begin by releasing research reports on the gold mining sector, the sources said, betting that shining spotlight on the space will result in greater accountability.
SGC will push gold mining companies to make changes in capital allocation, compensation and corporate governance, as well as aim to raise the sector’s profile among mainstream investors.
Others joining the fund will include Kopernik Global Investors, Adrian Day Asset Management, Apogee Global Advisors and Equinox Partners.
Paulson & Co, Van Eck, Livermore and Adrian Day declined to comment. BlackRock, Tocqueville, Kopernik, Apogee and Equinox did not immediately respond to requests for comment.
Founded by the billionaire investor in 1994, Paulson & Co managed US$36 billion in assets at its peak in 2011. Losses in its funds as well as investor redemptions have contributed to the decline and now much of the money belongs to Paulson and his associates.
At the end of the first quarter, Paulson owned 4.3 million shares in the SPDR Gold Trust, making it his firm’s biggest position ahead of four health care companies. Even as Paulson sticks to his bet on gold, it has shrunk dramatically over the years. Three years ago he owned roughly 10 million shares in the SPDR Gold Trust.
The sharp decline in assets has sparked industry speculation that Paulson, 62, might turn the firm into a family office, but people close to him say he has no plans to stop managing money for others and is redoubling his efforts to raise fresh cash while concentrating on distressed debt and merger arbitrage strategies.
These investors own stakes in gold companies ranging from Goldcorp Inc, Barrick Gold Corp and AngloGold Ashanti Ltd, though it was unclear which companies were likely to be targeted first.
Walied Soliman, co-chair of special situations and chair of Norton Rose Fulbright Canada, described the move as “unprecedented.” “I have never heard of an industry wide shakeup effort by a coalition of major shareholders.”
While success with this venture could result in similar initiatives in other sectors like oil and gas and automotive, Soliman said the group could face challenges. “The most important driver of value in a mining company is commodity value. No activist can control that.”
(Reporting by John Tilak and Nicole Mordant Additional reporting by Svea Herbst-Bayliss Editing by Denny Thomas and Marguerita Choy)
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