Farallon Capital
Encyclopedia
Farallon Capital Management, L.L.C. is an American
global investment firm that manages capital on behalf of institutions and individuals. The firm was founded by Tom Steyer
in 1986. Headquartered in San Francisco, California
, the firm employs approximately 165 professionals in eight countries around the world.
Farallon primarily manages money for college endowments, foundations, and high net worth individuals.
As of 2011, Farallon Capital Management is the 12th largest hedge fund in the world managing US $21.5 billion in assets.
founded Farallon in January 1986 with $15 million in seed capital. Previously, Steyer worked for San Francisco-based private equity
firm Hellman & Friedman
, as a risk arbitrage
trader, under Robert Rubin
, at Goldman Sachs
and in Morgan Stanley's
corporate mergers and acquisitions
department.
Farallon made a name for itself by being one of the first firms to raise money from a university endowment.
In 1987 Tom Steyer a Yale undergraduate approached the university's endowerment to allocate funds to Farallon to manage. The Yale endowment declined based on the fees charged by Farallon. David Swensen
, the head of the Yale endowment later came to an arrangement with Tom Steyer where he would initially not be charge by Farallon to manage an allocation of the Yale endowerment. After Yale's investment proved to be lucrative, many other college endowments and pensions began to invest in hedge funds. Today, roughly two-thirds of all hedge fund capital flows from these types of institutions.
investing, a model focusing on potential returns as well as risk adjusted returns. Absolute return investing "treats every investment—whether a residential mortgage, a common stock, or a parcel of land—as a bond, with an implied rate of return." Farallon invests in various asset classes including value investments
, credit investments, merger arbitrage, real estate
related investments, and direct investments in both developed and emerging markets
. Farallon typically holds positions anywhere from two to five years.
Farallon also practices "event driven" international investing, finding distressed international companies and helping the businesses restructure. In 1999, Farallon bought a direct stake in an Argentine shoe company, which it helped stabilize to profitability as Argentina recovered from an economic crisis. And in 2002, Farallon bought control of Bank Central Asia (BCA), an Indonesia
n financial institution, for $531 million. At the time, many of Indonesia's banks were on the verge of collapse because of bad loans made during President Suharto's leadership and the country was seen as dangerous for foreign investment. Over the next four years, Farallon installed a new chairman and made necessary reforms. After Farallon sold its stake for a profit in 2006, many other institutional investors began to look to Indonesia for returns. In the year before Farallon's investment in Indonesia, $286 million flowed into the country as foreign direct investment
. After Farallon exited, that number grew to $1 billion in 2007 and $4 billion in 2008. According to Council on Foreign Relations
economics
fellow Sebastian Mallaby, "Farallon's investment was a blessing for Indonesia."
According to Institutional Investor's Alpha, Steyer considers "himself as a research-oriented fundamental investor, not a trader."
In March 2010, Farallon announced plans to refocus its investing on risk arbitrage
and credit wagers and lessen its equity
exposure. In addition, the firm said it would disclose more information to clients to "foster a more open culture at the hedge fund."
off the coast of the San Francisco Bay Area.
has been reported both as setting it apart from similar firms and also as traditional. During the firm's infancy, Steyer "insisted that Farallon employees keep their liquid savings in the fund so that they would feel the pain if they lost money." The firm rewards independent thinking and rigorous research, which has earned it the reputation as the "McKinsey of hedge funds."
and Andrew J.M. Spokes act as the firm's Co-Managing Partners. Spokes was promoted to the position in 2007. Prior to his promotion, Spokes oversaw portfolio management
and strategy for Farallon exclusive subadviser Noonday Global Management. Spokes opened Farallon's first international office in London in 1998.
Farallon retains talent by giving enterprising professionals the opportunity to spin off and run new funds with Farallon capital. For example, Former Farallon traders started Noonday Global Management and ChinaRock Capital using Farallon money and back office support.
Today, Farallon has 21 principals, 13 managing directors and 35 investment professionals who oversee the firm's day-to-day operations and management.
San Francisco
Charlotte
New York City
Mumbai
Tokyo
Singapore
London
Hong Kong
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
global investment firm that manages capital on behalf of institutions and individuals. The firm was founded by Tom Steyer
Tom Steyer
Thomas "Tom" Fahr Steyer is an American asset manager, philanthropist and environmentalist.He is the founder and Co-Senior Managing Partner of Farallon Capital Management, LLC and the co-founder of the OneCalifornia Bank, an Oakland-based community development bank...
in 1986. Headquartered in San Francisco, California
San Francisco, California
San Francisco , officially the City and County of San Francisco, is the financial, cultural, and transportation center of the San Francisco Bay Area, a region of 7.15 million people which includes San Jose and Oakland...
, the firm employs approximately 165 professionals in eight countries around the world.
Farallon primarily manages money for college endowments, foundations, and high net worth individuals.
As of 2011, Farallon Capital Management is the 12th largest hedge fund in the world managing US $21.5 billion in assets.
History
Tom SteyerTom Steyer
Thomas "Tom" Fahr Steyer is an American asset manager, philanthropist and environmentalist.He is the founder and Co-Senior Managing Partner of Farallon Capital Management, LLC and the co-founder of the OneCalifornia Bank, an Oakland-based community development bank...
founded Farallon in January 1986 with $15 million in seed capital. Previously, Steyer worked for San Francisco-based private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
firm Hellman & Friedman
Hellman & Friedman
Hellman & Friedman is a private equity firm, founded in 1984 by Warren Hellman and Tully Friedman, that makes investments primarily through leveraged buyouts and minority growth capital investments....
, as a risk arbitrage
Risk arbitrage
Risk arbitrage, or merger arbitrage, is an investment or trading strategy often associated with hedge funds.Two principal types of merger are possible: a cash merger, and a stock merger. In a cash merger, an acquirer proposes to purchase the shares of the target for a certain price in cash...
trader, under Robert Rubin
Robert Rubin
Robert Edward Rubin served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992...
, at Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
and in Morgan Stanley's
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
corporate mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
department.
Farallon made a name for itself by being one of the first firms to raise money from a university endowment.
In 1987 Tom Steyer a Yale undergraduate approached the university's endowerment to allocate funds to Farallon to manage. The Yale endowment declined based on the fees charged by Farallon. David Swensen
David Swensen
David F. Swensen has been the Chief Investment Officer at Yale University since 1985. He is responsible for managing and investing the University's endowment assets and investment funds, which total $19.4 billion...
, the head of the Yale endowment later came to an arrangement with Tom Steyer where he would initially not be charge by Farallon to manage an allocation of the Yale endowerment. After Yale's investment proved to be lucrative, many other college endowments and pensions began to invest in hedge funds. Today, roughly two-thirds of all hedge fund capital flows from these types of institutions.
Investment Strategy
Farallon pioneered absolute returnAbsolute return
The absolute return or simply return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. The adjective absolute is used to stress the distinction with the relative return measures often used by long-only equity funds, i.e...
investing, a model focusing on potential returns as well as risk adjusted returns. Absolute return investing "treats every investment—whether a residential mortgage, a common stock, or a parcel of land—as a bond, with an implied rate of return." Farallon invests in various asset classes including value investments
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
, credit investments, merger arbitrage, real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
related investments, and direct investments in both developed and emerging markets
Emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
. Farallon typically holds positions anywhere from two to five years.
Farallon also practices "event driven" international investing, finding distressed international companies and helping the businesses restructure. In 1999, Farallon bought a direct stake in an Argentine shoe company, which it helped stabilize to profitability as Argentina recovered from an economic crisis. And in 2002, Farallon bought control of Bank Central Asia (BCA), an Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
n financial institution, for $531 million. At the time, many of Indonesia's banks were on the verge of collapse because of bad loans made during President Suharto's leadership and the country was seen as dangerous for foreign investment. Over the next four years, Farallon installed a new chairman and made necessary reforms. After Farallon sold its stake for a profit in 2006, many other institutional investors began to look to Indonesia for returns. In the year before Farallon's investment in Indonesia, $286 million flowed into the country as foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
. After Farallon exited, that number grew to $1 billion in 2007 and $4 billion in 2008. According to Council on Foreign Relations
Council on Foreign Relations
The Council on Foreign Relations is an American nonprofit nonpartisan membership organization, publisher, and think tank specializing in U.S. foreign policy and international affairs...
economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
fellow Sebastian Mallaby, "Farallon's investment was a blessing for Indonesia."
According to Institutional Investor's Alpha, Steyer considers "himself as a research-oriented fundamental investor, not a trader."
In March 2010, Farallon announced plans to refocus its investing on risk arbitrage
Risk arbitrage
Risk arbitrage, or merger arbitrage, is an investment or trading strategy often associated with hedge funds.Two principal types of merger are possible: a cash merger, and a stock merger. In a cash merger, an acquirer proposes to purchase the shares of the target for a certain price in cash...
and credit wagers and lessen its equity
Equity (finance)
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
exposure. In addition, the firm said it would disclose more information to clients to "foster a more open culture at the hedge fund."
Investment Vehicles
Farallon Capital Institutional Partners - for Farallon's institutional investors to invest in.Investment History
In 2007, Farallon in partnership with Simon Propert Group and other hedge funds purchased Mills Corp, a real estate investment trust.Company
In 2006 it was reported that Farallon Capital was the largest hedge fund in the world in 2005. Steyer named the firm after the Farallon IslandsFarallon Islands
The Farallon Islands, or Farallones , are a group of islands and sea stacks in the Gulf of the Farallones, off the coast of San Francisco, California, USA. They lie outside the Golden Gate and south of Point Reyes, and are visible from the mainland on clear days...
off the coast of the San Francisco Bay Area.
Culture
Farallon's corporate cultureCulture
Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...
has been reported both as setting it apart from similar firms and also as traditional. During the firm's infancy, Steyer "insisted that Farallon employees keep their liquid savings in the fund so that they would feel the pain if they lost money." The firm rewards independent thinking and rigorous research, which has earned it the reputation as the "McKinsey of hedge funds."
Organization
Tom SteyerTom Steyer
Thomas "Tom" Fahr Steyer is an American asset manager, philanthropist and environmentalist.He is the founder and Co-Senior Managing Partner of Farallon Capital Management, LLC and the co-founder of the OneCalifornia Bank, an Oakland-based community development bank...
and Andrew J.M. Spokes act as the firm's Co-Managing Partners. Spokes was promoted to the position in 2007. Prior to his promotion, Spokes oversaw portfolio management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
and strategy for Farallon exclusive subadviser Noonday Global Management. Spokes opened Farallon's first international office in London in 1998.
Farallon retains talent by giving enterprising professionals the opportunity to spin off and run new funds with Farallon capital. For example, Former Farallon traders started Noonday Global Management and ChinaRock Capital using Farallon money and back office support.
Today, Farallon has 21 principals, 13 managing directors and 35 investment professionals who oversee the firm's day-to-day operations and management.
Offices
Farallon, along with Noonday Global Management, operates offices in: San Francisco CharlotteCHARLOTTE
- CHARLOTTE :CHARLOTTE is an American blues-based hard rock band that formed in Los Angeles, California in 1986. Currently, they are signed to indie label, Eonian Records, under which they released their debut cd, Medusa Groove, in 2010. Notable Charlotte songs include 'Siren', 'Little Devils',...
New York CityNew York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
MumbaiMumbai
Mumbai , formerly known as Bombay in English, is the capital of the Indian state of Maharashtra. It is the most populous city in India, and the fourth most populous city in the world, with a total metropolitan area population of approximately 20.5 million...
TokyoTokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
SingaporeSingapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
Hong KongHong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...