Millennium Management's largest positions in 3Q 2013

Part 4

Millennium Management buys PPL, BHI, AEP, CMS, and SRE and sells DRYS and NYCB—13F Flash D

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Millennium Management is a global investment management firm with approximately $20.1 billion in assets under management and offices in the United States, Europe, and Asia. Founded in 1989 by Israel Englander, it employs a global multi-strategy investment approach, opportunistically engaging in a broad array of trading and investing strategies. It’s structured to allocate capital globally across a diverse set of strategies involving a variety of predominantly liquid asset classes. It focuses on generating uncorrelated returns by engaging and overseeing over 140 specialized trading teams, each of which pursues specific strategies.

In this seven-part series, we’ll go through some of the main positions Millennium Management traded this past quarter.

Its largest buys in 3Q 2013 were PPL Corp. (PPL), American Electric Power (AEP), CMS Energy (CMS), Baker Hughes Inc. (BHI), and Sempra Energy (SRE). It sold Dryships Inc. (DRYS) and New York Community Bancorp Inc. (NYCB).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why buy CMS Energy (CMS)?

CMS energy reported a 15% decline in net incomem to $126 million, or $0.46 per share, for 3Q 2013. Operating revenue was $1,445 million, down 4.1% year-over-year. In 2Q 2013, revenue was $1.41 billion, up from $1.33 billion a year earlier. The company said it’s committed to implementing its strategy of focusing on customer service, reducing costs, enhancing reliability, and investing to help strengthen Michigan’s economy. It said its plan is to avoid electric and gas base rate increases through 2014, reduce its costs, and provide full support to customers’ growth and expansion efforts.

The company recently completed a $175 million upgrade at its Ray Compressor Station and it plans to invest almost $500 million between 2012 and 2016 to inspect, assess, and replace pipelines. It said in October that it’s striving to lower costs for its customers as part of its Promise to Michigan program in order to provide affordable and reliable service. It said in October that an average residential customer’s bill in the heating season is down about $200 compared to five years back as a result of the steps taken by the Consumers Energy business. It has lowered its fuel costs by 44%, saving customers $260 million in the winter.

The company’s earnings and revenue for the quarter missed analyst estimates. A decline in demand due to a tepid economy has impacted retail as well as industrial sales. The company is also dealing with regulatory matters—especially consumers’ rate cases and regulatory proceedings before the Michigan Public Service Commission (MPSC).

CMS Energy is a Michigan-based company that has an electric and natural gas utility, Consumers Energy, as its primary business and also owns and operates an independent power generation businesses.

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Millennium emphasizes diversity in asset classes, industry sectors, and geographic boundaries and it invests in a variety of domestic and foreign equity and debt securities, asset-backed securities, currencies, futures and forward contracts, options, and other financial instruments. Its approach is to prioritize capital preservation. It aims to achieve absolute returns, rather than outperforming a given benchmark or asset class. It capitalizes on opportunities in a diversified portfolio while minimizing risk. An important feature of Millennium’s approach is that it doesn’t make firm-wide, concentrated investments. Each of its trading teams focuses on the specific opportunities and strategies it specializes in, subject to the company’s overall risk management and hedging of aggregate exposures where appropriate.

Millennium founder Israel Englander has over 35 years of experience in securities and derivatives across a broad range of instruments and strategies. A Brooklyn native, Englander earned a B.S. in finance at NYU before dropping out of the university’s MBA program to work full-time on Wall Street as a trader and floor broker at the American Stock Exchange.

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