Santoli: Hedge fund hotels like Allergan raided

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The U.S. Treasury's new threat to Pfizer's plan to buy Allergan in a "tax inversion" could touch off yet another raid on so-called hedge fund hotels – stocks that are unusually popular with the two-and-20 crowd.

Specialty pharmaceutical company Allergan has long been a hedge fund favorite, and its shares have hemorrhaged 17 percent of their value in morning trading Tuesday as the market prices in lower odds that Pfizer will complete its $190 billion merger with its U.K.-domiciled partner.

Hedge fund research firm Symmetric says 21 percent of Allergan is held by hedge funds, which it characterizes as "crowded," with marquee funds Viking Global, Paulson & Co., Third Point, Elliott Management and Blue Ridge Capital among the eight largest owners. Many smaller funds typically trail behind these big fish, and when a core holding goes down they typically will reduce risk across the portfolio and sell other stocks.

This pattern happened in dramatic fashion during the long, nasty liquidation of Valeant Pharmaceuticals — another tax-eluding drug-company roll-up whose financial engineering enthralled performance-hunting hedge funds. (Ironically, Valeant shares are rebounding smartly Tuesday as the company says it uncovered no new accounting issues with its Philidor pharmaceutical vendor.) SunEdison, now seen as a likely seeker of bankruptcy protection, was another "story stock" gone bad for its several hedge fund sponsors.

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