Highfields Says ‘Stay Tuned’ on Genworth After Stock Plunge

Highfields Capital Management LP’s Jonathon Jacobson told his investors to “stay tuned” on the hedge fund’s stake in Genworth Financial Inc. (GNW) after shares of the life insurer and mortgage guarantor plunged.

“A savvy management team could create a lot of value,” Jacobson said in a July 22 letter, according to a person who reviewed it.

Genworth, led by Chief Executive Officer Michael Fraizer, has dropped more than 80 percent since its 2007 peak on the New York Stock Exchange after the U.S. housing slump caused losses in its mortgage-insurance unit. The Richmond, Virginia-based insurer, once a division of General Electric Co. (GE), was divested through a 2004 initial public offering.

Jacobson was “fatigued by management’s lack of urgency,” he said in the letter. A week later, Genworth shares jumped 6.4 percent when Fraizer said on a conference call that he was considering separating the mortgage division from the rest of the firm. Mortgage insurers reimburse lenders when homeowners default and foreclosure fails to recoup costs.

“Management has a sense of urgency,” Fraizer said on the July 29 call. Spokespeople for Highfields and Genworth declined to comment.

Highfields had 13 million Genworth shares, or about 2.7 percent of the insurer, as of June 30, according to data compiled by Bloomberg. Most of the stake was acquired in the first quarter, according to regulatory filings.

Share Slump

The fund bought some of its stake at $13 a share, Jacobson said in the letter. The shares fell 3 cents today at $6.42 at 1:32 p.m. in composite trading.

Highfields, the Boston fund manager co-founded by Jacobson in 1998, manages more than $11 billion, according to its website. Jacobson is a former fund manager at Harvard University’s endowment.

Highfields has publicly pushed for changes in companies in the past. In 2005, it urged Mellon Financial Corp. to split in two; instead, the bank agreed the next year to sell itself to Bank of New York Co. Highfields pushed Clear Channel Communications Inc. in 2007 to demand more money from the private-equity firms that had agreed to buy it.

Fraizer, who has run Genworth since its IPO, has been under pressure from investors as the sale of a stake in a Canadian operation and the retreat from the variable annuity business failed to reverse a share slide.

Steven Eisman, then a fund manager at FrontPoint Partners LLC, threatened last year to mount a campaign to remove Fraizer from the company if he made acquisitions.

“This management team has overseen a massive destruction of shareholder value,” Eisman said Oct. 29 on a Genworth conference call. “I don’t get any sense of urgency from this management team.”

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

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