David Stemerman's Conatus Capital Likes Education Plays: 13F Filing Q1 2009 ~ market folly

Tuesday, June 16, 2009

David Stemerman's Conatus Capital Likes Education Plays: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is David Stemerman's Conatus Capital. This is only the second time we've covered Conatus and is a new addition to the group of funds we cover. They filed their first 13F ever in our last tracking series and so we finally get to see what they've been up to comparatively speaking. David Stemerman left Stephen Mandel's Lone Pine Capital to run his own fund, as we noted here. The result is Conatus Capital which raised $2.3 billion and started trading last year. Numerous other prominent funds have seen managers leave to start their own funds and we're also monitoring those as well.

While 13F filings do not show cash or short positions, they do show the long positions. Conatus' filing shows them owning only a little over $1.1 billion worth of long equity which is much greater than the $621 million they showed invested in longs last quarter. Now that we actually have two 13F filings to compare, we can show what they've been up to with their portfolio. Conatus is an interesting story to follow because, as we all know, Stemerman's old employer, Lone Pine Capital, is a prominent 'Tiger Cub' hedge fund. And now many years later, Lone Pine is seeing its own progeny spin off their own funds and Conatus is the first to be labeled as such. We won't be calling them a 'Lone Pine Cub' or a 'Tiger GrandCub' though, that's for sure (because let's face it, that's just plain weird). Interestingly enough, another ex-Lone Piner, Matt Iorio has launched his own fund as well, White Elm Capital with $250 million and the aim of fewer investors and controlled growth. We haven't started tracking them yet, but we'll consider doing so in the future. (Readers let us know if you're familiar with them and would like the coverage started immediately). But for now, let's get back to Conatus and see what they've got going on.

The following were Conatus' long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Range Resources (RRC), JPMorgan Chase (JPM), Apple (AAPL), Petrohawk Energy (HK), Activision (ATVI), Goldman Sachs (GS), Southwestern Energy (SWN), Teradata (TDC), & Crown Castle (CCI)

Some Increased Positions (A few positions they already owned but added shares to)
Cognizant Tech (CTSH): Increased by 132%
Discovery Communications (DISCA): Increased by 117%
Strayer Education (STRA): Increased by 106%
Apollo Group (APOL): Increased by 70%
Express Scripts (ESRX): Increased by 66%
Visa (V): Increased by 56%
Medco Health (MHS): Increased by 42%
American Tower (AMT): Increased by 38%
Bed Bath & Beyond (BBBY): Increased by 38%
Qualcomm (QCOM): Increased by 34%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Discovery Communications (DISCK): Reduced by 70%
Covidien (COV): Reduced by 49%
SBA Communications (SBAC): Reduced by 37%

Removed Positions (Positions they sold out of completely)
Dicks Sporting Goods (DKS)

Top 15 Holdings (by % of portfolio)

  1. Apollo Group (APOL): 6.38% of portfolio
  2. Visa (V): 5.55% of portfolio
  3. Range Resources (RRC): 5.35% of portfolio
  4. JPMorgan Chase (JPM): 5.2% of portfolio
  5. Medco Health (MHS): 5% of portfolio
  6. Cognizant Tech (CTSH): 4.9% of portfolio
  7. People United Financial (PBCT): 4.87% of portfolio
  8. Walmart (WMT): 4.75% of portfolio
  9. Apple (AAPL): 4.7% of portfolio
  10. American Tower (AMT): 4.5% of portfolio
  11. Cisco Systems (CSCO): 3.9% of portfolio
  12. Qualcomm (QCOM): 3.9% of portfolio
  13. Petrohawk (HK): 3.8% of portfolio
  14. Baxter (BAX): 3.33% of portfolio
  15. Express Scripts (ESRX): 3.3% of portfolio

Like his old firm Lone Pine, Stemerman likes the education companies such as Apollo Group and Strayer Education. Stephen Mandel of Lone Pine presented a detailed case for STRA at the Ira Sohn Conference just recently. Fellow 'Tiger Cub' Viking Global also likes Apollo Group a lot as evidenced by their portfolio. And, of course, this wouldn't be a Tiger Cub-esque portfolio without the mandatory holding of Visa (V). While Conatus' portfolio definitely highlights their background and roots, they still have qualities of their own and have unique positions in the likes of Range Resources, People United Financial, Petrohawk, and more. Stemerman definitely has his own twist on the fundamental long/short strategy he was a part of for so long at Lone Pine. It's interesting also to note that they were adding to Discovery Communications via DISCA but were selling their DISCK shares of the company.

Overall, Conatus was out adding to a lot of their names as they essentially doubled their portfolio assets invested on the long side on a quarter to quarter basis. It looks like their fund is fully up and running now as they have around $1.1 billion invested on the long side and launched with over $2 billion, which theoretically leaves half their assets available for cash or short positions, since Conatus employs a fundamental long/short strategy. (You can view Conatus' inaugural 13F filing here). This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, and Chase Coleman's Tiger Global.

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