Jonathan Auerbach's Hound Partners Bets On Transdigm Group (TDG): 13F Filing ~ market folly

Thursday, March 4, 2010

Jonathan Auerbach's Hound Partners Bets On Transdigm Group (TDG): 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Jonathan Auerbach's hedge fund Hound Partners. Hound is a New York based firm that Auerbach started with assistance from legendary hedgie Julian Robertson. He is one of the many 'Tiger Seeds' that Robertson has sprouted up in an attempt to crank out a new round of successful investment managers. Auerbach of course previously worked for Robertson's Tiger Management.

If you hadn't noticed, we're starting to get into some 'smaller funds' (and we use that term loosely) in regards to assets under management. We started with funds in the billions and now we're covering some that manage hundreds of millions. We've elected to do so in an effort to identify up and coming managers as well as to showcase how smaller funds often run more concentrated portfolios and are easier to track.

The positions listed below were Hound Partners' long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.

Brand New Positions
DirecTV (DTV) & Liberty Media Starz (LSTZA) ~ both as a result of the recent merger
Windstream (WIN)

Increased Positions
Monsanto (MON): Increased position size by 68.7%
Heckman (HEK): Increased by 18.9%
Transdigm Group (TDG): Increased by 15.8%
Chimera (CIM): Increased by 12.4%

Reduced Positions
American Tower (AMT): Reduced position size by 49.6%
Rambus (RMBS): Reduced by 42.1%
Abovenet (ABVT): Reduced by 38%
Heckmann WTS (HEK-WS): Reduced by 33.5%
Arabian Amern (ARSD): Reduced by 32.9%
Grace WR & Co (GRA): Reduced by 27.7%
HQ Sustainable (HQS): Reduced by 22.1%

Removed Positions (Sold out completely):
Liberty Media (LMDIA) ~ merger complete
Berkley (WRB)
Google (GOOG)
Myriad Pharma (MYRX)
Alexandria Real Estate (ARE)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. Transdigm Group (TDG): 13.98%
  2. DirecTV (DTV): 10.6%
  3. Kinder Morgan (KMR): 10.17%
  4. Liberty Media Starz (LSTZA): 8.57%
  5. Grace WR & Co (GRA): 7.01%
  6. Petrohawk (HK): 6.86%
  7. Monsanto (MON): 6.73%
  8. Abovenet (ABVT): 6.31%
  9. Heckmann (HEK): 5.44%
  10. Covanta (CVA): 4.73%
  11. Great Lakes (GLDD): 3.98%
  12. Chimera (CIM): 3.86%
  13. Echostar (SATS): 2.40%
  14. Usec Bonds: 1.97%
  15. American Tower (AMT): 1.80%

While these SEC filings obviously do not disclose their entire set of positions or assets under management, one thing you can immediately notice about Hound Partners is the fact that a lot of their US long equity stakes are very concentrated. Their top 10 positions are far more concentrated than the vast majority of hedge funds we've tracked in our series. In fact, their 10th largest stake garners a larger portfolio weighting than many other hedgies' top position. (Keep in mind that there are still some gaps left in the portfolio picture that we can't see since they aren't included in disclosures). That said, Hound still runs a more concentrated basket of stocks and as such is a good fund for tracking purposes as you know they have conviction in their plays.

One of their interesting positions we took note of was Heckmann (HEK) as we've not seen it pop up in other hedgie portfolios. In the past, this has been labeled as a backdoor Chinese water play. Their largest and most notable stake though is in Transdigm Group (TDG) and we highlight this because Dan Loeb's Third Point is also betting big on TDG.

Auerbach's hedge fund had a massive stake in Liberty Media (over 14% of their previously reported assets) that has now translated into positions in Liberty Starz and DirecTV as a result of the merger. We see yet another hedge fund interested in tower stocks and Hound Partners has chosen to play this data theme via American Tower. However, they did chop their position in half over the past quarter so take note. The only major addition they made was to their existing stake in Monsanto (MON) as they increased it by over 68%. In terms of sales, they let a third of their GRA position go and cut even more of their ABVT stake.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $348 million this quarter compared to $347 million last quarter. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management, and Charles Anderson's Fox Point Capital. Check back daily for our new updates.

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