Tom Brown's Hedge Fund Second Curve Capital Favors Wintrust Financial & Synovus Financial: 13F Filing ~ market folly

Wednesday, March 10, 2010

Tom Brown's Hedge Fund Second Curve Capital Favors Wintrust Financial & Synovus Financial: 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.)

This is the first time we've covered Tom Brown's hedge fund Second Curve Capital. His hedge fund exclusively focuses on the financial services sector as he has been a banking analyst for many years. Prior to founding Second Curve in May 2000, he was in charge of the financial services group at Julian Robertson's Tiger Management. In the past, he had also worked at Smith Barney, PaineWebber and more. He also runs the site

The hedge fund has had a volatile ride the past few years as one of its funds was up 68% in 2006 and then had a rough ride in 2007 as they fought the waterfall of bank stock declines. Brown has ardently argued that the bottom is in for financials. While these stocks rallied heavily in 2009, the problem with his enthusiasm is that he was making his call back in 2007 and 2008 when things were really starting to heat up in the financial crisis. As such, many of his holdings were hit big. He was definitely early on his call, and it cost him dearly.

The positions listed below were Second Curve's 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
Western Alliance (WAL)

Increased Positions
Cobiz Financial (COBZ): Increased position by 408%
Pacwest Bancorp (PACW): Increased by 178.6%
Synovus Financial (SNV): Increased by 165.5%
Highbury Financial (HBRF): Increased by 149%
Wintrust Financial (WTFC): Increased by 139.5%
Taylor Cap Group (TAYC): Increased by 80.4%
Compu Credit Holding (CCRT): Increased by 62%
Tree (TREE): Increased by 43%
Nara Bancorp (NARA): Increased by 29.9%

Reduced Positions
Marshall & Ilsley (MI): Reduced by 78%
Pinnacle Financial (PNFP): Reduced by 60%
Regions Financial (RF): Reduced by 59%
Encore Cap (ECPG): Reduced by 47.5%
Ocwen Financial (OCN): Reduced by 41%
Fifth Third Bancorp (FITB): Reduced by 39%
Alisource Portfolios (ASPS): Reduced by 36.5%
Zions Bancorp (ZION): Reduced by 30.7%

Removed Positions (Sold out completely):
Legg Mason (LM)
Portfolio Recovery (PRAA)
Highbury Financial (HBRFW)

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

  1. Wintrust Financial (WTFC): 17.4%
  2. Synovus Financial (SNV): 16.9%
  3. Primus Guaranty (PRS): 9.0%
  4. Boston Private (BPFH): 8.0%
  5. Nara Bancorp (NARA): 6.5%
  6. Taylor Cap Group (TAYC): 6.2%
  7. Zions Bancorp (ZION): 4.7%
  8. Encore Cap Group (ECPG): 4.6%
  9. Tree (TREE): 4.5%
  10. Cobiz Financial (COBZ): 3.7%
  11. Ocwen Financial (OCN): 3.3%
  12. Compu Credit (CCRT): 3.0%
  13. Regions Financial (RF): 3.0%
  14. Highbury Financial (HBRF): 2.8%
  15. Fifth Third Bancorp (FITB): 2.8%

So, given Brown's focus on financial stocks you already knew where his portfolio was headed. It's obvious from above that Second Curve has a few highly concentrated positions in Wintrust Financial, Synovus Financial, and Primus Guaranty. Of those large stakes, Brown added heavily to his WTFC and SNV positions in the fourth quarter. Other sizable position adjustments include boosting their Taylor Capital holdings by 80% and quadrupling their position in Cobiz Financial. In terms of bank stocks they reduced their holdings in, we highlight that they sold almost half of their Encore Capital stake and a third of their Zions Bancorp stake, as those two were previously big holdings for them.

Maybe the most notable thing about Second Curve's portfolio is that they have sizable long positions in Synovus and Zions, two banks that have been heavily shorted by hedge funds in the past. These regional banks have been part of the 'long moneycenter banks, short regionals' trade that has been omnipresent in hedge fund land. Brown has taken the other side of the trade and seems to like these stocks. If you're looking for particular bank stocks to do some due diligence on, Second Curve's portfolio is an intriguing list.

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 $196.8 million this quarter compared to $205.9 million last quarter. Remember that these filings are not representative of the hedge fund's entire base of AUM.

In our portfolio series we've already covered a ton of hedge funds, including value and/or activist focused funds such as: covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Warren Buffett's portfolio, David Tepper's Appaloosa Management, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, Bill Ackman's Pershing Square Capital Management, Ricky Sandler's Eminence Capital.

Various 'Tiger Cub' and 'Tiger Seeded' funds (hedgies somehow tied to Julian Robertson): Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Jonathan Auerbach's Hound Partners, Lee Hobson's Highside Capital, David Stemerman's Conatus Capital, Matt Iorio's White Elm Capital, David Gallo's Valinor Management.

As well as some merger arbitrage focused funds & hedgies that employ various other strategies too: John Paulson's hedge fund Paulson & Co, Philip Falcone's Harbinger Capital Partners, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management.

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