David Stemerman's Sohn Conference Presentation: Short African Bank

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from David Stemerman of Conatus Capital.  Prior to founding his fund, he worked at Lone Pine Capital.  He presented a negative view on South African consumer credit.  He recommended shorting African Bank (ABL:SJ).


Negative on South Africa, Short African Bank (ABL:SJ)

His factors: 1. Quality of Business 2. Management quality 3. Industry cycles

Short Idea: Short when boom turns to bust. South Africa. Banks in South Africa. Unsustainable increase in consumer credit, unsound lending practices, cycle is turning from boom to bust, and African Bank (ABL:SJ) is vulnerable to a downturn.

Short African Bank. (Listed only in South Africa) Consumers are spending 48% of their income on debt service! Trades at 1.3x book value.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

David Stemerman's Hedge Fund Conatus Capital Favors Tech: 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 filings.)

Next up is David Stemerman's hedge fund Conatus Capital. Stemerman founded his firm last year with $2.3 billion after he left Stephen Mandel's Lone Pine Capital. Conatus places an emphasis on bottom-up individual stockpicking via a long/short equity strategy. Stemerman's firm focuses on the quality of the business and the quality of the associated management team. They seek short positions by identifying companies that are seeing increased competition from low-cost alternatives and those that are being displaced by new technology. We've previously taken a more in-depth look at Conatus' investment process for those interested. For 2009, Stemerman's firm finished up 19.16% as detailed in our hedge fund performances post.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
JPMorgan Chase (JPM)
Union Pacific (UNP)
American Tower (AMT)
US Bancorp (USB)
FMC Technologies (FTI)
City National (CYN)
Mead Johnson Nutrition (MJN)
Sotheby's Holdings (BID)
Charles Schwab (SCHW)
Webmd Health (WBMD)


Increased Positions
BHP Billiton (BHP): Increased position size by 103%
Ctrip.com (CTRP): Increased by 94.4%
Wells Fargo (WFC): Increased by 91.8%
Amazon.com (AMZN): Increased by 84%
Schlumberger (SLB): Increased by 73%
Bed Bath & Beyond (BBBY): Increased by 58.5%
Visa (V): Increased by 54.9%
Goldman Sachs (GS): Increased by 52.5%
NetApp (NTAP): Increased by 48.5%
Urban Outfitters (URBN): Increased by 38.4%
Google (GOOG): Increased by 35%
Polo Ralph Lauren (RL): Increased by 35%
Walter Energy (WLT): Increased by 29.4%
Salesforce.com (CRM): Increased by 25.9%
Citrix Systems (CTXS): Increased by 23.6%
Crown Castle (CCI): Increased by 20.8%


Reduced Positions
Priceline.com (PCLN): Reduced position size by 34.4%


Positions They Sold Out of Completely
Abercrombie & Fitch (ANF)
Credicorp (BAP)


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

1. Apple (AAPL): 5.6%
2. Express Scripts (ESRX): 4.4%
3. Google (GOOG): 3.9%
4. Estee Lauder (EL): 3.9%
5. Cognizant Technologies (CTSH): 3.9%
6. Amazon.com (AMZN): 3.9%
7. Walter Energy (WLT): 3.9%
8. Cisco Systems (CSCO): 3.8%
9. Medco Health (MHS): 3.8%
10. Schlumberger (SLB): 3.4%
11. Wells Fargo (WFC): 3.3%
12. Visa (V): 3.3%
13. Covidien (COV): 3.2%
14. JPMorgan Chase (JPM): 2.8%
15. Bed Bath & Beyond (BBBY): 2.8%


As you can see, Conatus Capital did little in the way of selling in the first quarter of 2o10. In fact, they were quite active on the buying side, adding to numerous existing stakes like BHP Billiton, Ctrip.com, Wells Fargo, and Amazon.com. They also started brand new stakes in JPMorgan Chase, Union Pacific, and American Tower among others. Given the recent market decline, it will be intriguing to see next time around whether Conatus was reducing long exposure or if they continued to add.

Since Stemerman previously plied his trade at Stephen Mandel's Lone Pine Capital, it should come as no surprise that this portfolio has obvious similarities to Lone Pine's. While the typical 'hedge fund favorite stocks' like Apple and Amazon are present, both Conatus and Lone Pine are bullish on shares of Estee Lauder and Cognizant Technologies, names we don't see as frequently in hedge fund portfolios.

Lastly, we want to point out the three sectors Conatus seems to like the most: technology, health, and energy. They own the typical tech bellwethers in Apple, Google, Cisco, and Amazon. But at the same time, they're focusing on niche segments like cloud computing. Shifting to pharmacy benefit management companies (PBMs), Conatus has a large position in Express Scripts, a company we saw fellow hedge fund Viking Global heavily favors. Additionally, Conatus is long Medco Health as their ninth largest US equity long. In energy, Conatus likes Schlumberger and Walter Energy. In the end though, technology is by far and away the overwhelming theme as five of their top ten positions are in tech.

As we've previously detailed, Conatus is bullish on cloud computing and this is evident from their positions in VMWare, Citrix Systems, and NetApp. And as we've also highlighted, hedge funds favor wireless tower stocks and Conatus is no different: they own all three majors in American Tower, Crown Castle, and SBA Communications.

Assets reported on the 13F filing were $2.6 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, and Phil Falcone's Harbinger Capital Partners. Be sure to check back daily for new hedge fund updates.

David Stemerman's Conatus Capital Boosts Technology Exposure, Trims Basic Materials: 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 David Stemerman's hedge fund Conatus Capital. Conatus raised $2.3 billion and began trading last year after Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund. Like many of the hedge funds we focus on, Stemerman places emphasis on bottom-up individual stockpicking with a long-term time horizon and a long/short equity strategy. In evaluating stocks, they like to focus on the quality of the business and quality of management. And on the short side of their portfolio specifically, they like to focus on companies that are seeing increased competition from lower-cost alternatives or are being displaced by new technology. We've previously taken a look at their investment process in their latest investor letter. For 2009, Conatus finished the fourth quarter up 2.86% and the year up 19.16% as listed in our post on 2009 hedge fund performances.

The positions listed below were Conatus' 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
Visa (V)
Estee Lauder (EL)
Schlumberger (SLB)
Discovery Communications (DISCA)
Salesforce.com (CRM)
Polo Ralph Lauren (RL)
Netapp (NTAP)
VMWare (VMW)
Abercrombie & Fitch (ANF)
Credicorp (BAP)


Increased Positions
CH Robinson (CHRW): Increased by 61.6%
Teradata (TDC): Increased by 59%
Covidien (COV): Increased by 55.6%
Priceline.com (PCLN): Increased by 30%
Cognizant Technology (CTSH): Increased by 18%
Citrix (CTXS): Increased by 12%
Express Scripts (ESRX): Increased by 10%


Reduced Positions
Range Resources (RRC): Reduced by 46%
Wells Fargo (WFC): Reduced by 40.6%
BHP Billiton (BHP): Reduced by 39.4%
Walter Energy (WLT): Reduced by 28%
Freeport McMoran (FCX): Reduced by 28%
SBA Communications (SBAC): Reduced by 28%
Urban Outfitters (URBN): Reduced by 27%
Crown Castle (CCI): Reduced by 23.5%
Goldman Sachs (GS): Reduced by 15%


Removed Positions (Sold out completely):
Apollo Group (APOL)
Weatherford (WFT)
DR Horton (DHI)
Toll Brothers (TOL)
Monsanto (MON)
Baxter (BAX)
Petrohawk (HK)
Strayer Education (STRA)
Mindray Medical (MR)
Carnival (CCL)
Baidu (BIDU)
Qualcomm (QCOM)


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

1. Apple (AAPL): 6.33%
   
2. Express Scripts (ESRX): 5.52%
   
3. Medco Health (MHS): 4.85%
   
4. Google (GOOG): 4.52%
   
5. Cognizant Technology (CTSH): 4.45%
   
6. Cisco Systems (CSCO): 4.35%
   
7. Covidien (COV): 4.30%
   
8. JPMorgan Chase (JPM): 3.61%
   
9. Walter Energy (WLT): 3.48%
   
10. Amazon (AMZN): 2.98%
    
11. Visa (V): 2.95%
    
12. Estee Lauder (EL): 2.90%
    
13. Schlumberger (SLB): 2.87%
    
14. CH Robinson (CHRW): 2.86%
    
15. Itau Unibanco (ITUB): 2.85%
    

Technology definitely plays a big role in Conatus' portfolio. However, pharmacy benefit management (PBM) companies Express Scripts (ESRX) and Medco Health (MHS) are their 2nd and 3rd largest US equity long stakes and immediately drew our attention. While we've seen many other hedgies play the PBM theme via Express Scripts, CVS, and related companies, Conatus definitely has the most noteworthy exposure as their positions garner the highest placement in their portfolio.

Regarding positions they no longer own, we already knew that Stemerman's hedge fund had sold out of for-profit education plays Apollo Group and Strayer Education as they mentioned this in their investor letter. They also sold completely out of various homebuilders along with Monsanto and Weatherford. While they still own natural resource stocks, they sold shares in practically all of their basic materials plays. Over the fourth quarter, Conatus Capital started sizable new positions in Visa, Estee Lauder, and Schlumberger. Overall, we can sum up their portfolio maneuvers by reduced exposure to basic materials and increased technology exposure.

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 $1.8 billion this quarter compared to $1.9 billion 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 Charles Anderson's Fox Point Capital, Bill Ackman's Pershing Square Capital Management, Jonathan Auerbach's Hound Partners, and Lee Hobson's Highside Capital. Check back daily for our new updates.

Hedge Fund Conatus Capital Bullish On Cloud Computing, Exits Education Plays

Conatus Capital hedge fund manager David Stemerman revealed some interesting facts about their portfolio in his fourth quarter commentary. For 2009, Conatus finished the fourth quarter up 2.86% and the year up 19.16%. You can see how they stacked up against other prominent hedge funds in our 2009 performance numbers post. Since their inception, Conatus has lost 1.98% compared to a decline of over 20% for the S&P over the same timeframe. Like many other hedge funds, they point out how difficult it was to make money on the short side when the whole market seems to go up nonstop.

New Longs

Hedge fund Conatus identified numerous new attractive investments including Unilever (UL) and Estee Lauder (EL) as they both have new management teams on track to improve the businesses and they think the market's valuations underestimate potential upside. A big theme going forward for them is cloud computing. They already were long Cisco (CSCO), but now own shares of Citrix (CTXS), VMWare (VMW), NetApp (NTAP), and Salesforce.com (CRM). In energy, they also added OGX (OGXPY) and Schlumberger (SLB) as OGX acquired a prominent oil exploration location and SLB is dominantly positioned in the off-shore oil exploration service business.


Exited Longs

Possibly the most notable information in their letter is the fact that Conatus has sold completely out of Apollo Group (APOL) and Strayer Education (STRA), two names we've seen many 'Tiger Cub' hedge funds fond of. This becomes all the more interesting given that Stemerman's former fund Lone Pine recently detailed they were bullish on education plays. Stemerman notes that Conatus exited the positions due to heightened government scrutiny and deterioration in their business prospects.

Conatus also exited Lloyds bank (LYG) as they didn't foresee the UK government forcing the bank to raise capital on terms that hurt shareholders. Additionally, they dumped their longs in Monsanto (MON) and Mindray Medical (MR) as they overestimated their respective competitive advantages. Lastly, they have trimmed many of their long positions that are reliant on emerging market demand as they no longer see the risk/reward skew as favorable.

Another interesting point Stemerman highlighted is that regulatory risk has become much more apparent in the investing world and they intend to be very cautious in this regard from now on. Going forward, they will hone in on quality of businesses and quality of management teams, among other factors.


Existing Long Positions

Stemerman highlights that their biggest gains came from internet plays in Amazon (AMZN), Google (GOOG), and Priceline.com (PCLN). He then goes on to breakdown what helped them generate gains with some of their longs:

• Amazon (AMZN) has extended to general merchandise and now has a truly global footprint.
• Google (GOOG) has a strong position in advertising given that advertising markets are recovering.
• Priceline's (PCLN) Bookings site continued to gain European market share.
• Apple (AAPL): Continued iPhone and Mac demand.
• Walter Energy (WLT), BHP Billiton (BHP), Freeport McMoran (FCX): Strong supply/demand equation for iron ore, metallurgical coal and copper.
• Crown Castle and SBA Communications (SBAC): Greater data usage from smartphones. We've previously noted that many hedge funds are bullish on tower stocks.
• Inditex (IXD) and Urban Outfitters (URBN): Improving sales.
• Express Scripts (ESRX) and Medco (MHS): Greater usage of generics and mail-order delivery.
• Cognizant Technology Solutions (CTSH): "Demonstrated the strength of its competitive position of combining strong industry expertise in developed markets with low-cost delivery in India by growing materially faster than its IT sourcing peers."
• Itau Unibanco (ITUB) is the leading bank in Brazil after solid merger integration.
• Brazilian Homebuilders PDG Realty and MRV Engenharia: Strong demand and government subsidies.

Prior to founding Conatus, Stemerman worked at Stephen Mandel's Lone Pine Capital so we know the emphasis will always be on solid stockpicking and that's why we track them. All of their top 25 winners in the portfolio were longs, while seven of their ten biggest losers were longs.


Short Positions

While three of their shorts hurt performance considerably in the fourth quarter, they are still short them as they believe the investment theses are still in tact. They have sized their positions conservatively and note that opportunities are limited and often crowded trades. Stemerman highlights that they found success shorting cash exchanges. He notes, "While the market generally appreciates that electronic competition is a threat, it has underestimated the pace at which the business is declining."

Additionally, Conatus is short "a for-profit education company with questionable business practices that has been put at risk from greater regulatory scrutiny, specialty retailers hurt by improving competition, and a traditional video game publisher displaced by on-line offerings." Insert your best guesses here as to which businesses they are referring to. That last one sounds like it could possibly be Electronic Arts (ERTS) while the education play could refer to Apollo Group (APOL) or Career Education (CECO), but that's pure speculation on our part. Their sourcing of short ideas often comes from companies that are being displaced by new technology and businesses facing competition from low-cost competitors. Head here to see what some other hedge funds are shorting.


Portfolio Exposures

Stemerman's hedge fund exposure levels were as follows: net exposure around 50% and gross exposure ranging from 110-130% with the latter below their normal range of 150-200%. Stemerman outlines the rationale for their reduced exposures below:

"In our third quarter letter, we identified five factors that could lead us to move away from our strong net long bias. Two of the five have come to pass - 1) convergence of market expectations for the U.S. and global economy with our more positive view, and 2) heightened risk of an increase in interest rates - leading us to bring down both our net and our gross exposure."

So, they are certainly a bit more cautious going forward given macro factors at hand. Conatus began 2010 with $2.85 billion under management. We had previously detailed Conatus' portfolio as per third quarter disclosures and we will be updating their holdings (along with many other prominent managers) in our hedge fund portfolio tracking series. For more insight from long/short equity hedge fund managers, head to our coverage of a recent hedge fund panel on the case for global equities in 2010.

David Stemerman's Conatus Capital Added To Tech Holdings, Bought Homebuilders

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is David Stemerman's hedge fund Conatus Capital. This is only the fourth time we've covered their portfolio because this is literally only their fourth 13F filing. They are a newer fund, but their manager definitely has experience. Conatus raised $2.3 billion and began trading last year after David Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund.

Conatus is an interesting story to follow because Stemerman's old employer is a prominent 'Tiger Cub' hedge fund. Stephen Mandel was part of the group of Tiger Cubs that left Julian Robertson's successful Tiger Management to start their own hedge funds. Now Mandel has taken on the role of mentor and is seeing former employees going on to start their own funds. Things have come full circle and we're starting to see Tiger GrandCubs. In addition to David Stemerman, Matt Iorio also left Lone Pine to start his own firm, White Elm Capital, who we will track for the first time tomorrow. We find it appropriate to track these two gentlemen because they are well-versed in the successful bottom-up 'Tiger' stockpicking and have contributed to Lone Pine's solid track record over the years. You can check out our previous Conatus portfolio update here. Let's now move onto Conatus' portfolio from the third quarter of 2009.

Keep in mind that the positions listed below were Conatus' long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter:
Wells Fargo (WFC)
Weatherford International (WFT)
DR Horton (DHI)
Toll Brothers (TOL)
Monsanto (MON)
Mindray Medical (MR)
Bed Bath & Beyond (BBBY)
Carnival (CCL)
Citrix (CTXS)
Baidu (BIDU)
Freeport McMoran (FCX)
BHP Billiton (BHP)


Some Increased Positions
Positions they already owned but added shares to:
Cisco Systems (CSCO): Increased position by 150.5%
Google (GOOG): Increased by 61.5%
Petrohawk (HK): Increased by 48.4%
SBA Communications (SBAC): Increased by 47.5%
Itau Unibanco (ITUB): Increased by 32.2%
Crown Castle (CCI): Increased by 30.6%
Apollo Group (APOL): Increased by 28.9%
Express Scripts (ESRX): Increased by 17%


Some Reduced Positions
Stakes they sold shares in but still own:
Priceline (PCLN): Reduced position by 42.8%
CTrip (CTRP): Reduced by 37.1%
Teradata (TDC): Reduced by 30.6%
Cognizant Tech (CTSH): Reduced by 25.1%
CH Robinson (CHRW): Reduced by 21.5%
Walter Energy (WLT): Reduced by 20.1%
Amazon (AMZN): Reduced by 14.2%


Removed Positions
Positions they sold out of completely:
Mastercard (MA)
Visa (V)
American Tower (AMT)
Discovery Communications (DISCA)
Southwestern Energy (SWN)


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

1. Apple (AAPL): 5.34%
2. Apollo Group (APOL): 4.98%
3. Range Resources (RRC): 4.84%
4. Medco Health (MHS): 4.41%
5. Cisco Systems (CSCO): 4.33%
6. Express Scripts (ESRX): 4.32%
7. Walter Energy (WLT): 3.7%
8. Google (GOOG): 3.63%
9. Wells Fargo (WFC): 3.63%
10. Weatherford International (WFT): 3.53%
11. JPMorgan Chase (JPM): 3.53%
12. Itau Unibanco (ITUB): 3.27%
13. Cognizant Tech (CTSH): 3.08%
14. DR Horton (DHI): 3.05%
15. Toll Brothers (TOL): 3.04%
    

Overall, Conatus increased their holdings in basic materials and decreased their stakes in services. It was very intriguing to see them sell completely out of the payment processing duo of Mastercard and Visa. It is notable because almost almost all of the other Tiger Cub hedge funds own one or both of these stocks and Conatus' sale means they've taken a different path.

In terms of positions they added to, they were fond of technology as they added heavily to their positions in Google and Cisco Systems. Stemerman's hedge fund also started brand new stakes in the home builders (Toll Brothers & DR Horton) which was worth noting given the tough times these companies have faced with the economy. Much like fellow hedge fund John Griffin's Blue Ridge Capital, Conatus also had Apple (AAPL) as their top long US equity holding. Coming in at their #2 holding was their stake in Apollo Group (APOL), another favorite amongst Tiger Cub hedge funds. Conatus' portfolio overall includes three stocks found on the list of most popular stocks amongst hedge funds.

Assets from the collective holdings reported to the SEC via 13F filing were $1.9 billion this quarter compared to $1.2 billion last quarter. So, like many other hedge funds, their long exposure to US equities increased substantially. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital, Shumway Capital Partners (Chris Shumway) and Thomas Steyer's Farallon Capital. Check back daily as we'll be covering new hedge fund portfolios.

David Stemerman's Conatus Capital Likes Apple (AAPL), Medco Health (MHS): 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is David Stemerman's hedge fund Conatus Capital. This is just the third time we've covered their portfolio because this is literally only their third 13F filing. They are obviously a newer fund, but their manager and analysts certainly have quite the pedigree. Conatus raised $2.3 billion and began trading last year after David Stemerman left Lone Pine Capital to start his own hedge fund. 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. Matt Iorio also left Lone Pine to start his own firm, White Elm Capital, who we will also track for the first time in the coming days. We find it appropriate to track these two gentlemen because they are well-versed in the successful bottom-up 'Tiger' investing style and have contributed to Lone Pine's solid track record.

The following were Conatus' long equity, note, and options holdings as of June 30th, 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):
Walter Energy (WLT)
Mastercard (MA)
Amazon (AMZN)
Itau Unibanco (ITUB)
Google (GOOG)
Urban Outfitters (URBN)
Ctrip (CTRP)
Priceline (PCLN)


Some Increased Positions (A few positions they already owned but added shares to)
SBA Communications (SBAC): Increased by 56.6%
Crown Castle (CCI): Increased by 38.9%
MedcoHealth (MHS): Increased by 32.5%
Baxter (BAX): Increased by 20.8%
Range Resources (RRC): Increased by 19.9%
Apple (AAPL): Increased by 16.7%


Some Reduced Positions (Some positions they sold some shares of)
Qualcomm (QCOM): Reduced by 46.8%
Cisco Systems (CSCO): Reduced by 45.4%
Petrohawk Energy (HK): Reduced by 41.4%
Goldman Sachs (GS): Reduced by 40.2%
Discovery Communications (DISCA): Reduced by 39.2%
Southwestern Energy (SWN): Reduced by 38%
Visa (V): Reduced by 34.9%
Teradata (TDC): Reduced by 28%
JPMorgan Chase (JPM): Reduced by 26.9%
Cognizant Tech (CTSH): Reduced by 21.9%


Removed Positions (Positions they sold out of completely)
People's United Financial (PBCT)
Walmart (WMT)
Activision Blizzard (ATVI)
Bed Bath & Beyond (BBBY)
Carnival (CCL)
Discovery Communications (DISCK)


Top 15 Holdings by percentage of long portfolio *(see note below regarding calculations)

1. Apple (AAPL): 6.46% of portfolio
2. MedcoHealth (MHS): 6.33% of portfolio
3. Apollo Group (APOL): 5.63% of portfolio
4. Range Resources (RRC): 5.62% of portfolio
5. Express Scripts (ESRX): 4.94% of portfolio
6. Cognizant Technology (CTSH): 4.3% of portfolio
7. JPMorgan Chase (JPM): 4.23% of portfolio
8. Walter Energy (WLT): 4.22% of portfolio
9. Baxter (BAX): 3.62% of portfolio
10. Mastercard (MA): 3.57% of portfolio
11. Visa (V): 3.52% of portfolio
12. American Tower (AMT): 3.44% of portfolio
13. Amazon (AMZN): 2.97% of portfolio
14. Itau Unibanco (ITUB): 2.93% of portfolio
15. Strayer Education (STRA): 2.92% of portfolio

Like Lee Ainslie's Maverick Capital, David Stemerman's Conatus has Apple (AAPL) as their top holding. While a majority of this can be attributed to AAPL's share price appreciation over the past quarter, Conatus did add 16.7% to their position. Also like Maverick, Conatus has a large stake in Cognizant Technology (CTSH). We've mentioned it numerous times before that the 'Tiger Cub' hedge fund portfolios are often very similar and this is no different.

However, Conatus is not technically a Tiger Cub, but rather a 'Grandcub' if you want to get ridiculous with the terminology. Lone Pine Capital is a Tiger Cub in the true sense of the definition. So, since Stemerman left a 'Cub' fund to form his own fund, that technically makes Conatus a 'Grandcub'. We only highlight this to showcase the true extent and reach of the Tiger investing style. The Tiger Family Tree is quite expansive and has a reach far and wide in the hedge fund industry. We track them for their bottom-up focus on equities. Since SEC filings only require the disclosure of US equities, options, and note positions, we need funds that do the bulk of their investing in that realm in order to accurately track them.

One of Lone Pine's favorite positions is Strayer Education (STRA) as Stephen Mandel presented the bullish case for the name at the Ira Sohn conference. (At the conference, numerous hedge fund managers outlined investment ideas). Due to his Lone Pine background, it is unsurprising that Stemerman has added Lone Pine portfolio plays to his arsenal. He too holds shares of STRA at their 15th largest position.

Stemerman trimmed positions in QCOM, CSCO, HK, and GS by a significant margin. The only positions he really added to in size were SBAC and CCI. He brought on brand new positions in WLT, MA, and AMZN and added them with enough size to land them in their top 15 holdings.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $1.2 billion this quarter compared to $1.1 billion last quarter. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, and Philip Falcone's Harbinger Capital Partners. Check back each day as we cover prominent hedge fund portfolios.



*image courtesy of NewYorkSocialDiary

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.

David Stemerman's Conatus Capital 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is David Stemerman's Conatus Capital. This is the first time we've covered Conatus and it is a new addition to the group of funds we cover. They filed their first 13F this past quarter and so we finally get to see what they've been up to. 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 $621 million worth of long equity. Since this is literally the first 13F filed by them, we'll do things a little differently here. There are no 'changes' to report since we don't have a previous 13F to compare this to, so we'll simply just outline their entire long portfolio below.

The following were their long equity, note, and options holdings as of December 31st, 2008 as filed with the SEC. All holdings are common stock unless otherwise denoted.



Conatus' Entire Portfolio (by % of portfolio)

1. People's United Financial (PBCT): 9.19% of portfolio
2. Walmart (WMT): 7.75% of portfolio
3. Apollo Group (APOL): 6.51% of portfolio
4. Medco Health (MHS): 6.27% of portfolio
5. Covidien (COV): 6.24% of portfolio
6. Baxter (BAX): 6.14% of portfolio
7. Cisco (CSCO): 5.94% of portfolio
8. Visa (V): 5.93% of portfolio
9. American Tower (AMT): 5.59% of portfolio
10. C H Robinson (CHRW): 5.1% of portfolio
11. Qualcomm (QCOM): 4.75% of portfolio
12. Discovery Class C (DISCK): 4.36% of portfolio
13. Express Scripts (ESRX): 4.19% of portfolio
14. Carnival Paired Certificate (CVC1): 3.98% of portfolio
15. Dicks Sporting Goods (DKS): 3.26% of portfolio
16. Cognizant (CTSH): 3.26% of portfolio
17. Strayer Education (STRA): 3.2% of portfolio
18. Bed Bath & Beyond (BBBY): 3.09% of portfolio
19. SBA Communications (SBAC): 3.07% of portfolio
20. Discovery Class A (DISCA): 2.17% of portfolio

And, since this is their first ever filing, here is the 13F in its entirety for those curious:

(click to enlarge)

Overall, you can see hints of a Tiger Cub portfolio here. Obviously, Conatus is somewhat similar to Lone Pine in methodology since that's where Stemerman plied his trade. Conatus has a position in Visa (V) and Qualcomm (QCOM), like many of the other Tiger Cub hedge funds. Additionally, their large position in Apollo Group (APOL) is shared by Andreas Halvorsen's Viking Global. But, there are definitely some differences between their portfolios now that Stemerman runs Conatus. For instance, Conatus has a large position in People's United Financial (PBCT) and Walmart (WMT), two names not found in other similar portfolios. So, while their portfolio has hints of a Tiger Cub background, it is still unique in its own right.

This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, Stephen Mandel's Lone Pine Capital, George Soros, Bill Ackman's Pershing Square, Andreas Halvorsen's Viking Global, Timothy Barakett's Atticus Capital, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Peter Thiel's Clarium Capital, and Bret Barakett's Tremblant Capital. Look for our updates as we will be covering a new fund each day.