Jay Petschek and Steven Major's hedge fund Corsair Capital has released its Q3 letter and in it, they detail the thesis of one of their holdings: News Corp (NWSA).
They see this as a typical undervalued spin-off play as the old News Corp this year has split up into a publishing entity ('new' News Corp) and an entertainment division (21st Century Fox). Many nvestors held shares of the growth company (Fox), and dumped shares of NWSA.
Corsair's Thesis on News Corp (NWSA)
Corsair writes,
"The misperception of NWSA as a shrinking newsprint business enabled new investors to purchase several growing video/digital assets (which contribute approximately 50% of the company’s EBITDA) at a cheap valuation. With solid cash generative businesses, a net-cash rich balance sheet of almost $4.00 per share and a management team focused on creating shareholder value, NWSA shares offer limited downside and upside of a $25.00 stock price in the next 12 months. Potential catalysts include accretive acquisitions, share buybacks, a growing dividend policy, more bullish sell-side coverage and a re-rating of the stock."
Corsair also recently disclosed a new position in Perion Network.
Embedded below is Corsair's Q3 letter with their write-up on NWSA:
For more hedge fund letters, we just posted up David Einhorn's Q3 letter as well.
Thursday, October 17, 2013
Corsair Capital's Thesis on News Corp: Q3 Letter
Wednesday, March 6, 2013
What We're Reading ~ Analytical Links 3/6/13
Book that changes the way you do business: The Innovator's Dilemma [Clayton Christensen]
The short case on Boulder Brands (BDBD) [Prescience Point]
Why are most people terrible investors? [Phil Pearlman]
12 cognitive biases that endanger investors [Minyanville]
Interview with Paul Lountzis on investing & scuttlebutt research [Simoleon Sense]
On doing less [Capital Observer]
Dow hits record high with household income at decade low [Atlantic]
Verizon (VZ) said to seek to resolve Vodafone (VOD) relationship [Bloomberg]
Cash levels in brokerage accounts approach lowest levels ever [Kimble]
Study reveals most at-risk retailers for Amazon showrooming [Placed]
Shorts battle longs over Fairpoint Communications (FRP) [Forbes]
Want to short the student loan bubble? Now you can [Zerohedge]
Getting schooled by Career Education (CECO) [Barel Karsan]
Vornado selling chunk of J.C. Penney (JCP) stock [WSJ]
America Movil (AMX): time to buy in bulk? [FT]
Imagining cable TV if bundles unravel [WSJ] and News Corp creates sports network [NYT]
Google (GOOG) is building a same-day Amazon Prime competitor [Techcrunch]
Cree (CREE) introduces LED lightbulb [Yahoo Finance]
Why getting an MBA isn't worth it [WSJ]
Monday, March 4, 2013
Coatue's Philippe Laffont on Apple, Google & Technology/Media Trends
Coatue Management's founder Philippe Laffont appeared on Bloomberg TV today to talk about tech stocks, including Apple (AAPL), Google (GOOG), and others. He says that tech stocks are 'historically cheap' and he's always on the lookout for the new trends.
On Apple (AAPL)
"It’s cheap by any measure. The key is not to think whether stock will be up $50 in the next few months. The key is what would it take for Apple to get to $800. It would be a great return if just from today it went back to $600. To me, the company has to take back the offense. The company has been a little bit put on defense. Samsung and Google have been very strong competitors... at some point Apple is going to take back the offense."
Laffont was asked why he is still bullish on the name and while Coatue still owns shares, our Hedge Fund Wisdom newsletter flagged that the hedge fund sold 55% of its AAPL stake at the end of 2012 so that's worth keeping in mind. They've been a long-term bull on the name.
Laffont wants to see the company make product moves and make better use of cash, saying:
"The company is so big that how they use the cash is going to determine value, there’s no way about it. But there are going to be some new products coming in. I think they have some things up their sleeve."
Coatue reportedly hosted AAPL's CFO at their investor day earlier this year. Laffont hinted that AAPL should make some acquisitions as well as he wants the company to bring on some new talent and ideas.
On Google (GOOG)
Laffont thinks the tech giant could be a triple in 5-7 years from now, trading at just 5x earnings.
On Storage & "The Cloud"
He sees storage as a long-term trend as data continues to move to the cloud. One of his largest investments in public markets is datacenter provider Equinix (EQIX). Coatue has recently started making private investments and Box.net was one of their first (another play on this trend).
Talking Other Tech Companies
He also commented on how there's a new 'four horsemen' of tech: Google, Apple, and Amazon.com (AMZN), original members of the group remain, but he would add Samsung and Twitter to that bunch. He says Twitter has huge strategic value, but little revenue so it's hard to value. On Facebook (FB), Laffont feels that in an increasingly mobile world, advertising is a lot harder.
On Tech Value Traps & Shorts
The Coatue manager went on to note that while many investors in other sectors look for bargains and 'cheap stocks,' tech isn't necessarily the best place to do that because a lot of times in this sector these cheap stocks are actually value traps. He listed Hewlett Packard (HPQ), Microsoft (MSFT), and Intel (INTC), citing a rising mobile computing world.
He also mentioned his firm was exploring a concept on the short side he called a 'paperless office' where people are all using iPads and people don't need/use paper as much. He says that, "A lot of the companies stuck in the desktop/printer world are going to have a tough time going forward."
On Media & Content
Laffont's content theme focuses on smartphones and how everyone will have one eventually and want to consume content on those devices (citing Netflix (NFLX), HBO Go, ESPN). He thinks the world will move towards content being monetized in very different ways. He said he likes Time Warner (TWX), CBS (CBS), and News Corp (NWSA).
Embedded below is the Bloomberg TV video of Philippe Laffont's appearance:
To see the rest of Coatue's portfolio, head to the new issue of our Hedge Fund Wisdom newsletter that was recently released.
Monday, February 11, 2013
Children's Investment Fund on News Corp & Disney: Q4 Letter
Christopher Cooper-Hohn's Children's Investment Fund is out with its 2012 Q4 letter and we wanted to highlight some excerpts. One of the main takeaways here is that Porsche SE is now Children's largest holding. The fund had a great 2012 and was up 29.52% for the year.
Children's Top 5 Holdings At 2012 Year-End
1. Porsche SE: 20.6% of Fund NAV
2. Lloyds Bank Bonds: 17.6%
3. News Corp: 15.4%
4. Japan Tobacco: 14.7%
5. Aurizon (QR National): 13.7%
Porsche shares have appreciated considerably over the past few months, but Cooper-Hohn thinks there's more room to run, with an upside of 160%. They see 4 ways they can profit from the investment: "strong underlying performance of the investment in VW, a successful and benign resolution of the legal cases, large and increasing dividends from VW flowing through to Porsche shareholders, and the longer-term potential for a merger between Porsche and VW."
News Corp: Publishing Assets Undervalued?
Cooper-Hohn has previously talked about his News Corp position, but his latest letter breaks down how the company's spin-off of the publishing assets could come as a surprise.
While Children's has a 'pessimistic' view on print, they do acknowledge that valuation could easily double to $10 billion based on the new publishing co's assets:
" • $0.5bn of cash: This likely be higher as the group is still considering how much cash to allocate to PubCo, but any change should be a wash with the change in the market cap.
• $3.0bn: 50% stake in Foxtel, Australia's main pay-TV provider in a third of all homes in Australia. 14x net operating profit after tax (nopat).
• $1.5bn stake in RealEstate.com: the listed and dominant online property listings company in Australia.
• $1.5bn: at 10x EBIT, 14x nopat the Australian Cable Network (Fox Sports Australia) assets which account for 27% of PubCo EBIT are clearly worth a higher multiple than the publishing assets.
• $0.7bn: listed stake in Sky Network Television, a New Zealand pay-TV operator.
• $0.5bn: Harper Collins book publishing on 8x nopat.
• $3.2bn: Newspapers on 8x nopat: includes DowJones, New York Post, HarperCollins, News America Marketing, Australian Publishing and UK Publishing.
• $0.5bn: The PubCo also has NOLs and capital loss carryforwards of $1.2bn. These probably need a huge discount, but should have some value.
• $0bn: The Education business Amplify will generate $180m of losses in 2013. These losses are capitalized in many valuation approaches. First, we think this is a credible enough investment to be valued at zero rather than negative $1.2bn (10x $120m nopat losses); News Corp will clearly argue it’s worth a considerable premium to NAV, let alone zero. Second, the company guides to a sharp narrowing in these losses over the coming years which will actually contribute strongly on a starting base $535m PubCo EBIT in 2013."
Overall though, Children's sees NWSA as a story on affiliate/re-transmission re-pricing as they focus on the Fox Entertainment Group.
Disney: Entering a 'Multiyear Growth & Re-rating Phase'
Sticking with media, Cooper-Hohn also shared thoughts on Walt Disney (DIS). He writes,
"We believe we are in the midst of a very long-term transfer of economics from distributors to content providers which, as we argued at our investor conference, is still in an early phase ... For the last decade, this power shift has driven consistent 8-10% pricing growth, a unique and truly giant expression of pricing power. Disney has arguably the strongest bargaining leverage of its peers and we are entering an affiliate re-pricing cycle which we think delivers some acceleration in pricing, off this extremely high base for the next 3-4 years."
He also points out how the company is finishing its massive capex at its parks and will soon begin to see margin expansion.
For more from this hedge fund, we've posted up Cooper-Hohn's presentation from the Sohn London Conference where he talked about being long News Corp and Porsche and short Fiat. Additionally, you can view excerpts from Children's Q3 letter on Porsche and Japan Tobacco.
Thursday, November 29, 2012
Notes From the Boston Investment Conference 2012
The first Boston Investment Conference took place earlier this month and today we're posting up some notes from it. The event benefited the Boston Children's Hospital and featured an impressive list of speakers, moderators, and host committee chairs.
Out of respect for the event organizers, these notes are a little bit different than what we typically post in that the pitches won't be linked to a particular investor. So unfortunately, you'll have to play a bit of a guessing game here, but we figured something is better than nothing given the quality of the speakers.
List of Speakers/Moderators
Seth Klarman, Baupost Group
Jon Jacobson, Highfields Capital
Richard Perry, Perry Corporation
Will Danoff, Fidelity Contrafund
David Abrams, Abrams Capital Management
Jeffrey Vinik, Vinik Asset Management
Max Stone, D.E. Shaw & Co
Edward Shapiro, PAR Capital Management
Jane Mendillo, Harvard Management Company
Nancy Zimmerman, Bracebridge Capital
Michael Trotsky, MA Pension Reserves Investment Management
David Zervos, Jefferies
Andrew Perold, HighVista Strategies
Lawrence Summers, Harvard University
Eric Doppstadt, The Ford Foundation
Jay Light, Harvard Business School
Andrew Bary, Barron's
Ideas Pitched (Listed in Random Order)
Yahoo! (YHOO)
JAL Japan Airlines (TYO:9201)
Google (GOOG)
Global Eagle Acquisition Corp (EAGL)
Fannie and Freddie preferreds
News Corp (NWSA)
Canadian Natural Resources (CNQ)
JZ Capital Partners (LON:JZCP)
Notes From the Boston Investment Conference
Some of the above stocks were discussed only with one or two comments, but we've posted up notes from some of the detailed pitches below. Again, unfortunately we can't attribute the ideas to a particular speaker:
Japan Airlines (JAL)
- $8.5b IPO out of bankruptcy, Japanese government sold entire stake (IPO'd around 3,800 Yen and is now around 3,750 Yen)
- Revenues for JAL are about 1/2 of Delta (1/2 of JAL's revenues are from domestic market)
- Changes during bankruptcy: reduced headcount by 35%, decreased salaries by 50%, canceled all debt, eliminated some service on underperforming routes, reduced capacity by 40%, reduced non-fuel expenses by 1/3rd
- Valuation: lowest multiple of any global airline. JAL around 3.1 EV/EBITDAR, P/E around 6.5
- Headwinds: Orders for 45 Dreamliners. JAL has already started its non-stop Boston to Japan flight. Overall market liberalization - competitors can now coordinate on prices and schedules (get the benefits of a merger without having to deal with the operational headaches or merging 2 airlines). High barriers to entry in the Japanese market: JAL is 37% of market and ANA is 47%, little room for new players
- Largest risk: entry of a low cost carrier into Japanese market: currently low penetration of LCC in Japan. Not seen as a huge threat because LCCs are typically used for short flights and Japanese tend to take trains for short trips. Also, there are limited slots for new airlines at the airport closest to the city. If a LCC flew into the airport farther outside the city, the cost of a taxi or train into the city would negate taking a low cost flight to Japan.
Yahoo! (YHOO)
- Cheap when looking at balance sheet. Market value of 35% of Yahoo Japan = $7.7, market value of stake in Alibaba = $8.1, preferred shares = $0.8 (these three tax-adjusted equal $11.6b), cash = $9.4, shares out = 1.2 for a value of $17.5 (you are paying close to nothing for $4.3b in revenue or $700m in free cashflow).
- Investor thought Marissa Meyer will be a very good CEO
- MarketFolly note: Our newly released issue of Hedge Fund Wisdom last week highlighted that David Einhorn's Greenlight Capital and Chase Coleman's Tiger Global both started new positions in YHOO during the third quarter. Also, recall that Dan Loeb's Third Point has been an activist investor in the name.
Google (GOOG)
- Cheap stock - trading around where it was in 2007 and EPS has increased from $15 then to $40 now
- MarketFolly addendum: We previously posted Eminence Capital's thesis on GOOG as well.
This concludes notes from the Boston Investment Conference. We've covered a ton of events recently, so be sure to also check out:
- Notes from Sohn London Investment Conference (Hohn, Chanos & more)
- Notes from Invest For Kids Chicago (Mandel, Peltz & more)
- Notes from Great Investors' Best Ideas (Einhorn, Bass & more)
Monday, November 26, 2012
Chris Cooper-Hohn: Long News Corp & Porsche, Short Fiat (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Chris Cooper-Hohn of Children's Investment Fund.
He advocated buying unloved stocks at the moment as companies that are perceived to be great businesses are expensive. He quoted Warren Buffett by saying, "you pay a high price for a cheery consensus."
Cooper-Hohn presented 2 longs: News Corp (NWSA / NWS) and Porsche (GER:PAH3) and 1 short: Fiat SpA (MIL: F).
Long News Corp
- News corp is misunderstood. It should not be seen as a newspaper business as 73% of operating profit comes from TV content
- The price is low due to the phone hacking scandal
- It's not a cyclical business dependent on advertising revenue
- The US network has massive pricing power
- He expects EBIT to grow from $6bn to $9bn by 2015
- Share buybacks will be large
- It's cheap trading on PE 2013 10x
- The new COO Chase Carey is more shareholder friendly than the Murdoch family
News Corp announced this year that it will be splitting up its business into two segments: entertainment and publishing.
Long Porsche
- Concerns about the impact of the litigation surrounding Porsche's Volkswagen (VW) short in 2008 have depressed the price
- Hohn thinks the market has overreacted and Porsche will settle for less than is expected
- Porsche trades at a 40% discount to NAV
- It's stock has traded sideways for many years
- Porsche owns 32% of VW
- VW is also cheap so there is a double discount
- VW is perceived as a budget brand but a substantial amount of its earnings come from the premium market where there is more pricing power: Audi and Porsche
- VW and Porsche have good emerging market exposure
- VW grew its volume even during the financial crisis
- It is steadily destroying other European carmakers
Hohn belives there's 4 big ways to win by investing in Porsche:
1. VW appreciates
2. The discount to NAV narrows as the litigation is resolved
3. The discount narrows due to a higher dividend
4. A merger of Porsche and VW
We've also posted up an excerpt from Children's Q3 letter on Porsche as well.
Short Fiat SpA
- Hohn argued that Fiat was a poor company, saying it will need a capital injection soon
- Chrysler (which has been bankrupt twice) is burning cash
- If the current economic conditions continue, the burn rate will increase
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Monday, September 17, 2012
Children's Investment Fund on News Corp, Union Pacific & Walt Disney: Q2 Letter
The Children's Investment Fund manages approximately $4.7 billion and has returned 15.7% annualized. Year to date through the end of the second quarter, they were up 16.39%.
Founded by Christopher Cooper-Hohn, Children's has assembled quite a concentrated portfolio and we wanted to highlight some excerpts from their second quarter letter.
Children's Top 10 Positions as of Q2
1. CESP: 18.2% of fund NAV
2. News Corp: 18.1%
3. Lloyds Bank Bonds: 17.9%
4. Japan Tobacco: 16.8%
5. QR National: 13%
6. Red Electrica: 9.7%
7. Porsche SE: 9.6%
8. Coal India: 8.6%
9. Walt Disney: 8%
10. Enagas: 7.3%
Railroads: QR National & Union Pacific
Children's owns QR National where the thesis has been focused on a transition from government-run entity to private company. Management is focused on improving operating performance and achieving growth through investment.
Children's expects the balance sheet to re-leverage over time, anticipating aggressive share buybacks (inclusive of any selling the government might do with its remaining 34% stake). Of the stake, Hohn writes,
"With 7-8% normalised unlevered free cash flow yield, considerable volume and legacy contract re- pricing, we believe QR should compound at above 20% pa medium term returns. QR’s significant hard asset backing and very conservative balance sheet limit the downside of the investment. We believe the fair value of the asset is approaching double the current share price."
They also own a stake in Union Pacific (UNP) and while they see coal headwinds continuing there, they believe the company can grow EPS at 13% for the next several years and generate an IRR of 15%.
On News Corp
Given that News Corp is one of their largest positions and many other hedge funds own it, we wanted to highlight Children's commentary on the name. They're fans of the company's impending split and write:
"At the end of the quarter, the stock is on 11x forward earnings on our numbers and 6.5x EBIT. Low double digit net income growth driven by affiliate fees and re-transmission consent, and supported by the expectation of continued buybacks drives 20%+ net income growth and a 30% midterm IRR without a re-rating. We believe that as the market grows increasingly comfortable with the improved corporate governance at News Corp, the stock can comfortably achieve a 13-14x earnings multiple which 2 years out would point to a $37-40 target price compared to $22 today."
On Walt Disney
Lastly, Children's likes that the Parks segment will see capex programs slow down and think the company will see margin leverage. They write,
"In the near term, margin recovery in the Parks and share buybacks will drive EPS growth up to near 20% for the next few years. We forecast EPS of $3.6 in the upcoming year and $4.2 in the following year. On a 14-15x multiple, this should give a share price trading target of around $60."
For more hedge fund Q2 letter excerpts, we've posted up:
- Eminence Capital on Google
- Scout Capital on Anheuser-Busch InBev
- Bill Ackman on why he sold Citigroup
Tuesday, July 3, 2012
Third Point Starts Chesapeake Energy & News Corp Stakes: June Exposure Report
Dan Loeb's Third Point Offshore Fund finished June up 0.2% and is up 3.9% for the year. The big takeaway from their June exposure report is a large new holding in Chesapeake Energy (CHK).
Third Point's Top Positions
1. Yahoo!
2. Gold
3. Delphi
4. Chesapeake Energy
5. Apple
This is the first time Chesapeake has appeared under their top holdings' column. They did not disclose a position back in the first quarter. Mason Hawkins' Southeastern Asset Management has a 13.9% activist stake in the company as well.
Noted activist investor Carl Icahn has also taken over a 7% ownership stake in CHK and sees it as an undervalued company. Icahn argues that they can turnaround the story "if you clean this company up ... and natural gas prices go higher, which I think they will."
We've also posted up Third Point's Q1 letter which details their thesis on Apple and other positions.
Top winners from the quarter include Yahoo, Gold, as well as News Corp, Portugal Obrigacoes do Tesouro and Progress Energy (multiple securities held), the last three of which are newly disclosed positions as well.
News Corp recently announced that it would be splitting into two: an entertainment business (FOX properties) and a newspaper/publishing business (Wall Street Journal, book publishing etc). This is obviously an event-driven trade for the hedge fund with a catalyst that shareholders and management hope unlocks value.
Third Point's top losers from the second quarter included Delphi, Sara Lee (which completed its spin-off), two healthcare shorts and an ABS short.
Third Point's Latest Exposure Levels
In equities, they are now net long 27.3% (50.2% long, -22.9% short). This is a slight decrease in net exposure from last month. Their largest sector exposure comes in technology, media & telecom (largely due to their YHOO stake) at 16.9% net long. Geographically, they are net long the Americas 65%, net short EMEA -11% and net short Asia -4%.
In credit, Loeb's fund is net long to the tune of 29.8% (long 38.5%, short -8.7%). This is a decisive increase from the month prior where they were only net long by 14.2%.
Dan Loeb is featured in the new book The Alpha Masters and you can check out our review here.
Friday, July 30, 2010
Hedge Fund Viking Global Likes American Tower (AMT), Invesco (IVZ): Q2 Letter
Andreas Halvorsen's hedge fund firm Viking Global is out with its second quarter 2010 investor letter and courtesy of Dealbreaker we wanted to highlight some of their latest portfolio maneuvers. Here are Viking's latest top 10 positions:
1. Invesco (IVZ)
2. Unilever (UN)
3. American Tower (AMT)
4. Oracle (ORCL)
5. Comcast (CMCSA)
6. News Corp (NWSA)
7. Tyco International (TYC)
8. Sherwin-Williams (SHW)
9. Goodrich (GR)
10. Adobe Systems (ADBE)
Right off the bat there are several changes to highlight between Q1 and Q2. Back in the first quarter, Visa (V) was Viking's largest position. This time around, Visa is nowhere to be found in their top 10 positions. One might assume they reduced or exited this position, but there was no commentary on this stake to verify. If you read into their letter, you'll see that they are more focused on building concentrated positions and as a result ramped up stakes in various companies. Visa, apparently, was not one of them.
It's quite possible that the credit card processor is still a holding at Viking and other portfolio positions merely leapfrogged their V stake. The same could be said for their position in Express Scripts (ESRX) as it was their fourth largest holding in the first quarter and is nowhere to be found on their top 10 holdings for Q2. These positions will certainly be something to look for in their Q2 13F filing that we'll cover when it's released in a few weeks.
For the second quarter, Halvorsen's hedge fund maintains its long-held position in Invesco as it moves back up to their top holding. Halvorsen writes,
"Our largest loss in the quarter was Invesco which cost us 1.3% in VGE and 1.4% in VLF. Invesco has been in our top ten list since we initiated the position in the fourth quarter of 2007 and was our second most profitable investment in 2009. During the second quarter, Invesco sold off along with other asset managers despite reporting better than consensus first quarter earnings and higher synergy estimates from the Van Kampen acquisition. Encouraged by the fundamental strength of the company and financial and strategic benefits from the Van Kampen acquisition, our core thesis has not changed and we continue to believe that Invesco will outperform its competitors. Viking is currently net long 2.4% in the Asset Management and Custody Banks sub-industry group, which includes the Invesco long position and short positions in asset managers that we believe will experience deteriorating fundamentals and are more levered towards a declining market."
In terms of other Viking positions, Unilever also remains a high conviction pick for them. Moving down the top 10 positions list, News Corp and Tyco also retain their status as a top holding from Q1 to Q2. In terms of new additions, Viking has moved up the following positions: Adobe, American Tower, Comcast, Goodrich, Oracle, and Sherwin-Williams.
Of those stakes, Viking has increased conviction in their new American Tower (AMT) position. Viking likes the company due to its solid business model with high barriers of entry, pricing power, and strong secular growth. Additionally, the company has compelling operations overseas in numerous growth markets. Of this stake, Halvorsen writes,
"We have owned American Tower in the past and we re-initiated a position this quarter because we believe the market has taken many of these characteristics for granted and is underestimating future growth opportunities both domestically and internationally. Additionally, we believe that American Tower’s shareholder remuneration will accelerate over the next several quarters and that, in light of certain tax incentives, the company may convert to a REIT. We find American Tower to have a superior business model relative to most traditional REITs, yet it trades at a discount to the REIT-average. We believe the combination of predictable growth, accelerating shareholder returns, and pending REIT status will generate greater shareholder interest over the next several quarters causing the stock to trade closer to our price target over time. As of June 30, American Tower was our third largest long position at 4.3% of VGE capital and 4.9% of VLF capital."
We've touched on this industry as a compelling investment numerous times as hedge funds favor wireless tower stocks. Numerous high profile managers have moved in and around AMT. Additionally, we've highlighted how hedge funds are bullish on rival company Crown Castle International (CCI) as well. SBA Communications (SBAC) is the other player in the sector and some funds have moved in and out of stakes there as well.
In addition to these portfolio changes, it's obviously worth noting that Viking has struggled performance-wise this year as their Viking Global Equities portfolio was down 5% in the second quarter. As such, Halvorsen penned quite an explanation as to how Viking will strive to atone for these errors and the solution apparently circles around the idea of increased concentration in their highest conviction picks. As such, Viking has added to numerous positions, many of which we've detailed recently. It will be interesting to see if Viking's increased concentration (and possibly increased volatility) is a recipe for correcting their recent struggles.
We highly recommend reading Viking Global's entire letter on Dealbreaker here.
Monday, May 17, 2010
Seth Klarman's Baupost Group: New Positions in ADC Telecommunications (ADCT) & Solar Capital (SLRC)
(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.)
First up in our hedge fund coverage is Seth Klarman's Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. He has been there ever since and has been one of the most successful investors of our time. We've already covered some of the recent portfolio activity out of Klarman's firm as they exited their Facet Biotech stake (FACT) and were also adding to their Viasat and Theravance positions (VSAT & THRX).
Keep in mind that the positions listed below are by no means representative of Baupost's entire portfolio. Baupost manages around $20 billion and their equity disclosures only account for around $1.7 billion. Klarman typically has a large cash position on hand to make investments when he sees opportunity. Additionally, Baupost has much of its portfolio in distressed assets as of late. However, we do still get a peak as to the equity exposure from one of the greatest investors of this generation. For recent investment insight from him, check out Seth Klarman's lessons from the financial crisis.
The positions listed below were Baupost Group's 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
ADC Telecommunications (ADCT)
Solar Capital Ltd (SLRC)
Increased Positions
Many of these increases listed below we had previously detailed:
Viasat (VSAT): Increased position by 77.1%
Theravance (THRX): Increased by 28.7%
Theravance (Notes 3.0% 1/1): Increased by 22.89%
Enzon Pharmaceuticals (ENZN): Increased by 13.86%
Reduced Positions
Domtar (UFS): Reduced position by 7.69%
News Corp (NWSA): Reduced by 5.36%
Audiovox (VOXX): Reduced position by 4.65%
Positions With No Change
DirecTV (DTV)
Capitalsource (CSE)
Alliance One International (AOI)
Breitburn Energy Partners (BBEP)
Capitalsource (7.25% Senior Subordinated Convertible Debentures due 2037)
Ituran Location and Control (ITRN)
Liberty Media (LSTZA)
Multimedia Games (MGAM)
Syneron Medical (ELOS)
Positions They Sold Out of Completely
Capitalsource (4.0% Senior Subordinated Convertible Debentures due 2034)
CIT Group (CIT)
Sapphire Industrials (Warrants)
While the 13F filing discloses that Baupost only partially sold their Facet Biotech (FACT) stake, we have already learned that they've exited the position entirely so we are listing FACT here instead.
Top 15 Holdings (by percentage of assets reported on 13F filing)
- News Corp (NWSA): 19.3%
- ViaSat (VSAT): 17.47%
- Theravance (THRX): 10.04%
- Domtar (UFS): 9.99%
- Breitburn Energy Partners (BBEP): 7.35%
- Capitalsource (CSE): 6.57%
- Enzon Pharmaceuticals (ENZN): 5.43%
- DirecTV (DTV): 3.17%
- Capitalsource (Convertible Debentures): 2.66%
- Alliance One (AOI): 2.59%
- Theravance (Notes): 2.54%
- Solar Capital Ltd (SLRC): 2.34%
- ADC Telecommunications (ADCT): 2.12%
- Ituran Location & Control (ITRN): 1.59%
- Liberty Media (LSTZA): 1.33%
So, Klarman starts two brand new positions in ADC Telecom (ADCT) and Solar Capital (SLRC). He sells completely out of CIT Group (CIT), Sapphire Industrials (Warrants) and one of his Capitalsource convertible debentures positions. Since this filing, we've also learned that Baupost has exited Facet Biotech (FACT) as well as the company has been bought out.
Other notable activity includes adding heavily to his stake in Viasat (VSAT), but we had already detailed this as well. So, that really sums up all the major moves from Klarman's firm. He's obviously a value investor so you shouldn't expect a whole lot of turnover in his portfolio anyways. If you want more insight from this investing legend, be sure to check out Seth Klarman's lessons from the financial crisis.
Data used for this article comes from Alphaclone, our source for sorting through all the hedge fund portfolio maneuvers and backtesting the performance (Market Folly readers can receive a special free 30 day trial). Assets reported on the 13F filing were $1.72 billion this quarter compared to $1.58 billion last quarter. Keep in mind that these filings are not representative of the hedge fund's entire base of AUM. This post is part of our hedge fund portfolio tracking series, so be sure to check back daily for our new updates.
Saturday, February 13, 2010
Seth Klarman's Baupost Group Discloses New Positions (13F Filing Q4 2009)
This is the fourth quarter 2009 edition of our hedge fund portfolio tracking series. Before beginning, check out our series preface on hedge fund 13F filings.
Fittingly, we'll begin our coverage of fourth quarter holdings with arguably the most successful and respected modern hedge fund manager, Seth Klarman and Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. The rest is history as he has been one of the most successful investors of our time in terms of performance. Prior to this portfolio update, we had already covered Baupost's sale of RHI Entertainment (RHIE) and reduction in their Syneron Medical position (ELOS).
The positions listed below were Baupost's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers and all holdings are common stock unless otherwise denoted.
New Positions (Brand new stakes they initiated last quarter):
CIT Group (CIT)
DirecTV (DTV)
Liberty Media (LSTZA)
Increased Positions (Positions they already owned but added shares to):
Enzon Pharmaceuticals (ENZN): Increased by 290% ~ we covered the addition of this position before
Viasat (VSAT): Increased by 61.4%
Capitalsource (CSE): Increased by 15.4%
Theravance (THRX): Increased by 11.8%
Reduced Positions (Stakes they still own but sold shares in):
Sapphire Industrials (FYR.UN): Reduced by 63.7%
Syneron Medical (ELOS): Reduced by 28.4%
Domtar (UFS): Reduced by 10.3%
Capitalsource (SDCV 4% 7/1 Notes): Reduced by 2.9%
News Corp (NWSA): Reduced by 0.6%
Removed Positions (Positions they sold out of completely):
BPW Acquisition Corp (BPW)
Enterprise Acquisition Corp (EST)
Global Consumer Acquisition (GHC)
Liberty Media (LMDIA)
Prospect Acquisition Corp (PAX.UN)
RHI Entertainment (RHIE) ~ we detailed this right after it happened
SP Acquisition (inactive)
TM Entertainment & Media
Tremisis Energy (TGY.UN)
Overture Acquisition (NLX)
Top 15 Holdings by percentage of assets reported on 13F filing
- News Corp (NWSA): 21.1%
- Domtar (UFS): 10.1%
- Viasat (VSAT): 9.86%
- Capitalsource (Convertibles 4% 7/1): 9.7%
- Theravance (THRX): 8.33%
- Breitburn Energy Partners (BBEP): 5.68%
- Enzon Pharmaceuticals (ENZN): 5.37%
- Capitalsource (CSE):5.08%
- CIT Group (CIT): 4.5%
- Facet Biotech (FACT): 3.88%
- DirecTV (DTV): 3.4%
- Capitalsource (Note 7.25% 7/1): 2.75%
- Alliance One (AOI): 2.71%
- Theravance (Note 3.0% 1/1): 2.06%
- Ituran Location & Control (ITRN): 1.39%
The main thing to takeaway from this filing is that this is only a small portion of Baupost's overall portfolio. They are currently in many distressed and more illiquid plays and we can't see them since they aren't required to disclose them publicly. Overall, the holdings listed above represent just over $1.5 billion in investments while Baupost manages a much larger asset base and also typically keeps a high amount of cash handy. Please note that in past Baupost updates we had combined all their Capitalsource exposure into one aggregate figure. This time we've instead separated it out by asset class as they own equity, notes, and convertibles.
Baupost's new equity acquisitions include CIT Group (CIT), DirecTV (DTV), and Liberty Media (LSTZA). Keep in mind though, that their stakes in DTV and LSTZA were actually a result of a Liberty Media transaction as Baupost owned the prior entity. Not to mention, while they show a new position in CIT Group, it was most likely a result of a debt to equity conversion, but there's no way to tell for sure. Additionally, they added to existing positions in Viasat and Enzon Pharmaceuticals. They sold completely out of a plethora of acquisition companies and notably reduced their stake in Sapphire Industrials. That really wraps up the majority of their activity.
Assets from the holdings reported in the SEC 13F filing were $1.58 billion this quarter compared to $1.35 billion last quarter. Please keep in mind that when we reference 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), these percentages are undoubtedly different than in their actual hedge fund.
This is just one of the 40+ prominent funds that we'll be covering in our fourth quarter 2009 hedge fund portfolio tracking series, so check back daily.
Monday, November 16, 2009
Seth Klarman's Baupost Group Sells Capitalsource Shares (CSE)
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.
We're baaaack. We're kicking off our Q3 2009 portfolio tracking with the hedge fund that was most requested by readers: Seth Klarman's Baupost Group. This should come as no surprise given Baupost's amazing 20% annual compounded return. While Warren Buffett is often singled out as the greatest investor out there, one other man could very well be mentioned in the same sentence. We're talking of course about Seth Klarman. If you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his very hard to find book, Margin of Safety where he provides a "how-to" on risk averse value investing.
Klarman received his MBA from Harvard and then went on to work for Baupost at age 25. Nowadays, it's his show to run. Baupost is one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 26% annualized returns by combining 3 hedge fund portfolios into a cohesive whole. (Head over to Alphaclone to see the hedge fund portfolio replication in action as our portfolio is about to be re-balanced with new holdings).
Keep in mind that the positions listed below were Baupost's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single minor 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):
Enzon Pharmaceuticals (ENZN)
Some Increased Positions (Positions they already owned but added shares to)
Viasat (VSAT): Increased position by 148%
Some Reduced Positions (Some positions they sold shares in)
Capitalsource (CSE): Reduced position by 41%
Syneron (ELOS): Reduced position by 32%
Facet Biotech (FACT): Reduced position by 20%
Audiovox (VOXX): Reduced position by 6%
Flat Positions (Holdings with no change in position size)
Alliance One (AOI), Breitburn Energy (BBEP), various Capitalsource notes, Domtar (UFS), Ituran Location and Control (ITRN), Liberty Media (LMDIA), Multimedia Games (MGAM), News Corp (NWS-A), Theravance Notes, Theravance (THRX), and RHI Entertainment (RHIE).
Removed Positions (Positions they sold out of completely)
GHL Acquisition
iStar Financial (SFI)
Horizon Lines (HRZ)
KBL Healthcare (inactive)
News Corp (NWS)
PDL Biopharma (PDLI)
Top 15 Holdings by percentage of assets reported on 13F filing
- News Corp (NWS-A): 21.68%
- Capitalsource (CSE - including positions in common stock and various notes): 19.53%
- Theravance (THRX - including positions in common stock and notes): 12.34%
- Liberty Media (LMDIA): 9.68%
- Breitburn Energy Partners (BBEP): 7.12%
- Viasat (VSAT): 5.97%
- Facet Biotech (FACT): 4.47%
- Domtar (UFS): 2.97%
- Alliance One (AOI): 2.91%
- Syneron (ELOS): 1.76%
- Ituran Location and Control (ITRN): 1.31%
- Enzon Pharmaceutical (ENZN): 1.26%
- RHI Entertainment (RHIE): 1.13%
- Multimedia Games (MGAM): 0.98%
- Audiovox (VOXX): 0.90%
Many of Baupost's moves detailed in their 13F filing we've already covered here on Market Folly. This just goes to show why it's prudent to track the full spectrum of SEC filings. We already knew that Baupost had sold out of Horizon Lines (HRZ) and had been selling shares of Facet Biotech (FACT). Not to mention, we already covered the fact that Baupost sold out of PDL Biopharma (PDLI). The only new addition to Baupost's portfolio was Enzon Pharmaceuticals, and we had already disclosed this addition earlier on the blog as well.
So, there's really not a whole lot of new information revealed in their 13F filing apart from two changes. The first major change we see was that Klarman sold 41% of his common stock in Capitalsource (CSE). We saw Thomas Steyer's hedge fund Farallon Capital also sell some CSE common as well recently. While Baupost trimmed their stake there, the rest of their position in Capitalsource via various notes remained unchanged. Secondly, we also saw that Baupost sold completely out of their News Corp B shares position (NWS). This is interesting because they retained their full position in the A shares (NWS-A) but dumped the B shares. Maybe they saw something in regards to valuation or arbitrage there, who knows. One thing is clear though: they prefer NWSA over NWS. Keep in mind though that the bulk of their holdings in News Corp has always been through the A shares and that their B shares position was much smaller. Also, in terms of positions Baupost already held but added to, Viasat (VSAT) fits the bill. They've been adding to this name very recently as they just filed a 13G on VSAT.
Assets from the collective holdings reported to the SEC via 13F filing were $1.35 billion this quarter compared to $1.26 billion last quarter, so a slight uptick. Observant readers will note that Baupost in reality has an assets under management (AUM) base of around $20 billion, so there's quite a gap here. Firstly, keep in mind that Baupost typically keeps a lot of cash on hand. Secondly, Klarman has been out recently saying that equities are not as attractive as previously so it doesn't sound like he'll be too active there. Thirdly, he also mentioned that he is starting to like illiquid investments here and so that could also count for some of the assets. And lastly, remember that 13F's do not include short positions, holdings in other markets (foreign markets, futures, etc) or cash. So, all of the above combined helps to bridge the gap between 13F reported assets and their actual AUM.
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. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.
We'll continue to monitor Baupost's 13G and 13D filings as that seems to be where the bulk of their action comes in. For more resources of Klarman and Baupost, check out the following:
- Klarman's interview from the annual Graham & Dodd breakfast
- Recent thoughts from Seth Klarman
- An interview with Seth Klarman
This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. Baupost is the first fund we've covered but check back in each day as we'll be cranking out updates daily, identifying what the top hedge funds are investing in.
