Greywolf Capital Management, a Purchase, New York–based firm founded by former Goldman Sachs executives Jonathan Savitz and James Gillespie, continues to outperform most hedge funds despite maintaining its net short position.
Through August, its Greywolf Capital Overseas Fund had gained 12.6 percent, while its Greywolf Capital Partners II had returned 14.45 percent. This is better than most hedge funds have fared so far this year. Even more remarkable, the two funds are among a very small group of hedge funds that have been net short.
At the end of the second quarter, Greywolf Capital Partners II was 78 percent long and 113 percent short, for a net short position of 35 percent, according to a fund of funds with an investment in the fund. We reported earlier this year that at the end of the first quarter, Greywolf Capital Overseas Fund was 91 percent long and 137 percent short, according to its first-quarter report.
Savitz, Greywolf’s chief executive, spent 15 years at Goldman, where he was a trader in the corporate bond department. He went on to manage the high-yield trading desk and lead global distressed trading, sales and research. For part of his career, he worked for Appaloosa Management’s David Tepper. Gillespie, a portfolio manager of Greywolf’s special situations funds, ran distressed-bond investing at Goldman.
An investor in Greywolf says the firm’s biggest winner in the second quarter was a drug company that won approval from the Food and Drug Administration for a drug with a large potential market. Greywolf also made money from a generic drug company and a gold miner, according to the investor. On the short side, Greywolf continued to benefit from what the investor calls a core position in a software company that it thinks may lose a contract with its biggest customer.
The investor did not identify any of the individual stocks. However, according to Greywolf’s second-quarter 13F filing with the Securities and Exchange Commission, its second-largest holding was MannKind Corp., which in late June received FDA approval for a new inhaled insulin to treat diabetes. It plunged 33 percent over the first two months of the third quarter.
Greywolf also had a position in Taro Pharmaceutical Industries, which makes generic and branded drugs. The stock surged a total of 15 percent in July and August. As for miners, Greywolf held Horsehead Corp., a manufacturer of zinc metal, dust, and powder. The stock jumped a total of 10 percent in July and August.
Its largest individual stock position was EnPro Industries, a maker of engineered industrial products. The stock dropped more than 7 percent in July and August.
Greywolf had $676 million in U.S. equity–related investments, up from $497 million the previous quarter, according to the filing. It held only eight different positions, including puts on an exchange-traded fund that invests in the S&P 500 index.
Greywolf considers itself an event-driven firm. Its investment team is fairly skeptical of the current market and is said to be worried about how quantitative easing will end and how this will affect the overall markets. Greywolf typically invests in ten to 20 best ideas, mostly in small- and mid-cap stocks.
The firm, which also manages collateralized debt obligations, is perhaps best known for getting embroiled in the Goldman Sachs–Abacus scandal. Goldman agreed to pay $550 million in 2012 to settle charges with the SEC that it sold a CDO to clients without telling them that hedge fund firm Paulson & Co. helped build the portfolio and then shorted it. Goldman used money raised from the deal to buy CLO assets from Greywolf; the SEC never accused Greywolf of wrongdoing.
