| Lawrence Robbins, Glenview (Photo credit: Heidi Gutman, CNBC) |
Lawrence Robbins’s Glenview Capital Management is off to another great start this year. Its flagship long-short equity fund is outpacing the S&P 500, and another equity fund it manages is surging, according to an investor letter obtained by Alpha.
The New York–based firm’s assets under management now stand at $9.2 billion, including $2.8 billion in its Glenview Opportunity funds and $6.4 billion in the flagship Glenview Capital Partners long-short equity funds. This is the first time the firm has returned to the $9 billion mark since it entered 2008. Lousy performance and redemptions that year slashed its assets under management to below $3 billion the following year.
Glenview Opportunity surged 10.11 in the second quarter, bringing the total gain for the first half of this year to 18 percent, according to the Opportunity Funds’ second-quarter letter. Glenview Capital Partners gained 9.58 percent, according to a document from investment bank HSBC’s asset management division. This compares with a gain of just 7.1 percent for the S&P 500.
Last year, however, Robbins was finally able to take a nice victory lap. The Opportunity funds surged 101.74 percent, while the Capital Partners funds rose 44.29 percent. As a result, Robbins personally made $750 million, ranking number eight on the Rich List, only his second year on Alpha’s annual ranking of the highest earning hedge fund managers.
“We believe we are best positioned to succeed today because we have rebuilt our AUM to such critical mass,” Robbins tells clients in the quarterly report.
In the second quarter alone, the long equity portfolio of the Opportunity funds surged 19.5 percent, led by gains from Monsanto, Flextronics, Humana, Community Health Systems and Tenet Healthcare.
Broken down by sector, gains were driven by healthcare companies Humana, Community Health Systems, Tenet Healthcare, WellPoint, HCA and Walgreen Co.; technology companies Flextronics and Applied Materials; and seed company Monsanto, according to the letter. Long credit positions kicked in another 0.81 percent to gross returns, thanks mostly to gains from its portfolio of residential mortgage-backed securities put-backs, the term for when a mortgage originator is forced to buy back a mortgage from the current holder, often due to fraud or other defects. The fund’s second-quarter results, however, were offset by a 7.42 percent loss in the equity short book.
At the June 16 Delivering Alpha conference in New York, Robbins singled out six stocks during a Best Ideas presentation: Thermo Fisher Scientific, Monsanto, HCA, Hertz, National Oilwell Varco and Flextronics. He did not mention Carter’s, in which he recently disclosed he had owned a 6.4 percent stake as of June 30.
However, in the letter, Robbins provides a detailed case for the children’s clothing maker and two other stocks he recently bought: National Oilwell Varco and Cadence Design Systems. Regarding Carter’s, Robbins cites its dominant market share and believes the birth rate will begin to rise after a period of “deferred births.” He also is attracted to the notion that every few months or so Carter’s customers need to buy new clothes as their offspring grow to ever-larger sizes. He also cites expected double digit sales growth, margin expansion and “reasonable ongoing capital allocation with potential for more aggressive policy.”
Robbins also points out that in the second quarter he initiated a position in National Oilwell Varco, which manufactures and services equipment used in all phases of the production of oil. It recently spun off its smaller oil equipment distribution business into a new company called Now Inc. In February National Oilwell Varco named Clay Williams president and chief executive officer.
“The combination of the spinoff and change in senior management and board composition ushers in a fresh start for the company, and creates a ‘convertible equity’ scenario with several upside levers to value creation,” Robbins states in the letter. “The stock is trading at a meaningful discount to fair value with high visibility into above average earnings growth and, having recently undergone a significant amount of corporate change, we think it likely that investors will revisit this story in the coming quarters.”
Robbins also tells clients he recently initiated a position in Cadence, which provides electronic design automation software to the semiconductor industry. “Cadence offers many of the hallmarks of a traditional Glenview investment we’ve looked for throughout our firm’s history, with the ‘convertible equity’ features of capital deployment and product cycle refresh that could enhance shareholder returns over the intermediate term,” he adds.
Robbins explains in the report that his firm combines its research efforts in technology, media, telecommunications and business services. He says this team sees a similarity between Cadence and FIS Global, which sells “heart and lung” processing systems to financial institutions and which Glenview has owned for nine years.
“Like FIS, Cadence’s EDA product is deeply integrated into the design and development processes of its customers,” he elaborates in the report. “Those customers’ research engineers, of course integral to semiconductor companies looking to develop the most advanced chips, are highly resistant to switching the EDA software they use as the critical tool in their work flow and design.”
Robbins adds that the industry is poised to benefit from two positive secular developments over the next few years. They include what he calls the development of a new subset of customers — such as Google, Amazon, Apple, Lenovo, Huawei and other tech companies — that will “increasingly look to vertically integrate into chip development, which means more engineers using EDA software.”
