One of the top-performing hedge funds in the business this year is managed by one of the more recognizable names in distressed-debt investing who has nevertheless kept a low profile.
The Alden Global Opportunities Fund, run by Randall Smith’s New York–based Alden Global Capital, has been on a hot streak for the past few years. It gained 4.4 percent in the second quarter, bringing its return for the year through June to 20.62 percent, according to an investor report obtained by Alpha. It added 32 percent last year and 12 percent in 2012.
Alden Global Capital manages a total of $2 billion. Smith, a longtime specialist in distressed and so-called vulture investing who has trained such notable names as Avenue Capital Group’s Marc Lasry, founded Alden in 2007. Heath Freeman serves as president. Elizabeth Pierce, senior research director and a member of the investment committee, heads up the investment team, joined by research directors Jamie Kelner and John Wollen.
The Opportunities fund roams capital structures, “using an opportunistic, event-driven, long and short approach to deep value, distressed and special situations investments,” mostly in the U.S. and Europe, according to fund documents.
At the end of last year, U.S. equities accounted for roughly just $400 million of the firm’s capital. Its largest equity holding, Hess Corp., constituted 17 percent of the equity portfolio at the time. The Opportunities fund, which is accustomed to having a high net exposure, nonetheless reduced the net exposure at the beginning of the second quarter from 134 percent to a still very high 118 percent, citing “concerns about potential geopolitical and economic headline risks.” At the end of 2013, its net exposure was 155 percent. To put this into perspective, the typical Tiger Cub these days has a net exposure of 40 percent or lower.
The fund’s largest gain came from a “global liquidation situation,” although the firm does not name names, according to the second-quarter report. “The fund holds a series of bonds in different classes of various claims in the investment,” it elaborates. “The portfolio continues to see strong contribution from the investment, in light of its fifth distribution and investors’ expectations of higher recoveries.”
Alden’s second-largest gain last quarter came from a U.S. media company. “The company is one of the largest newspaper companies in the U.S., as measured by circulation,” the report explains, again not identifying the company. “We believe that the company is taking the right steps to unlock value.” According to its first-quarter 13F filing, Alden had a relatively small stake in Gannett Co., its only U.S. media investment at the time.
Alden’s largest loss in the second quarter came from an investment in a Greek bank. Interestingly, this investment is still profitable for the year. “It was affected by concerns over regional European elections,” Alden explains. “We believe that as the Greek economy continues to recover, and as the bank’s performance normalizes, the value of the stock and the warrants will become ever clearer. Moreover, we expect the market to begin to appreciate the benefits of operating in what will be one of the most concentrated banking markets in the world.”
Alden tells clients its second-largest detractor from performance in the second quarter came from a U.S. financial institution that provides financial guarantee products, such as bond insurance, primarily to states, municipalities and their authorities. “During the second quarter, the company’s securities were affected by concerns over its exposure to Puerto Rico’s municipal bonds,” Alden explains.
So, in the second quarter, Alden also cut its portfolio’s exposure to Puerto Rico, noting, “Debt restructuring by quasi-governmental entities may have a negative short-term effect.”
Looking ahead, Alden tells clients in the second quarter it added what it calls “several new catalyst-driven strategies,” including investments in Argentina.
It also boosted its exposure to India, primarily in energy and infrastructure-related companies. Like a growing number of hedge funds, Alden is excited about the new Indian government’s policy reforms. “Increased infrastructure investments would revive the Indian economy,” it adds.
Alden also says it took a new stake in a Spanish gaming company that is restructuring, added to its investments in Venezuela and “maintained a Middle East hedge” due to the growing geopolitical concerns there.
It also began shorting a basket of Chinese real estate companies, stressing that it expects “high inventories, falling prices and a slump in transaction volumes.” These developments will stoke renewed fears about the strength of the Chinese economy and a potential real estate bubble, the hedge fund adds.
And finally, Alden reduced index hedges in Europe, citing “the easing geopolitical risks in the region.”
