| Sahm Adrangi (illustration by Kate Copeland) |
With its chesterfield sofa and wingback chairs, the Yale Club, next door to Manhattan’s Grand Central Station, is stiff and formal. But that’s where Sahm Adrangi – whom no one would accuse of being either of those things – wants to meet.
The lounge is closed, so Adrangi ushers this reporter upstairs to the club room, where Yale alums are hunched over their iPhones or chatting up colleagues in a sedate, wood-paneled room crammed with tables just far enough apart for privacy. Adrangi, Yale class of 2003, might be mistaken for a professor on sabbatical, with his trim beard and relaxed attire: gray slacks, blue jacket, and open-necked checked shirt.
That he is as casual as the Yale Club gets isn’t surprising as the 36-year-old is part of that iconoclastic breed of investors known as activist short-sellers. Even so, the Ivy League surroundings are a sharp contrast to the Hamptons party scene that landed Adrangi in trouble last summer, the toughest stretch in his short life as a hedge fund manager. Adrangi’s firm, Kerrisdale Capital Management, was facing its first down year since its start in 2009, a dismal situation that even weekends in the Hamptons weren’t making better. In fact, one Saturday night made it much worse.
In the wee hours of the morning on Saturday, August 13, 2016, Adrangi was arrested after the BMW he was driving collided with a Ford sport-utility vehicle on Montauk Highway, a stretch of asphalt that has seen its share of summer accidents. Adrangi was charged with speeding, drunk driving, and cocaine possession, and his license was taken away. He pleaded not guilty and a year later the case is still pending.
Some investors in Adrangi’s hedge fund fled immediately, but he soldiered on. This year his fund was up 8.7 percent through June, with several new short bets.
“Our real goal is to go after the big fish, the $5 billion scams,” says Adrangi. “How do these companies end up getting up to billions of dollars of market cap? It’s not because independent analysts study the company and all get fooled.”
Before the Hamptons arrest, Adrangi was known as much for his cockiness, aggression, and penchant for grabbing media attention as for his detailed research on companies he is shorting. Born in Tehran, Iran, Adrangi moved with his family to California when he was five, eventually settling in Vancouver, B.C., in the Kerrisdale neighborhood for which his hedge fund is named. Adrangi studied economics at Yale University and worked at Deutsche Bank before starting his fund in 2009 – right after the financial crisis – with family money. He burst onto the investment scene in 2010 by joining a small band of short-sellers accusing Chinese companies of fraud, propelling his fund to a 201.2 percent gain in 2011.
Adrangi set up his fund with the aim of managing $500 million. Following a 16.4 percent return in 2015, he had about $350 million of assets under management, but the fund lost more than half of its capital when investors fled last summer. Performance fell, with Kerrisdale posting a 6 percent loss by late July before recovering to a 1.9 percent loss by year end.
As an activist short-seller – someone who goes public with his short positions and research – Adrangi is used to being outside of the mainstream and fighting for his place in the sun. His $150 million fund’s 8.7 percent gain this year through June surpassed those of its peers. And Kerrisdale has produced an annualized return of 41 percent since inception, largely a result of the successful China-related short positions, according to investors in his fund.
After betting against several small Chinese companies that he believed were fraudulent, including China Education Alliance, shares of the businesses fell to near zero, Adrangi says. Efforts to reach China Education for comment were unsuccessful.
Adrangi clearly punches above his weight. In his latest short in June, he took on Baupost Group founder Seth Karman – one of the most revered investors on Wall Street – by shorting one of Baupost’s top holdings, ViaSat. After Adrangi unveiled his takedown on June 13, the satellite Internet service provider dropped as much as 9 percent over the next month.
“ViaSat is what you’d call a “story stock,” he says. “The actual financials the company produces are awful.” Adrangi adds that the company has produced no free cash flow since 2010 and he doesn’t expect it will between now and 2021. “When you look at historical numbers or future projections, the numbers look bad and no one would value the company at $5 billion,” he says.
After Kerrisdale publishes its research, Adrangi typically reaches out to investors who are long the stock. Some don’t want to hear what the short-seller has to say, but in this case Kerrisdale managed a first in the annals of short activism. After speaking with ViaSat’s shareholders, Adrangi convinced ViaSat chief executive officer Mark Dankberg to meet him and about 30 investors to debate the satellite company’s future in late June. Afterward, the stock fell another 5 percent.
ViaSat did not respond to a request for comment.
Northern Dynasty Minerals, a Canadian mining company whose plans for gold and copper mining in Alaska’s Bristol Bay threaten half of the world’s wild salmon runs, has been Adrangi’s best-performing short bet this year. The stock has tumbled since his February 14 report on the company, down about 43 percent through August 3. Last year Northern Dynasty’s shares traded as low as 21 cents as it faced legal woes tied to its mining efforts. The shares got a boost when Donald Trump won the U.S. presidential election, as many investors anticipated a laxer regulatory environment would help the company. Kerrisdale took that thesis apart by showing its legal issues and cash flow remained a problem. “It is one of my prouder accomplishments,” Adrangi says. “In the spirit of Bill Ackman, it’s always neat when a short activism campaign has a secondary social benefit, and I think we had a bit of that with Northern Dynasty.” Similar to Ackman’s situation with Herbalife, Northern Dynasty attacked Kerrisdale, saying it engaged in a “short and distort” campaign.
A spokesman for Northern Dynasty says the company settled with the Environmental Protection Agency. Adrangi, meanwhile, says the mine remains uneconomic.
Aside from his accusations of Chinese business fraud that put him on the map, Adrangi has become best known for shorting satellite companies. It’s a complicated area and his success has been mixed.
“Satellite companies are always pie in the sky,” says Whitney Tilson, founder of Kase Capital Management, who has known Adrangi for years. While he says Adrangi has done great in-depth work in this area, Tilson doesn’t invest in satellite companies or bet against them. “I put this in my too-hard bucket,” he says. The value of many companies is based on spectrum, or radio frequencies often awarded to them by the government and used in mobile services.
Adrangi’s first takedown in the sector came in November 2014, when he channeled Ackman’s style for a short presentation on spectrum provider Globalstar, even renting the same midtown Manhattan auditorium Ackman uses for his famous PowerPoint presentations. He copied Ackman’s Facts About Herbalife website to launch one titled Facts About Globalstar. Globalstar’s stock has been a bit of a roller coaster, but in early August was still down from levels seen at the time of Kerrisdale’s presentation.
Then Adrangi raised $100 million last year for a co-investment fund to short Dish Network Corp., which in early August had a market value of about $28 billion. The company’s future may hinge on whether the Federal Communications Commission decides to extend its spectrum license, set to expire in 2020. Adrangi argues the FCC won’t renew it. The stock has climbed since his report last year, and even though his co-investment fund is no longer short Dish, Kerrisdale is. “It’s a binary bet," says Adrangi. In late July he got some vindication: Citigroup analyst Jason Bazinet, one of the firm’s biggest bulls, recommended selling the stock.
One bet that went badly against Adrangi was his short of Straight Path Communications, which owns a valuable millimeter-wave spectrum expected to play a role in the development of the next generation of wireless systems, known as 5G. Kerrisdale’s short failed spectacularly when in April the company ended up in a bidding war between AT&T and Verizon Communications. When Verizon won in May with a $3.1 billion deal to buy Straight Path, its shares soared almost 400 percent from early April to about $178. Even so, Kerrisdale only lost 1.5 percent that month.
Tilson says the Kerrisdale founder belongs to the second generation of activist short-sellers: people who came of age with the wave of Chinese fraud shorts, like Muddy Waters’ Carson Block. The first generation would include Ackman and David Einhorn.
This summer Adrangi is keeping a lower profile in the Hamptons, where he has a rental in Amagansett. On weekends, the bachelor says, he goes to the beach, then barbecues on his patio with a group of friends.
