| John Burbank, founder and chief investment officer of Passport Management LLC (Photo Credit: Jacob Kepler/Bloomberg). |
John Burbank III’s woes continue. The founder of Passport Capital reported another sharp loss in the first quarter for his firm’s Passport Global Fund. And although April was profitable, it barely cut into the fund’s decline for the year.
Meanwhile the fund and the firm suffered another round of sizable redemptions in the first quarter. For the first three months of 2016, the Passport Global Fund lost 8.3 percent and was off 7.6 percent through April.
In the first quarter, the fund suffered net outflows of $187 million, reducing its assets to just $939 million. The firm altogether reported net outflows of $387 million for the period, bringing total assets down to just $2.3 billion. Last month we reported that Passport announced it is shutting down its $636 million long-short equity fund.
Passport has been struggling for more than a year now. In 2016 all three of its main funds declined by double digits.
Passport Global finished last year with a low 12 percent net exposure to the market, mostly driven by a sharp decline in its long exposure.
However, this year it has aggressively raised its net exposure but has maintained a much lower gross exposure than it had last year.
At the end of April, it was 110 percent long, towards the lower end of its recent 12-month range, and 51 percent short, its lowest level in the past year. This works out to a 60 percent net exposure, towards the higher end of its range.
Nearly half of its net exposure was to MENA — the Middle East and North Africa region. Within that group, Passport is especially bullish on Saudi Arabia. “We see Saudi as a key recipient of foreign investment flows as the path to inclusion in the EM Index becomes clearer over the course of 2017,” it tells clients in its first quarter letter, obtained by Alpha. Two of its largest positions are Saudi Banks, each accounting for 8 percent of net asset value (NAV).
National Commercial Bank is the oldest and largest bank in Saudi Arabia. “It is a conventional bank with a significant sharia deposit base, making the bank a beneficiary of U.S. rate hikes as the bank does not pay interest on its sharia deposits and therefore interest income will increase while its funding cost will not change significantly,” Passport explains, adding that the bank is well capitalized.
Alinma Bank also accounts for 8 percent of NAV. Passport stresses the bank is supported by the hedge fund firm’s thesis of “improving banking system liquidity and fundamentals, coupled with a desire for liquid, beta to what Passport sees as a nascent Saudi bull market.” Passport also notes the stock is among the most liquid equities in the market.
In energy, Passport singles out Parsley Energy, which focuses most of its business on the lucrative Permian Basin. It accounts for 7 percent of NAV. “As risk/reward for oil skews positive near-term — with an upcoming OPEC meeting expected to extend cuts in some form, and the potential for a material reduction in U.S. inventories — we view the Permian Basin as a strong investment opportunity in energy and the basin that could generate attractive returns on capital,” Passport tells clients.
Brazil-based meat packing giant JBS SA also fetches 8 percent of NAV. Passport points out it recently reported “positive results” for fiscal 2016. However, several days after that, Brazilian authorities announced a sweeping criminal probe of the meat industry, targeting more than 40 companies. It even raided three JBS plants. This delayed the company’s planned initial public offering (IPO) of its mostly U.S. and European assets.
