Jason Mudrick’s Mudrick Capital Management made a large short bet against shopping mall mortgages — a position that has paid off as various markets have cratered this year.
Mudrick has a roughly $500 million bet against the CMBX Series 6, a commercial real estate mortgage index, according to an investor in the distressed debt firm. The price has dropped in value by about one-third, providing Mudrick about $150 million in paper profits, according to the investor.
The investment has helped to prevent Mudrick’s fund from suffering steeper losses, since the CMBX bet is one of the hedge fund’s largest positions, according to this person. Legendary investor Carl Icahn has made the same bet, according to reports.
Through March 13, the Mudrick Distressed Opportunity Fund is down 6.2 percent for the year, including down 4.2 percent so far this month, according to a document from investment bank HSBC that tracks hedge fund performance. This makes Mudrick one of the best-performing credit funds in an area that is one manager describes as a “blood bath.” Mudrick declined to comment.
The short position in the mortgage index is a risky play. Even Icahn recently conceded to CNBC that going long or short shopping malls through credit default swaps was “a little bit like a gambling casino.”
To his credit, Mudrick, whose firm manages $2.4 billion, has been one of the top-performing distressed investors in recent years, earning a nomination for this year’s Credit-Focused Hedge Fund Manager of the Year in Institutional Investor’s Hedge Fund Industry Awards.
Mudrick gained 22 percent in 2019, a year that produced few big hedge fund winners.
Meanwhile, the firm is anticipating the public listing of Hycroft Mining Corporation, a gold and silver producer operating the Hycroft mine in Northern Nevada. As Institutional Investor earlier reported, in January Mudrick Capital Acquisition Corporation, a publicly traded special purpose acquisition company sponsored by Mudrick Capital, announced it will merge with Hycroft Mining.
The deal is expected to close in May, when Hycroft begins trading. Hycroft is Mudrick’s third-largest position, according to the investor in the hedge fund.
Njoy Holdings, the controversial e-cigarette maker, remains Mudrick’s largest position. In December Mudrick wrote down the value of its stake in the company by about 20 percent after a ban on flavored e-cigarettes was announced, according to the investor.
II previously reported the write-down, noting it accounted for most of the fund’s roughly 6 percent decline in December. The ban went into effect in February.
Njoy is specializing in reaching cigarette smokers who are having trouble kicking the nicotine habit.
Jason Mudrick launched Mudrick Capital Management in 2009 after spending most of his previous nine years on Wall Street at Contrarian Capital Management. The firm focuses on distressed securities and event-driven investing, mostly among middle-market companies with enterprise values between $1 billion and $2 billion.
