Sahm Adrangi’s Kerrisdale Capital, known for its savvy shorts on satellite companies, is having one of its best years since its 2009 launch.
Kerrisdale is up 32 percent through July, according to an investor report seen by Institutional Investor. The big gains this year are being driven by a long position in spectrum provider Intelsat, according to an individual knowledgeable about the matter.
If these gains continue, 2018 could be Kerrisdale’s second-best year ever, topped only by the stunning 201 percent gains made in 2011 by betting against alleged Chinese frauds.
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The hedge fund announced its Intelsat stake on June 27, admitting that it was “an unusual position” for the fund.
“For years, with our reports on Globalstar, Straight Path, and DISH, we have publicly railed against the excesses of spectrum hype,” Kerrisdale stated in the announcement. “Time and again, we have argued, equity investors have gotten carried away with their enthusiasm about offbeat frequencies and futuristic technologies, ignoring inconvenient details and weak business cases.”
But Intelstat and SES – another spectrum provider the hedge fund took a long position in – were “different,” Kerrisdale argued.
“Intelsat and SES hold the keys to the right frequencies, in the right way, at the right time, without the irreconcilable interference issues that have beset other spectrum stories,” it said.
The hedge fund’s Intelsat stake was worth $141.3 million as of the end of June, accounting for more than half of Kerrisdale’s $240.7 million in long equity positions of $240.7 million, according to its latest 13F filing with the Securities Exchange Commission in mid-August. The stock has jumped more than 30 percent since Kerrisdale’s report, enabling the hedge fund to gain 11.4 percent in July alone.
Meanwhile, the S&P 500 has risen 6.5 percent this year through July, including reinvested dividends.
“This year is unusual became that one stock is driving the whole portfolio,” a person familiar with Kerrisdale said.
Kerrisdale explained in its announcement that the spectrum owned by Intelsat is “used by certain geostationary satellite systems operated in the U.S.” and “has been described as the spectral ‘sweet spot’ for widespread 5G deployment.”
The hedge fund further claimed that “whoever gets their hands on the spectrum first will immediately obtain a massive leg up on the competition,” noting that it’s currently “a critical conduit between the creators of TV content, like Disney and Fox, and the distributors of TV content, like Comcast and DirecTV.”
Less than a month later, Kerrisdale received confirmation of its views. On July 12, the Federal Communications Commission voted unanimously to adopt a notice of proposed rulemaking that officially set “in motion the regulatory process that will allow Intelsat and SES to unlock the value of their C-band spectrum rights,” Kerrisale explained in an update to the original announcement.
Meanwhile, the hedge fund is also doing well on its satellite company shorts. Globalstar is down more than 80 percent since Adrangi’s Oct. 1, 2014, short presentation, which was the hedge fund manager’s first foray into the world of spectrum. Dish, which initially moved against Kerrisdale, has now fallen 25 percent since Adrangi’s takedown of that company on May 11, 2016.
Although comprising a much smaller portion of the portfolio than Intelsat, both shorts are also contributing to Kerrisdale’s 2018 gains, with Globalstar down more than 60 percent so far this year, and Dish tumbling more than 20 percent.
Kerrisdale hasn’t been so fortunate with its short of Straight Path, whose shares skyrocketed when Verizon inked a deal to buy it at a hefty premium in 2017.
