After running two torrid proxy battles and trouncing the broader markets in both of his hedge funds in 2017, activist hedge fund manager Mick McGuire of Marcato Capital Management has fallen into the losers camp this year.
McGuire’s Marcato International and Marcato Encore funds are among the top 20 worst performers on HSBC’s latest list of weekly hedge fund performance, dated June 4 to 8. Through May, McGuire’s flagship Marcato International was down 10.04 percent, while Marcato Encore International, which mainly invests in small cap companies, fell 9.36 percent, according to HSBC. Meanwhile, the S&P 500 index gained 2 percent during the same time period.
It’s a big comedown from 2017, when Marcato International gained 25.78 percent, and Marcato Encore rose 22.6 percent. Those numbers made McGuire one of the few hedge fund managers to beat the broader market, since the S&P 500 gained 21.8 percent in 2017.
McGuire has long been punching above his weight, since the firm only had about $1.35 billion of assets at the end of last year, according to a regulatory filing made by Marcato. The hedge fund firm declined to comment on its performance.
McGuire’s big gains in 2017 were driven in part by two noisy proxy battles he waged at Buffalo Wild Wings, a fast food chain, and Deckers Outdoor Corp., the maker of UGGS boots. He sold out of both stocks with gains earlier this year.
This year, Marcato’s sole activist play is in Rayonier Advanced Materials, which makes polymers found in cell phones, where it wrangled two board seats. One of the new directors is Marcato partner Matt Hepler. Since Rayonier announced the new board members on February 20, the company’s shares have fallen about 11 percent through June 11. Marcato’s holding is small, worth $47 million as of its most recent quarterly securities filing on May 15.
The hedge fund firm’s biggest holding, according to that filing, is a passive investment in IAC/InterActiveCorp, the media conglomerate owned by Barry Diller, where Marcato owns about 945 million shares. That stock is up 29 percent this year through June 11—which means most of the hedge fund’s other holdings must be sinking, given the average loss of about 10 percent.
This year, Marcato also increased its position in Terex Corp., which is now its second biggest holding. The hedge fund now owns 7.3 percent of the stock, up from 5.1 percent in July 2016, when it first made a 13D filing, signifying activist intent. Terex is down 13 percent this year through June 11.
Marcato has sold out of some big winners.
On March 9, Marcato disclosed that it had liquidated its stake in Deckers, officially ending its activist campaign against the company. Marcato, which owned about 8.5 percent of the shares at the end of 2017, lost its proxy fight in mid-December, even though it had reduced its demands from a full board changeover to just three seats.
Despite losing the vote, the stock had been on a tear, gaining 80 percent for the 12 months before the activist fund sold out. This year, it has continued to climb after Marcato’s exit, and is now up 51 percent this year through June 11.
McGuire’s second big proxy battle of 2017 was with Buffalo Wild Wings, which had languished for months after he nabbed three board seats. But the bet turned profitable after the fast food chain agreed last November to be bought by Arby’s Restaurant Group and Roark Capital. That deal was valued to $157 per share, a 10 percent gain for McGuire.
Marcato, with 6.4 percent of the shares, agreed to vote for the transactions. It sold all of his shares in Buffalo Wild Wings earlier this year, according to a securities filing on February 5.
This year, the hedge fund also sold out of its remaining stake in another big activist play — Sotheby’s. Its Sotheby’s stake was valued at $35.8 million in Marcato’s November 14, 2017, 13F filing, the last disclosure in which it owned the stock. McGuire, who first took an activist stake in the auction house in 2015, had been selling down his stake since 2016.
