| Photo credit: Bloomberg |
By Michelle Celarier
When Zafgen, a small Boston biotechnology company, said in late July that it was suspending production of a weight-loss drug that has drawn scrutiny from the Food and Drug Administration for life-threatening side effects, no one could have been happier than Sahm Adrangi, a cocky 35-year-old hedge fund manager who’s in the red this year.
Zafgen quickly plunged almost 50 percent, giving a shot in the arm to Adrangi’s short bet against the company. How much it helped Adrangi’s $250 million Kerrisdale Capital Management is uncertain, however. Kerrisdale’s main fund was down 12 percent for the year through June, according to investor documents. Worse, three of the firm’s four new short bets are going against it — the stocks are up double digits — in a year when the market gained a mere 3 percent during the same time. In July, Kerrisdale got some relief, gaining 6 percent, which left the fund down only 6 percent through July 27, according to an investor.
New York-based Kerrisdale is having its first down year since Adrangi, then 28, launched his hedge fund in 2009 when the bull market took off, turning him into one of the era’s youngest new stars. The Yale University graduate and former Deutsche Bank employee struck gold in 2011 shorting Chinese frauds and soon developed a reputation for grabbing media attention that rivaled that of some of his idols, like hedge fund stars Daniel Loeb of Third Point and William Ackman of Pershing Square Capital Management. Adrangi merited a mention in a 2013 Vanity Fair article on the “short war” between Ackman and Loeb, in which he took Loeb’s side by going long Herbalife, which recently reached a settlement with the Federal Trade Commission to “start acting legitimately” as FTC Chairwoman Edith Ramirez said. (Kerrisdale sold its Herbalife stake years ago.)
Later in 2013, Adrangi was the subject of a fawning New York magazine profile that lauded his use of Twitter to publicize his short calls, a strategy that has since become common for so-called activist short-sellers. He now has more than 14,000 followers.
Then, in November of 2014, Adrangi tried to channel Ackman for a short presentation on spectrum provider Globalstar, even renting the same midtown Manhattan auditorium Ackman uses for his famous Power Point presentations. He even copied Ackman’s “factsaboutherbalife.com” website to launch one titled “factsaboutglobalstar.com.”
But Adrangi may have gotten out over his skis. After earning 16 percent last year, when most hedge funds lost money, by April he had raised $100 million for a co-investment fund to short a single stock — the first such vehicle of its kind. Adrangi told investors in the fund he was shorting a $20 billion company, but when the name, Dish Network Corp., was leaked to the media on May 5, the stock began to soar from its bottom of $44. The stock continued to climb after Adrangi published his report on May 11, as investors said they found his thesis too complex. Its success also seems to hinge on a Federal Communications Commission decision on Dish’s wireless spectrum that is three years away. Adrangi argues that the FCC won’t extend Dish’s spectrum license, which expires in 2020.
Dish is now up 18 percent since May 5, closing at $52.01 on Wednesday. With Dish trading in the mid- to high-40s for most of this year, it seems hard to imagine that Adrangi has managed to make money off his short position, likely putting the co-investment vehicle in the red.
Dish isn’t Adrangi’s only loser this year. Sage Therapeutics, a short bet Adrangi announced on March 23, is up 55 percent since then, when it closed at $29.10. Sage surged 40 percent on July 12 after reports that a mid-stage clinical trial for one of its drugs treating severe postpartum depression had positive results with few side effects. It closed Tuesday at $45.13. Sage is based in Cambridge, Massachusetts.
Dallas-based ClubCorp, a short position Adrangi launched on April 7, is his third loser. It has gained 19 percent since then. The company is the largest owner of private golf and country clubs in the world.
Zafgen, which is down 67 percent since Adrangi’s January 25 short announcement, is the only one of the four whose stock price has fallen since his short was disclosed.
“Kerrisdale’s Zafgen campaign appears to be doing well after [Zafgen] announced last week that it was suspending further development of its beloranib drug. Kerrisdale had said in January that beloranib was highly dangerous but only modestly effective and that the drug would not receive FDA approval,” said Claire Stovall of Activist Shorts Research, a company owned by Activist Insight, which provides news and data about shareholder activist campaigns. Activist Shorts says that Kerrisdale’s shorts have an average annualized loss of 30 percent, which is a gain for Kerrisdale.
But Zafgen is tiny. The company has a market cap of $85 million, with a little more than $2 million short at latest count. Even if Adrangi accounts for all those shorts, the position is less than half of a percent of his capital.
Adrangi’s shorts get all the ink, but he’s still net long, and even those positions aren’t doing so well either. His biggest long position, as of his 13F Securities and Exchange Commission filing for the quarter ending on March 31, was Jones Lang LaSalle, a Chicago-based commercial real estate broker with operations in London. It is down 31.35 percent this year.
“Our shorts aren’t necessarily drivers of our firm’s overall performance this year,” Adrangi told Alpha, but he otherwise declined to discuss performance. Despite this year’s woes, Kerrisdale’s main fund still boasts an annualized return of 27 percent, according to investor documents.
