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Activist Rehan Jaffer Flying High With His Small-Cap Picks Like Six Flags Entertainment Corp (SIX)

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The unheralded activist hedge fund manager Rehan Jaffer can boast 30% annualized returns for his fund H Partners Management, which was established about a decade ago. After working for one of the pioneers of activist investing, Dan Loeb, and following a brief tenure at River Run Partners, Jaffer launched H Partners Management in 2005 with $15 million, which has since swelled to $1.5 billion. The market value of the fund’s public equity portfolio stood at $1.34 billion at the end of the March quarter, with the consumer discretionary sector accounting for 94% of those holdings. With regards to Jaffer’s investment prowess, Loeb put it best in Katherine Burton’s book Hedge Hunters: “He is super-hungry. He’s got a good nose. He’s very intelligent. So he’s got a great combination of having a high IQ, really strong financial analytics, a great nose for value, and great trader sense.” H Partners has a concentrated portfolio with typically five to ten investments at any one time and the average holding period for the portfolio stands at six years. We decided to take a look at how his public equity portfolio is geared towards small-cap companies, which make up the bulk of his investments. The list includes Six Flags Entertainment Corp (NYSE:SIX), Tempur Sealy International Inc (NYSE:TPX), and Boyd Gaming Corporation (NYSE:BYD).

The top small-cap picks of Rehan Jaffer are notable to us given the fact that it’s investors like him who add great value to our Insider Monkey small-cap strategy system, as they are heavily invested in the success of their small-cap picks and have poured considerable resources into identifying undervalued or under-the-radar companies to invest in. We have found that collectively, hedge funds’ top small-cap picks provide a great investment opportunity, with our strategy having returned over 144% since it was launched at the end of August 2012, beating the market by nearly 85 percentage points (see the details).

H Partners’ largest equity holding, Six Flags Entertainment Corp (NYSE:SIX), remained unchanged during the first quarter at 16.42 million shares valued at $794.87 million. The stake represented nearly 60% of the fund’s portfolio value. The investment firm acquired a stake in Six Flags Entertainment Corp (NYSE:SIX), the world’s largest amusement park corporation, in the form of its distressed debt as the company was moving through bankruptcy. After participating in a debt-for-equity exchange, the fund recruited the much sought after Jim Reid-Anderson as CEO in August 2010, who helped turn the company around. So far this year, Six Flags Entertainment Corp (NYSE:SIX)’s stock has appreciated by 11.03%. Among other stockholders of the company is Amy Minella‘s Cardinal Capital with 972,300 shares valued at $47.07 million.

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