Jonathan Auerbach co-founded long/short equity fund Hound Partners with Scott McLellan in 2004, seeded by Tiger Management. Jonathan Auerbach had been a senior analyst at Ziff Brothers Investments before joining Tiger Management in 2004, when he was put in charge of a new umbrella fund, which later became Hound Partners. Auerbach lured Scott McLellan to Tiger to help him run the fund. Prior to that, McLellan worked at Highbridge Capital. In 2007, Scott McLellan left to form Marble Arch Partners with Timothy Jenkins, who had spent three years working at Tiger Management. Jonathan Auerbach’s Hound Partners gained around 16 percent in 2013.
Marble Arch Investments was founded in 2007 by Scott McLellan, who had previously worked at Hound Partners. Hound’s manager, Jonathan Auerbach, is a Tiger Cub and so McLellan can trace his investment lineage to Julian Robertson as well. McLellan himself worked at Highbridge Capital Management and has an MBA from Northwestern. Marble Arch is a long/short equity fund.
In their most recent 13F filings reflecting activity during the fourth quarter of 2013, two hedge funds, Hound Partners and Marble Arch Investments, showed a remarkable amount of similarity in their holdings and investment activity, including Valeant Pharmaceuticals International Inc. (NYSE:VRX), Carters Inc. (NYSE:CRI), FleetCor Technologies Inc. (NYSE:FLT), and W R Grace & Co. (NYSE:GRA). Other equities owned by both funds include Charter Communications Inc. (NASDAQ:CHTR) and American International Group Inc. (NYSE:AIG). Given the concentrated number of stocks in their portfolios (23 for Hound and 22 for Marble Arch), we thought it would be interesting in delve into their common investments a little deeper.
Given the backgrounds of the founders of the two firms, it is not surprising that their investments should overlap. Both Jonathan Auerbach and Scott McLellan, who founded Hound Partners, worked at Tiger Management previously. Three years later, McLellan left Hound to set-up another hedge fund, Marble Arch, along with Timothy Jenkins, another Tiger Management alumni. Both funds, based in New York, NY, employ a long/short equity strategy based on fundamental analysis.
Valeant Pharmaceuticals International Inc. (NYSE:VRX) was the top holding of both funds as of year-end 2013, accounting for 13.0% of Hound’s equity portfolio and 12.4% of Marble Arch’s. Neither fund changed its holdings of the multinational specialty pharmaceutical company during the fourth quarter. VRX has had a strong run over the past year, as its earnings have been boosted by its recent acquisition of eye care products maker Bausch & Lomb Holdings Inc.
FleetCor Technologies, Inc. (NYSE:FLT) was another top holding of both funds, which was the third largest holding of Hound and second largest of Marble Arch. Both funds did reduce their positions by 14-21% in the payment processor of commercial fuel cards during the quarter, but their large remaining stakes still imply a bullish view on the stock.
Chemical and materials manufacturer W R Grace & Co. (NYSE:GRA) occupied the fourth largest position in Hound’s portfolio and third largest in Marble Arch’s. Again, we see a similarity in investing behavior among the two funds, as both reduced their stakes in the company by 11-20% during the fourth quarter but still maintained relatively large stakes. This could reflect a directional bet on GRA exiting bankruptcy soon.
Charter Communications Inc. (NASDAQ:CHTR) was the fifth largest equity investment of Hound and eighth largest of Marble Arch. Both funds increased their positions in the telecommunications company by 7-8% during the quarter. The stock could have been a bet that CHTR would outbid Comcast Corp. (NASDAQ:CMCSA) and successfully acquire Time Warner Cable (NYSE:TWC). Although CMCSA and TWC reached an agreement recently, CHTR’s largest shareholder, Liberty Media Corp. (NASDAQ:LMCA) seems to remain interested on the ultimate outcome of the deal.