Tricadia Capital is a $4 billion multi-strategy fund that was founded in 2003 by Michael Barnes and Arif Inayatullah. The firm gained notoriety a year later when Tricadia CDO Management became the first company from North America that did a synthetic Collateralized Debt Obligation (CDO) deal with Citibank. Prior to co-founding Tricadia, Mr. Barnes had several years of experience in credit strategies, having been employed in leading positions at UBS, PaineWebber, and Bear, and Sterns & Co. Mr. Inayatullah has over 25 years of work experience in the fixed income, equity and commodity, and currency markets, having been employed at Credit Agricole Indosuez, Broadstreet Group, UBS, and Drexel Burnham Lambert. Both Messrs. Barnes and Inayatullah are co-Chief Investment Officers at Tricadia.
The fund also appeared in the spotlights after the beginning of the last financial crisis, being one of the investors that shorted assets under CDOs. While many investors betting on the housing market supported losses, Tricadia managed to post gains of around 50 percent per year in 2007 and 2008, partially from its short positions. An interesting aspect of Tricadia’s activity was that one of its units was responsible for picking mortgage assets under CDOs and was working with several banks, such as UBS. According to a Wall Street Journal article, a document for one of UBS’s CDO’s, titled “TABS 2007-7” and valued at roughly $2.3 billion, stated that Tricadia might have been making short bets against some of the assets included in the CDO. The CDO deal was closed several months later, resulting in big losses for the underwriters, but Tricadia posted great returns, even though its spokesperson denied shorting any assets under the “TABS 2007-7”.
In the years following the financial crisis, Tricadia Capital seems to be doing well, at least based on the performance of its equity portfolio. The fund’s long positions in companies with a market cap of over $1.0 billion posted gains of 31.8% in the last 12 months, although this doesn’t reflect the total picture of Tricadia’s performance, since the fund does not disclose its short bets and many other investments that aren’t subject to the Rule-13F. Nevertheless, let’s take a look at some of Tricadia’s most significant investments that have been disclosed in its latest 13F filing.
The main reason we do this is to show that a smaller investor can benefit from the experience that great fund managers have, even though many of the recent reports state that nowadays funds aren’t capable of generating any alpha. It is true that many funds can’t beat the market, which is confirmed by the 17% average cumulative returns of equity funds in the last three years, versus the S&P 500 ETF (SPY)’s gains of around 60% during the same period (read more details here). However, it is not because money managers have lost their ability to find great investment opportunities, but rather because of the large amounts of capital in their Assets Under Management, which occasionally forces them to invest in ideas that they are not particularly fond of. Moreover, many fund managers invest primarily in large- and mega-cap stocks, which are widely followed and, hence, priced more efficiently. We determined that one of the possibilities that retail investors can explore by following the equity portfolios of larger funds is to focus on small-cap companies. Through backtests, we determined that a portfolio consisting of the 15 most popular small-cap stocks among the funds that we track outperformed the market by nearly 1 percentage point per month between 1999 and 2012, while since late 2012, the same system generated aggregate returns of 137%, beating the SPY by more than 80 percentage points.
Yahoo! Inc. (NASDAQ:YHOO) represents a new position, the investor reporting ownership of 295,000 shares in its latest 13F filing, valued at $14.90 million. So far the investment hasn’t fared so well, as the stock declined by 12% during the first quarter. Even though the stock has been losing ground, many investors and analysts believe that the company is deeply undervalued. The company has an equity investment in Alibaba Group Holding Ltd (NYSE:BABA), worth slightly over $34 billion, which is more than 70% of the company’s current market capitalization. After Yahoo! Inc. (NASDAQ:YHOO) will complete the spin-off of the Alibaba stake, its remaining business will be traded at a significant discount, which is one of the reasons why many investors are bullish on the company. Among them are James Dinan’s York Capital Management and Christian Leone’s Luxor Capital Group, which both initiated stakes in Yahoo! Inc. (NASDAQ:YHOO) during the fourth quarter.
The next two companies on our list represent the two largest holdings in Tricadia’s latest 13F filing, and the stocks performed very well during the first three months of 2015. In Springleaf Holdings Inc (NYSE:LEAF), the fund reported a $60.11 million stake that contains 1.66 million shares, while in Constellation Brands, Inc. (NYSE:STZ) it owns 585,070 shares, valued at $57.44 million. Springleaf Holdings Inc (NYSE:LEAF) is a $5.8 billion credit services company whose stock advanced by 43.1% in the first quarter as the company reported impressive financial results for the last year, with revenue jumping to $2.08 billion from $1.39 billion a year earlier and earnings leaping to $4.40 per share, from a loss of $0.19 in 2013. The largest shareholder of Springleaf Holdings Inc (NYSE:LEAF) is Michael Novogratz‘s Fortress Investment Group, which owns 73.44 million shares, with the $2.66 billion stake amasses 30% of its equity portfolio as of the end of 2014.
The stock of Constellation Brands, Inc. (NYSE:STZ) gained 18.38% during the January-March period, also amid significant revenue and earnings growth posted for the last year. Moreover, the company also declared a dividend of $0.31 per share that will be paid on May 22 and will be the first quarterly dividend payment made by the company since going public in 1973. Dan Loeb, David Shaw, and Christian Leone are a few other investors that reported long positions in Constellation Brands, Inc. (NYSE:STZ) in the previous round of 13F filings.
The stock of AMC Entertainment Holdings Inc (NYSE:AMC) also enjoyed a strong first quarter, advancing by 36.34% during the first three months of the year. In Tricadia’s equity portfolio, AMC Entertainment Holdings Inc (NYSE:AMC) represents another new position and contains 240,000 shares valued at $6.28 million as of the end of 2014. The stock of the $3.3 billion theater operator has received a ‘Buy’ rating from several analysts and currently has a consensus price target of $33.40. However, among the funds we track, the three largest shareholders have cut their positions in AMC Entertainment Holdings Inc (NYSE:AMC) significantly during the fourth quarter of 2014. Christian Leone’s Luxor Capital, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management cut their stakes in the company by 55%, 29%, and 55% respectively to 913,300, 394,500, and 309,900 shares respectively.
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