“Solus Alternative Asset Management LP, the $4.5 billion event-driven distressed hedge-fund firm led by Christopher Pucillo, climbed 2 percent in June and 14 percent for 2014 in its main Sola fund,” an article that Bloomberg published a few days ago stated. I found myself wondering how this fund managed to return 14% in 6 months (Jan-June 2014); and taking a look at some of its best performing picks could certainly give us a clue.
The first thing that stands out when looking at Solus’ performance is the fact that the fund tends to pick big winners or big losers. Its event-driven strategy seeks above-average results in companies going through big changes, or distressed businesses, and the results vary widely. While the S&P 500 (INDEXSP:.INX) returned 6.05% over the first semester of 2014, three of the fund’s top 6 picks returned more than 18% each (two of them, more than 61%), while another two of them lost more than 10%.
Solus’ largest stock position by the end of Q1 (the last reported quarter) was that at Visteon Corp. (NYSE:VC), a $4.7 billion market cap supplier of automotive systems, modules and components to original equipment manufacturers (OEMs). The fund’s 2.32 million shares were worth more than $205 million by the end of Q1, and accounted for 43% of its total equity portfolio’s value. Over the first 6 months of 2014, the stock returned about 18.4%, making the fund’s stake at Visteon Corp. (NYSE:VC) worth more than $226 million.
Another investor that took advantage of the stock’s cheap valuation, coupled with industry leading returns, and has capitalized from the 18.4% increase is Steven Cohen, which owns over 1.82 million shares of Visteon Corp. (NYSE:VC), after having upped its stake by 51% over Q1.
The third largest equity holding at Solus’ portfolio, YRC Worldwide Inc. (NASDAQ:YRCW), gained an impressive 61.8% between January and June of 2014. The fund last disclosed ownership of 2.54 million shares, after increasing its exposure to this $875 million market cap transportation services provider by 1243% in early February.
Following the marked increase in YRC Worldwide Inc. (NASDAQ:YRCW)’s stock price that took place over the first semester of 2014, analysts expect a halt –around current stock prices. Probably, the best moment for investing in this company has passed. However, those who saw the opportunity and bought the stock between August of 2013 and January of 2014 have certainly profited from their investment. This is the case of Andy Redleaf’s Whitebox Advisors, which started a position in YRC Worldwide Inc. (NASDAQ:YRCW), with 1.86 million shares, over the first quarter of 2014, and has seen great returns since.
With these two holdings -Visteon Corp. (NYSE:VC) and YRC Worldwide Inc. (NASDAQ:YRCW)- accounting for more than 55% of Solus’ equity portfolio, comprehending the 14% return for the first six months of 2014 is not that difficult.
Another company that provided great returns to Solus’ portfolio is Golar LNG Limited (USA) (NASDAQ:GLNG), a $3.8 billion market cap midstream LNG company (mainly engaged in the transportation, regasification and liquefaction and trading of LNG) that occupied the sixth spot in the fund’s portfolio for Q1, accounting for 4.35% of its total value. This stake, started over Q1, returned 65.6% between January and June.
Other funds betting on Golar LNG Limited (USA) (NASDAQ:GLNG) are Barry Rosenstein’s Jana Partners, which raised its stake in the company by 44% over Q1 and now owns roughly 3.22 million shares, and Michael Thompson’s Bhr Capital, which increased its exposure to Golar LNG Limited (USA) (NASDAQ:GLNG) by 22%, to 2.2 million shares.
Amongst the fund’s top 5 picks, other stocks had disparate returns:
– The second largest stake, Loral Space & Communications Ltd. (NASDAQ:LORL), lost 10.2% in the first semester of 2014.
– Scorpio Bulkers Inc (NYSE:SALT), the fourth largest, fell 11.4%.
– Number 5, DHT Holdings Inc (NYSE:DHT), inched 5.26%.
Disclosure: Javier Hasse holds no position in any stocks or funds mentioned