Bets on Herbalife Ltd. (HLF) and Argentina Pay Off Big for Special Situations-Focused Fund

First, let’s introduce the fund. Serengeti Asset Management was founded in 2007 by Jodi LaNasa, an alumnus of Goldman Sachs. The fund has around $2 billion in assets under management and invests mainly in special event situations and distressed debt. In its latest 13F filing, Serengeti disclosed an equity portfolio worth $514.40 million as of the end of March. The portfolio is fairly concentrated, with 20 positions, of which 13 are long investments.

One of the reasons why Serengeti’s stock picks managed to score a return of 27% in Q1 is that it invested in a number of Argentinian companies and rode the wave as the country elected a new President and started to show signs of improvement in its economy. Being ruled over for almost a decade by leftist populist Cristina Fernandez de Kirchner and her late husband Nestor Kirchner, Argentina plunged into a recession and was dominated by corruption. The new President, Mauricio Macri has managed to pull the country back from recession, but there are still many challenges, the biggest of which is the country’s monumental inflation of 40%. Nevertheless, the Argentine economy is expected to grow at around 2.7% in 2017.

The optimism surrounding the country’s economy has reflected on the performance of the US-listed stocks of Argentina-based companies, including two companies from Serengeti’s equity portfolio: Pampa Energia S.A. (ADR) (NYSE:PAM) and Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS). Another big winner in the fund’s portfolio is Herbalife Ltd. (NYSE:HLF), which is currently in activist Bill Ackman’s cross-hairs. Let’s take a closer look at the companies in question.

Pampa Energia S.A. (ADR) (NYSE:PAM) represented Serengeti’s second-largest position in terms of value at the end of March. The fund inched up its stake by 4% to 650,000 shares worth $35.24 million. The stock of the Argentina-based electricity company has surged by over 71% year-to-date. Earlier this month, the company reported consolidated sales of 15,166 Argentine peso ($946.99 million) for the first quarter, which represented an increase of 152% on the year, while its EPS surged to 0.98 Argentine peso ($0.06) from 0.35 ($0.02). Among the funds we track, the largest shareholder of Pampa Energia S.A. (ADR) (NYSE:PAM) is Zach Schreiber’s Point State Capital, which disclosed ownership of 5.07 million shares in its latest 13F filing.

On the next page, we’ll discuss two other investments from Serengeti’s equity portfolio that have boosted its returns.