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Billionaire Noam Gottesman’s Favorite Small-Caps Are Nimble Storage Inc (NMBL), Hudson City Bancorp, Inc. (HCBK)

Hedge fund GLG Partners, founded by billionaire Noam Gottesman and based in London, was founded in 1995 as a division of Lehman Brothers and later became independent in 2000. In 2010 it was acquired by Man Group for $1.6 billion, creating the largest listed hedge fund group at that time. The fund, currently run by Teun Johnston and Mark Jones has a public equity portfolio valued at $2.9 billion as of March 31. Among those are several small-cap stocks including Shanda Games Limited (NASDAQ:GAME), Hudson City Bancorp, Inc. (NASDAQ:HCBK), Riverbed Technology, Inc. (NASDAQ:RVBD), and Nimble Storage Inc (NYSE:NMBL), which we’ll look at in this article.

Riverbed Technology, Inc. (NASDAQ:RVBD)

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.

One of the top small-cap picks held by GLG Partners as of the reporting period of its latest 13F filing was in San Francisco-based information technology company Riverbed Technology, Inc. (NASDAQ:RVBD). Riverbed Technology, founded in 2002 and listed since 2006, is a provider of solutions for end-to-end applications, visibility and control in IT Environments. GLG Partners increased its stake in Riverbed by 1,011% to 1.44 million shares valued at $30.17 million during the first quarter, after it was announced in late December that the company would be acquired by Thoma Bravo for $3.5 billion. On April 24, the deal was completed and Riverbed Technology, Inc. (NASDAQ:RVBD) taken private. Merger arb funds like Jonathan Lourie and Stuart Fiertz‘s Cheyne Capital made big moves into Riverbed following the acquisition announcement and were rewarded with 3% gains in 2015 before the stock was delisted.

A small-cap pick that is still being traded, at least for now, is Shanda Games Limited (NASDAQ:GAME), in which GLG Partners decreased its stake by 6% to 6.62 million shares with a value of $42.37 million. The Chinese online games developer, founded in 1999, has enjoyed strong returns of 22% year-to-date, partially due to the disclosure at the beginning of April that Shanda Games Limited (NASDAQ:GAME), which localizes games for both the Chinese and international markets, will be taken private by Capitalhold Limited in a $1.9 billion deal. The sale is expected to close during the second half of 2015. A similar purchase of Shanda was attempted by a consortium of buyers in early 2014, though it eventually fell through after some of the private-equity firms backing the deal withdrew. GLG had by far the largest position in Shanda Games among the funds in our database as of March 31, with only a handful of others, including Ken Griffin, holding relatively insignificant positions.

Another merger-related small-cap pick of GLG’s was in New Jersey-based Hudson City Bancorp, Inc. (NASDAQ:HCBK). During the first quarter GLG increased its stake in the company by 14% to 4.45 million shares valued at $47.55 million. Founded in 1868, Hudson City Bancorp is one of the oldest banks in the U.S and keeps roughly $50 billion in assets. The company’s stock performance has been poor in 2015, dipping by 4.45% year-to-date. The bank is still waiting for regulatory approval for its proposed merger with Buffalo-based M&T Bank Corporation (NYSE:MTB), which has been held up for three years and counting due to M&T Bank Corporation (NYSE:MTB)’s non-compliance with the Bank Secrecy Act. M&T CEO Mr. Robert G. Wilmers says that the deal is an “extremely beneficial opportunity for both companies, including the shareholders […]” Hedge funds Mangrove Partners and Farallon Capital are among those waiting for the closure of the deal, holding 2.74 million and 17.6 million shares of the bank corporation respectively.

Lastly is San Jose, California-based Nimble Storage Inc (NYSE:NMBL), in which GLG Partners now holds 1.03 million shares with a value of $22.91 million. Nimble, founded in 2008 and trading publicly since its IPO during the fall of 2013, produces software and hardware for data storage. Nimble Storage Inc (NYSE:NMBL) has been experiencing a bumpy spring, shedding 1.45% year-to-date. The company’s earnings for the first quarter were published on May 26, and revealed earnings per share of -$0.10, $0.03 better than the estimates and $0.04 better than the same period last year. Analysts predict that Nimble will run a loss per share of $0.26 for its fiscal year 2015. During May a number of insiders decreased their holdings in Nimble, among them being CTO Umesh Maheshwari, who unloaded 16,000 shares, and CFO Anup Singh, who sold off 5,000. Other hedge funds with stakes in Nimble are Brett Barakett‘s Tremblant Capital, which increased its stake by 273% to 2.10 million shares, and Quentec Asset Management.

Disclosure: None

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