Alphyn Capital Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of -3.6% was recorded by the fund for the third quarter of 2021, and 9.6% return year-to-date, while its S&P 500 TR benchmark delivered a 15.9% return YTD. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Alphyn Capital Management, in its Q3 2021 investor letter, mentioned Pershing Square Tontine Holdings, Ltd. (NYSE: PSTH) and discussed its stance on the firm. Pershing Square Tontine Holdings, Ltd. is a United States-based blank check company with a $3.9 billion market capitalization. PSTH delivered a -28.94% return since the beginning of the year, while its 12-month returns are down by -12.45%. The stock closed at $19.69 per share on October 25, 2021.
Here is what Alphyn Capital Management has to say about Pershing Square Tontine Holdings, Ltd. in its Q3 2021 investor letter:
“PSTH is a high-profile SPAC created by noted hedge fund investor Bill Ackman. I initiated a position soon after the company announced a deal, since abandoned, to buy a 10% stake in Universal Music Group ahead of its spinout from parent holding company Bollore. PSTH had been widely expected to pursue a marquee deal with some trophy tech company, such as Bloomberg L.P. or Stripe, the payments company, valued at $95bn in April, and the shares traded at a 60% premium during the SPAC frenzy of the early part of the year. Instead, PSTH announced a complex, multi-part transaction for an old-school music business, and we were able to purchase shares at a small premium to NAV. PSTH intended to buy 10% of UMG for $4bn and spin this into a separately traded company listed in Europe, creating a tracking stock that presumably would have merged into UMG at some future point. PSTH “remainco” would still have access to approximately $3bn to pursue another deal. Finally, PSTH shareholders would be given 5-year warrants to a new company called a “SPARC,” which would seek a 3rd acquisition target.
I believed PSTH’s components were worth more than the approximately $21.80 a share that PSTH traded for at the time. More importantly, UMG is an attractive asset with a 31% share of the global music market, the largest operator in a 3-way oligopoly with Sony Music and Warner Music. Streaming has transformed music into a growth industry, as companies like Apple, Amazon, Spotify, and TikTok have invested significant sums in building global music distribution platforms. UMG earns attractive high-margin royalties, and its extensive, irreplaceable back catalog of some of the most popular songs globally, valued as much as $50bn, positions it well within this ecosystem.
Unfortunately, the SEC did not approve the deal, and a subsequent shareholder lawsuit has further complicated matters. The net result is that PSTH abandoned the UMG deal and now wants to return cash to shareholders at $20/share and still issue SPARC warrants. Thus, assuming PSTH gets approval for its latest plan, we would receive most of our investment back and retain a 5-year option on a future deal, which is not a bad consolation prize.”
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Based on our calculations, Pershing Square Tontine Holdings, Ltd. (NYSE: PSTH) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PSTH was in 36 hedge fund portfolios at the end of the first half of 2021, compared to 35 funds in the previous quarter. Pershing Square Tontine Holdings, Ltd. (NYSE: PSTH) delivered a -2.70% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
