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Monarch Alternative Capital Gradually Unloading Its Stake In WCI Communities Inc. (WCIC), But That Shouldn’t Raise Any Red Flags

Michael Weinstock’s Monarch Alternative Capital has unloaded more shares of WCI Communities Inc. (NYSE:WCIC). In a Form 4 filed with the SEC, Monarch Alternative Capital and its affiliates have disclosed the sale of 243,300 shares of WCI at a price of $23.10 per share. Michael Weinstock’s firm also sold 1.69 million shares of WCI earlier this month. After the recent transactions, Monarch Alternative Capital owns 3.37 million shares in WCI Communities, in concert with its affiliates.

Michael Weinstock - Monarch Alternative Capital

Monarch Alternative Capital LP is a privately-owned hedge fund co-founded by Michael Weinstock, Andrew Herenstein, and Chris Santana in 2002. The investment firm, with roughly $5 billion in net assets under management, mainly channels its investments into the debt of distressed and bankrupt companies. Michael Weinstock, the Chief Executive Officer and co-Portfolio Manager of Monarch, had acted as a Managing Director at Lazard Frères & Co. and served as co-Portfolio Manager of the Lazard Debt Recovery Funds prior to launching his own shop. Lazard’s distressed debt research team, under the lead and supervision of Weinstock, was ranked number one in the distressed debt category by Institutional Investor magazine in 1998. So there is no doubt that Weinstock’s expertise in the distressed debt market has played an important role in Monarch’s success. In 2013, the New York-based distressed debt investment firm opened an additional office in London to strengthen its investment activities in Europe. Subsequently, Monarch Alternative Capital is led by an experienced team of professionals that helps the fund exploit the existing investing opportunites both in the U.S. and Europe. In the meantime, Monarch Alternative Capital manages a public equity portfolio worth $415.95 million as of March 31, 2015.

Michael Weinstock
Michael Weinstock
Monarch Alternative Capital

Hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books in the bull market. Hedge funds’ long positions actually performed better than the market. Small-cap stocks, activist targets, and spin-offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 66 percentage points since the end of August 2012, returning over 123% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.

WCI Communities Inc. (NYSE:WCIC) is a lifestyle community developer and luxury homebuilder in most of coastal Florida’s fastest-growing and largest markets. The company offers single- and multi-family homes, but also provides design, construction, financing, land purchases, marketing, and community management services. WCI Communities is based in Bonita Springs, Florida and has been recently focusing on developing lifestyle-oriented, master-planned communities in Florida. In addition to that, the American homebuilder manages clubhouses, golf courses, restaurants, and marinas in some of the communities it has been developing. The shares of WCI have grown by over 13% since the beginning of the year, but many investors may be asking themselves whether the stock has hit its ceiling amid consistent sizable sell-offs of the company’s stock by reputable hedge funds such as Monarch Alternative Capital.

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