As stated by a recent Schedule 13D form filing submitted to the U.S. Securities and Exchange Commission (SEC), Michael Weinstock’s Monarch Alternative Capital presently owns slightly more than 34.0 million shares of Scorpio Bulkers Inc. (NYSE:SALT), which represent 18.86% of the 180.30 million shares of the company’s outstanding Common Stock. According to the most recent 13F filing, the hedge fund owned 33.94 million shares in Scorpio Bulkers as of March 31.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 144% over the ensuing 32 months, outperforming the S&P 500 Index by nearly 85 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Monarch Alternative Capital LP, a hedge fund firm with offices in New York and London, was co-founded by Michael Weinstock in 2002. The private investment firm is well-known for its expertise and successful track record investing in distressed debt companies. Moreover, the success of the hedge fund should be attributed to the ongoing experience of its co-founders, Weinstock, Andrew Herenstein, and Chris Santana, since they joined Lazard Frères & Co. to build an industry-leading distressed debt research firm. Monarch Alternative Capital manages approximately $5.0 billion in net assets under management as of March 31, 2015. Meanwhile, the value of its public equity portfolio is estimated at $415.95 million as shown by the most up-to-date 13F filing. Monarch’s recent filings with the SEC also reveal that Michael Weinstock bets big on other tanker companies including: Scorpio Tankers Inc. (NYSE:STNG) and Star Bulk Carriers Corp. (NASDAQ:SBLK).
Of note in the latest filing on Scorpio Bulkers Inc. (NYSE:SALT) is the fact that Monarch Alternative Capital filed a 13D, as its position was previously passive. In it, the fund disclosed that it might consider purchasing more shares of the company if it had the right to designate some of the members of the board. However, the filing also indicates that the hedge fund does not seek to change or influence the control or management of Scorpio Bulkers. Therefore, as the hedge fund plans to meet and discuss with Scorpio Bulkers’ management regarding the company’s business, strategies, and capital structure, it seems that the team led by Michael Weinstock intends to assist the company in confronting its stagnating operations in order to maximize shareholder value.
Scorpio Bulkers Inc. is a provider of marine transportation of dry bulk commodities, including iron ore, coal, grain and steel products, incorporated in the Marshall Islands. On June 10, the company announced it had priced a public offering of 133 million shares at $1.50 each. The offering is anticipated to close on June 16, with the net proceeds intended for use towards funding the company’s installment payments meant for the Newbuilding Program, which consists of contracts for the construction of 70 dry bulk vessels. Additionally, the company accorded 30-day greenshoe options that will allow the underwriters to purchase up to 19.95 million extra shares.