Twenty years ago, Jason Mudrick launched his own distressed credit and event driven-oriented hedge fund, Mudrick Capital Management. The fund is headquartered in New York City, and its current Chief Investment Officer is its founder. At the time of the launching, the fund had around $5 million of initial capital and over the years, it has grown big, managing $2.8 billion in assets as of July this year. Jason Mudrick cut his teeth at Merrill Lynch’s Mergers & Acquisitions Investment Banking Group, and after one year he moved on to Contrarian Capital Management, where he started to learn about distressed investing. This is where he sharpened his investment skills the most, specializing in event driven and distressed debt opportunities, being in charge of the Contrarian Equity Fund. He graduated from the College of the University of Chicago with a B.A. in Political Science and from Harvard Law School with a J.D.
The fund utilizes event driven and distressed debt strategies, which means it usually looks for an event such as changes in a model of business, for example, that can lead to stock undervaluation. Other events that are also attractive in terms of causing pricing inefficiencies are mergers, spinoff, and acquisitions. As for the distressed debt, the word is about companies undergoing or heading to bankruptcy, but which have the potential to emerge from the situation. Once they do, their stock prices jump high. Mudrick Capital Management runs five different funds aiming to generate high returns to its clients, those funds are Mudrick Distressed Opportunity Fund, Mudrick Distressed Energy Co-Investment Fund, Mudrick Distressed Opportunity Specialty Fund, Mudrick Distressed Senior Secured Fund Global and Mudrick Distressed Opportunity Drawdown Fund. Its clients include both individual investors and big institutions, such as insurance companies, pension funds, and endowments, to name a few.
When it comes to the fund’s performance figures in the last couple of years, we’ve managed to gather those of its Mudrick Distressed Opportunity fund. Starting with the oldest year for which we attained the data, 2013 when Mudrick Distressed Opportunity fund delivered satisfying 8.19%. The following year was even better for the fund when it brought back strong 16.22%. Then in 2014, it suffered a loss of a big 25.71%, only to come back next year much stronger than ever, generating an eye-popping return of 38.90%. It continued to have a positive return in 2017 as well, delivering more modest 6.63%. It seems that last year’s difficult market environment was fitting for the fund’s investment skills as its Mudrick Distressed Opportunity fund managed to deliver 21.08% through October. Its total return amounted to 155.45%, for a compound annual return of 10.67%, while its worst drawdown was 31.31.
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Recently our monthly newsletter identified another undervalued stock that is expected to increase its earnings by more than 10% annually and trades at only 10 times its 2019 earnings. We expect this stock to return 60% in the next 12-24 months. We take a closer look at hedge funds like Mudrick Capital Management in order to identify their best and worst ideas.
At the end of the first quarter of 2019, Mudrick Capital Management’s portfolio was valued $61.22 million, down by 64.56% from the previous quarter when it carried a value of $172.72 million. The fund’s portfolio was concentrated having only two long positions, of which neither was among 30 Most Popular Stocks Among Hedge Funds in Q1 of 2019. During the quarter the fund also dumped two positions.
The bigger of those two stakes the fund decided to sell in Q1 2019, was in Caesars Entertainment Corporation (NASDAQ:CZR), worth $30.95 million, on the account of 4.56 million shares. The second position Mudric Capital Management dumped was in Tribune Media Company (NYSE:TRCO), valued $20.73 million, counting 456,704 shares outstanding.
The most valuable holding in the fund’s 13F portfolio was in Globalstar, Inc. (NYSE:GSAT), worth $43.00 million, on the basis of 100 million shares, amassing 70.23% of its portfolio. Globalstar is a satellite communications company, which provides satellite phone and low-speed data communication services. It has a market cap of $657.05 million. Year-to-date, its stock price dropped by 33.82%, having a closing price on July 3rd of $0.45. In its last financial report for the first quarter of 2019, Globalstar reported revenue of $30.08 million and diluted EPS of $0.02, compared to revenue of $28.75 million and diluted EPS of $0.06.
Contura Energy, Inc. (NYSE:CTRA) was Mudrick Capital Management’s second holding at the end of the first quarter of 2019. During the quarter, the fund lowered its positions in the company by 64% to 314,549 shares, worth $18.22 million, comprising 29.76% of its equity portfolio. Contura Energy is a coal supplier connected with various mining operators, covering big coal basins in West Virginia, Virginia, and Pennsylvania. The company has a market cap of $957.05 million and is based in Tennessee. It supplies both thermal coal, which is further used for power generation, and metallurgical coal for steel production. The stock is trading at a P/E ratio of 2.81, and over the last six months, its stock price dropped by 23.14% closing on July 3rd with $49.88. For Q1 2019, Contura Energy disclosed net income of $8.0 million and diluted EPS of $0.41, compared to net income of $58.3 million and diluted EPS of $5.66 in the same quarter of 2018.
This article was originally published at Insider Monkey.