Alluvial Capital Management, LLC, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A return of 28.4% was recorded by the fund for the year end 2020, outperforming the Russell MicroCap TR that returned 21%, its Russell 2000 benchmark that delivered a 20%. return, and its MSCI World Sm+MicroCap NR index with 16%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Alluvial Capital Management, in their Q4 2020 Investor Letter said that the biggest chunk of their equities are invested in P10 Holdings, Inc. (NYSE: PIOE), and that the company did not fail them since it is also the main contributor of their earnings. P10 Holdings, Inc. is a private markets investment firm that currently has a $486.33 million market cap. For the past 3 months, PIOE delivered a decent 27.27% return and settled at $6.30 per share at the closing of February 2nd.
Here is what Alluvial Capital Management has to say about P10 Holdings, Inc. in their investor letter:
“The biggest contributor to our returns this year was, of course, P10 Holdings. P10 remains our top holding and likely will for some time given the company’s reasonable valuation and ability to direct its substantial cash flow toward acquiring additional alternative investment managers.
P10 Holdings enjoyed an extraordinary year, rising nearly 400% to close at $6.60. Shares have given back a portion of those gains this year, but the long-term story of the company is as strong as ever. Since first acquiring RCP Advisors in 2018, P10 has added alternative assets managers in steady fashion. Most recently, the company closed on the acquisition of Enhanced Capital Group, a leader in socially responsible investing. P10’s product offering now encompasses traditional private equity, private credit, early-stage/venture capital, and socially responsible investments. A true one-stop shop!
With this latest acquisition, P10 can now produce annual unlevered cash flow in excess of $75 million. This cash flow is highly predictable due to the long-term nature of the investor capital that P10’s managers steward. Based on current cash flow alone, P10 remains attractively priced. At a nearly 7% free cash flow yield and assuming only modest annual increases in assets under
management, it is easy to see returns in the low teens from here. But of course, P10 will not be satisfied with the status quo. Rather, the firm will continue to acquire additional alternative asset managers, growing assets under management and cash earnings per share.
Even with all P10’s successes, the company remains nearly completely unknown. I believe this will change in 2021. The firm is preparing its return to fully-reporting status and will up-list to a major exchange. At that point, I think a much larger pool of investors will like what they see.
No matter what shares of P10 may do, I intend to limit their weighting in the Alluvial Fund portfolio to 20%. At the time of this writing, P10 has a 17% weighting in the fund. My extraordinary confidence in P10’s management, business strategy, outlook, and valuation is tempered by my sober responsibility to maintain a proper appreciation for risk. The world is unpredictable. Bad things can happen to any company or industry completely out of the blue. The role of the portfolio manager is to ensure that an adverse result in any particular investment does not threaten the viability of the fund itself or permanently impair its partners’ capital.”
PIOE delivered a commendable 188.99% return in the past 12 months. However, our calculations show that P10 Holdings, Inc. (NYSE: PIOE) does not belong in our list of the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.