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Pinnacle Entertainment, Layne Christensen: Highlights From Hedge Funds’ Latest Filings

At Insider Monkey we try to keep a close watch on various filings with the Securities and Exchange Commission in order to follow the moves of over 730 hedge funds that we track. This helps us to identify stocks in which these fund managers are investing. The reason we do this is simple. Hedge funds have billions of dollars that they have to invest, therefore if a manager decides to invest a large amount of money in a company, he spends a lot of time and money researching the stock. Another advantage when you want want to invest a large amount of cash in a company is that you can meet with the management and the board of the company and see the company from a bit different angle that it is presented by the media, analyts and publicly-available information. However, in exchange for their hard work, hedge fund managers tend to receive high fees of around 30% of their funds’ total returns.

Christian Leone

These fees are not always justified as we can see from the fact that between 2012 and 2014, equity hedge funds returned 4.8%, 11.1% and 1.4% respectively. Partially this underperformance is explained by the fact that many hedge funds invest mostly in large and mega-cap stocks, like Apple, Google or Facebook. However, when we tested a portfolio of 50 most popular stocks among hedge funds between 1999 and 2012, we discovered that it underperformed the S&P 500 ETF (SPY) by around 7 basis points per month. Nevertheless, following the activity of hedge funds can provide some profitable insight if we approach it from another level, particularly, by identifying most popular small-cap picks. In this way, our small-cap hedge fund strategy provided impressive returns of 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012. Without any further ado, let’s take a look at some of the latest moves revealed by the funds that we track via filings with the Securities and Exchange Commission.

The first move that we would like to mention is Canyon Advisor raising its stake in Pinnacle Entertainment, Inc (NYSE:PNK). The fund led by Joshua Friedman and Mitchell Julis raised its stake to 3.55 million shares, representing 5.89% of the outstanding common stock, versus 2.77 million shares held earlier. The fund raised its stake for obvious reasons, the same for which Pinnacle Entertainment, Inc (NYSE:PNK) has been in the news for the last couple of days. On March 9, Gaming and Leisure Properties Inc (NASDAQ:GLPI) made an unsolicited bid to purchase the real estate assets of Pinnacle Entertainment for $4.1 billion. Yesterday, another investor of Pinnacle Entertainment, Inc (NYSE:PNK), Daniel Lewis’ Orange Capital issued a statement in support of a deal with Gaming and Leisure Properties, but said the the current price undervalues the assets. Orange Capital owns 2.94 million shares of Pinnacle Entertainment, which represent almost 5.0% of the company’s common stock. The largest shareholder of Pinnacle Entertainment, Inc (NYSE:PNK) among the funds that we track is Parag Vora’s HG Vora Capital Management, which owns 5.50 million shares of the company.

Next company that has been recently targeted by an investor is Home Loan Servicing Solutions Ltd (NASDAQ:HLSS), in which Christian Leone’s Luxor Capital Group initiated a passive stake that amasses 9.8% of the company. Luxor reported ownership of 6.93 million shares of the company engaged in the acquisition of mortgage servicing assets and residential mortgage loan services. Luxor initiated a stake on March 2, around a week after Home Loan Servicing Solutions Ltd (NASDAQ:HLSS) agreed to sell itself to New Residential Investment Corp for around $1.3 billion. The stock of Home Loan Servicing Solutions Ltd (NASDAQ:HLSS)  gained 12% since the deal was announced, although the stock still is 11.70% down on the year. Perella Weinberg Partners’ Xerion strategy is another shareholder of Home Loan Servicing Solutions, holding some 469,200 shares as of the end of 2014. In addition, last week, Luxor disclosed reducing its stake in William Lyon Homes (NYSE:WLH) by 1.90 million shares to 4.39 million shares. Among the fund’s other recent new picks are Yahoo! Inc. (NASDAQ:YHOO), Sunedison Inc (NYSE:SUNE) and Liberty Global plc (NASDAQ:LBTYK), all disclosed in the fund’s latest 13F filing.

Finally, in another filing with the SEC, Glenn Russell Dubin‘s Highbridge Capital Management disclosed a 9.99% stake in Layne Christensen Company (NASDAQ:LAYN). The fund reported holding 2.62 million shares of the company that can be issued upon the conversion of convertible notes. However, the terms of the notes state that Highbridge cannot convert any of these securities if the investor would beneficially own more than 9.99% of the outstanding shares after the conversion. Therefore, the actual number of shares beneficially owned by Highbridge is smaller than 2.62 million shares. Layne Christensen Company (NASDAQ:LAYN) is an engineering and drilling company whose stock lost over 69% in the last 52 weeks. The largest shareholder of Layne Christensen Company (NASDAQ:LAYN) among the funds that we track is Peter Schliemann’s Rutabaga Capital Management, which owns 2.16 million shares as of the end of December.

Disclosure: none