Platinum Partners, the New York-based hedge fund that is in the midst of two investigations, recently informed its investors that it will be liquidating its flagship Platinum Partners Value Arbitrage Fund. In addition, the firm is also considering closing down its Platinum Partners Credit Opportunities Fund. In mid-June, one of the firm’s early backers and close associates, Murray Huberfeld, was arrested on charges of bribing the president of the New York City prison officers’ union, Norman Seabrook. Platinum Partners’ operations have also come under the scrutiny of a separate group of federal prosecutors, who are investigating the practices and dealings of the firm, with the Federal Bureau of Investigation (FBI) involved in the investigation.
Platinum Partners was founded by Mark A. Nordlicht in 2003. Since its inception, the two funds run by the hedge fund vehicle have never reported a down year. Its flagship fund has generated an average annualized return of 17% from inception through the end of April 2016. However, a lot of the returns generated by Platinum Partners have come from unconventional asset classes rather than equities. As of March 31, the fund’s U.S equity portfolio was worth only $16.43 million and consisted of long positions in only five stocks. In this article, we will discuss these five stocks that Platinum Partners was betting on heading into the second quarter of this year.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 InspireMD Inc (NYSEMKT:NSPR)
– Shares owned by Platinum Partners (as of March 31): 2,445
– Value of holding (as of March 31): $1,000
Let’s start with InspireMD Inc (NYSEMKT:NSPR), in which Platinum Partners left its stake unchanged during the first quarter. The medical device company has lost almost 99% of its market capitalization since early-2014 and currently trades down by 59% in 2016. On March 29, analysts at Rodman & Renshaw reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $3.00 from $4.00, which nonetheless represents potential upside of 1,150% from the stock’s current price. Last month, the company announced that its current Chief Operating Officer James Barry, Ph.D., will be succeeding Alan Milinazzo as the President & CEO of the company. Mr. Barry has served on InspireMD Inc (NYSEMKT:NSPR)’s Board since 2012 and has been the COO of the company for the past two years.
#4 You On Demand Holdings, Inc. (NASDAQ:YOD)
– Shares owned by Platinum Partners (as of March 31): 3,015
– Value of holding (as of March 31): $6,000
You On Demand Holdings, Inc. (NASDAQ:YOD) was another miniscule position held by Platinum Partners at the end of the first quarter. While Platinum Partners didn’t make any change to its stake in the company during the period, billionaire Israel Englander‘s Millennium Management sold off its entire stake in the company during that time. For much of 2015, You On Demand Holdings, Inc. (NASDAQ:YOD)’s stock hovered near the $2.00 mark. However, it has been finding it extremely hard to recapture that mark after breaking below it in December and is currently trading down by 13.2% this year. In a regulatory filing earlier in June, the Chinese video-on-demand service provider revealed that it has entered into a joint venture with Megtron Hongkong to promote and market mobile apps. The venture has a registered capital of $10 million and three of its five Board members have been nominated by You On Demand Holdings, Inc.
On the following page we’ll check out the favorite three stocks of Platinum Partners.