New York-based Rhizome Partners published its Q2 investor letter recently. A copy of the letter can be downloaded below. The firm focuses on achieving long-term capital appreciation while reducing the risk of loss. It trades and invests in the publicly-traded equity as well as debt securities of micro and small-cap issuers and other financial instruments.
Bill Chen is Rhizome Partners’ founder and managing partner. Prior to founding the firm in January 2011, he worked at Bladykas Engineering, Citi, and New York Global Group. He holds a bachelor’s degree in Mechanical and Aerospace Engineering from Cornell University.
Rhizome Partners delivered a cumulative return of 61.9% since its inception in 2013. S&P 500 Index returned 110.6% during the same period.
“During the second quarter of 2019, Class B investors of Rhizome Partners experienced a 2.0% net gain versus a 4.3% net gain experienced by the S&P 500. Howard Hughes Corporation, referred to as “LTREC” in previous letters, contributed a roughly 3% gross gain during the quarter as the company hired an investment bank to explore strategic alternatives. This news sets up an interesting second half of 2019 for us as a complete sale of the company could generate sizable additional gains in the short term.”
Rhizome Partners also gave an update about the investments during the second quarter.
“The second quarter of 2019 reminds us of the importance of a consistent investment process. We have been patient shareholders of Howard Hughes Corporation (HHC) for over two years. Despite consistent growth in shareholder value during this time, share prices actually declined by over 25% from our initial purchase price. For many investors, the change in share price by itself would be taken as an indication their thesis was wrong.
Instead, over the course of two years we became more familiar with the asset quality and more confident in the management team. We initially bought Howard Hughes for $117 to $129 per share while we thought that NAV was roughly $170 about two years ago. To our surprise, the market would give us two more opportunities to buy HHC at increasingly cheaper prices. In both situations, we acted swiftly and added to our positions as we believed we were buying real estate at less than half price. During the days leading up to June 26th, share prices reached a low of $92. We quickly increased our position size by an additional 4% of our partners’ capital bringing our position size to 16% of our partners’ capital. On June 27th, David Faber of CNBC reported that Howard Hughes Corporation had retained Centerview Partners to explore strategic alternatives, which was later confirmed by HHC. Shares in Howard Hughes Corporation ended the day up by about 42% resulting in likely the largest one day gain of roughly 7% of our partners’ capital in the Fund’s history.”
You can download a copy of Rhizome Partners’ Q2 2019 Commentary here:
You can also see the list of our 2019 Q2 investor letters and download them on this page.