Stone House Capital Management’s Returns, AUM, and Holdings

Stone House Capital Management is a New York-based hedge fund formed in January 2010 by 31-year-old Mark Cohen. Prior to founding his own fund, Mark Cohen honed his investment acumen at another New York-based hedge fund, Force Capital Management, where he worked as a senior analyst. Mark Cohen is known for preferring to have a concentrated portfolio, for having a long-term value-based approach, and for not being afraid of volatility. He earned a BS in Economics from the Wharton School of the University of Pennsylvania in 2004. The first time Mark Cohen raised public interest in his fund was when he spoke at the Harbor Investment Conference in Manhattan five years ago. He was introduced by Pershing Square’s Bill Ackman, who co-hosted the conference, and who was one of Stone House Capital’s biggest investors at the time.

Not being afraid of volatility is the characteristic that sets Mark Cohen apart from other hedge fund managers. In his own words: “This approach is one that I see as largely atypical in the money management industry today; where raising capital and minimizing volatility – not investment results – have become the primary measurement of success for many. Not us.” His unconventional approach has turned out to be brilliant, as Stone House Management Capital has delivered amazing returns throughout the years.

Mark Cohen Stone House Capital

Starting from the beginning, the fund returned a fantastic 57.4% in its first year (2010) versus 9.2% for the S&P 500. That dominant first year was followed by gains of 15.0% in 2011, 40.7% in 2012, 36.5% in 2013, and 28.7% in 2014. The next two years were down ones for the fund, as it lost 47.9% in 2015 and 5.9% in 2016. The comeback since then has been exceptional. After those disappointing two years, 2017 was one for the record books, as Stone House returned an eye-popping 233.7%, beating the S&P 500 by a cool 211.9 percentage points. However, the fund’s 2018 returns haven’t been good, resembling those in 2015, with the fund losing 42% through early October. Nonetheless, from its inception through April 2018, Stone House Capital has generated a compounded annual return of 25.4%, nearly doubling the S&P 500’s return of 13.1% during that time.

As per its most recent plain brochure, at the end of December 2016, the fund had around $38.7 million in regulatory assets under management, managed on a discretionary basis. Its 13F portfolio was valued at $102.61 million at the end of June.

Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 121% vs. a cumulative gain of 66.6% for the S&P 500 ETF (SPY) (see the details here).

Given its highly concentrated portfolio, the fund was bullish on only two stocks at the end of June. On the next page, we’ll take a look at those holdings and latest portfolio moves in more detail.

Out of the two stocks in the fund’s 13F portfolio, the most valuable one, accounting for 86.21% of its value, is Scientific Games Corp (SGMS), a company that offers gambling products and various lottery and gambling-related services. It was the first company to present a secure instant lottery ticket back in 1974. The company operates in four segments– Gaming, Lottery, Digital and Social, providing its customers with a plethora of content and services. Scientific Games Corp (SGMS) has a few mention-worthy subsidiaries such as WMS Industries and Bally Technologies, while also managing UK sports-betting platform OpenBet. The company’s headquarters are in Las Vegas.

Mark Cohen’s Stone House Capital actually lowered its stake in Scientific Games by 3% during the second quarter, to 1.8 million shares valued at $88.47 million at the end of June. During the second quarter, the smart money investors from Insider Monkey’s database became more bullish on the stock, as 30 of them reported holding long positions in it as of the end of June, versus 23 at the end of March. Among the biggest investors were Debra Fine’s Fine Capital Partners, which had 3.64 million shares worth around $179.08 million, and Adam Wolfberg and Steven Landry’s EastBay Asset Management, which held a position valued at $162.02 million, counting 3.3 million outstanding shares.

The other stock in Stone House Capital’s portfolio was Par Technology Corp (PAR), in which the fund decided to boost its stake by 7% to 800,000 shares worth around $14.14 million. Par Technology Corp is a company that offers various products for the hospitality industry. It runs two divisions: Restaurant/Retail and Government. The company was founded back in 1968 by John W. Sammon and is headquartered in New Hartford. At the end of June, Stone House Capital held the largest stake in the company among investors in our database, while the second-largest position was obtained by Jim Simons’ Renaissance Technologies, and consisted of 124,600 shares worth around $2.20 million.

Disclosure: None. This article was originally published on Insider Monkey.