Smaller hedge funds are usually better to follow in order to get investment ideas. Because these funds have less money that they have to invest, they are more nimble and can adjust their strategies faster in relation to broader market conditions. Moreover, smaller funds can invest in smaller companies and have a higher risk tolerance, which combined with great stock-picking skills can result in substantial returns.
One fund that had a very good run last year is Wildcat Capital Management, a family office that manages the wealth of billionaire David Bonderman, the founding partner of private equity firm TPG Capital. Wildcat, which is led by Leonard Potter as President and Chief Investment Officer, generated returns of nearly 218% during the 12-month period ended September 2017, according to our calculations.
We calculate the returns of a fund using only its long stock positions disclosed in 13F filings and take into account only companies with a market cap of over $1.0 billion. We use the returns to identify the best performing funds and then analyze their 13F filings to identify the best stocks to invest in under our small-cap strategy. This allows us to mimic hedge funds and identify stocks that manage to beat the broader market, while also avoiding the stocks that put a strain on their performance. You can read more about our small-cap strategy here. In addition, we also have an activist newsletter, which comes out each month and focuses on a single activist fund and identifies the best stocks that the activist is invested in.
Wildcat Capital is one of the smallest funds in our database of over 600 investors, but it was also the best-performing during the third quarter, with its stock picks managing a weighted average return of 57.5% between July and September. Leonard Potter, which leads the fund, has an extensive experience, having previously worked at Salt Creek Hospitality, Soros Fund Management’s Soros Private Equity and Alpine Consolidated. At Wildcat, Mr. Potter usually keeps a concentrated portfolio, which had been focusing on healthcare stocks until recently. The sector had amassed between 59% and 83% of Wildcat’s 13F portfolio between 2015 and the third quarter of 2017. However, during the last three months of 2017, Wildcat unloaded a huge chunk of its healthcare positions and cut the value of its equity portfolio to just $94 million from $557.63 million. In this way, at the end of December, healthcare stocks amassed just 9% of Wildcat’s portfolio and the industrial sector amassed the largest share, 49%.
Wildcat’s performance and the reduction in the value of its portfolio is due to a single company: Kite Pharma. The clinical-stage biopharmaceutical company saw its stock surge by 300% between January 1 and August 28 when Gilead Sciences, Inc. (NASDAQ:GILD) announced it would acquire it for $11 billion, with the transaction completed on October 2. At the end of September, Wildcat held 2.41 million shares of Kite Pharma, which amassed 78% of its equity portfolio.
With this in mind, let’s take a look at the company that currently represents Wildcat Capital Management’s largest bet and which also has been one of its best-performing positions, as well as three other stocks that boosted its returns last year.
Urogen Pharma Ltd (NASDAQ:URGN) is the largest healthcare position in Wildcat’s equity portfolio as of the end of 2017. The fund trimmed the stake by 5% and disclosed a $4.74 million holding containing 127,313 shares in its latest 13F filing. Wildcat added Urogen Pharma Ltd (NASDAQ:URGN) to its equity portfolio during the second quarter of last year, while the company went public at the beginning of May. Since the IPO, Urogen Pharma Ltd (NASDAQ:URGN)’s stock has surged by 242%. Urogen is an Israel-based clinical stage biopharmaceutical company that develops therapies for urological pathologies. In August, the US Food and Drug Administration designated the company’s MitoGel for Fast Track review for the patients with low-grade upper urinary tract urothelial carcinoma. Earlier this month, Urogen Pharma Ltd (NASDAQ:URGN) has appointed Stephen Mullenix as Chief Operating Officer, while in January it launched a 1.1 million-share stock offering. Urogen also caught the attention of Mitchell Blutt’s Consonance Capital, which initiated a stake containing 916,450 shares during the fourth quarter.
Sabine Royalty Trust (NYSE:SBR) is Wildcat Capital’s only energy investment, excluding a small ‘Call’ position underlying shares of United States Natural Gas Fund, LP (NYSEARCA:UNG). The fund also initiated a stake in Sabine Royalty Trust (NYSE:SBR) during the second quarter of 2017, while the stock has appreciated by 12% since the end of June. During the fourth quarter, Wildcat increased the stake in Sabine Royalty Trust by 28% to 239,317 shares worth $10.62 million. Sabine Royalty Trust (NYSE:SBR) has interests in gross production of oil, gas, and other minerals free of the costs of production. The Trust is paying a monthly dividend which amounts to $0.19 per share for February, down from $0.23 last month.
LPL Financial Holdings Inc (NASDAQ:LPLA) represents the second-largest position in Wildcat’s equity portfolio and it is also one of the oldest investments; the fund added LPL Financial Holdings to its equity portfolio during the fourth quarter of 2014. At the end of December, Wildcat owned 208,401 shares of LPL Financial Holdings Inc (NASDAQ:LPLA) worth $11.91 million. LPL Financial Holdings Inc (NASDAQ:LPLA)’s stock advanced by 62% during 2017. For the fourth quarter, LPL Financial Holdings Inc (NASDAQ:LPLA) posted EPS of $0.69, beating the consensus estimate by $0.13, while its net revenue of $1.12 billion increased by 10.9% on the year and was $20 million above expectations. Among the top shareholders of LPL Financial Holdings Inc (NASDAQ:LPLA) are John H. Scully’s SPO Advisory Corp and First Pacific Advisors, led by Robert Rodriguez and Steven Romick, which own 6.96 million shares and 4.22 million shares, respectively.
CoStar Group Inc (NASDAQ:CSGP) is Wildcat’s largest position as of the end of 2017. During the fourth quarter, the fund cut its stake in the company by 13% to 153,007 shares worth $45.44 million; the stake amasses over 48% of Wildcat’s equity portfolio. CoStar Group Inc (NASDAQ:CSGP)’s stock gained 57.50% during 2017. Wildcat Capital Management has held shares of CoStar Group Inc (NASDAQ:CSGP) since the fourth quarter of 2014. The company provides information, analytics and online marketplaces to commercial real estate, covering the US, the UK, Canada, Spain, Germany and France, owning five brands, CoStar, LoopNet, Apartments.com, BizBuySell and LandsofAmerica. Other investors bullish on CoStar Group Inc (NASDAQ:CSGP) include Bares Capital Management, Balyasny Asset Management, and Renaissance Technologies.