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.