Dialectic Capital Management, LLC, a short biased hedge fund is out with the July update. The CEO of the New York based hedge fund is excellent at uncovering fraud among companies, and resorts to highly unconventional methods to discover them.
Dialectic was overall able to gain through its investments on the short side of Euro Soveriegn bonds, cyclicals and education.
The fund was down in its investment in Chinacast Education Corporation (PINK:CAST), Autoparts retail, and Multi-level Marketing ,in which the Herbalife Ltd. (NYSE: HLF) investment falls. The fund also detracted on long investments in Oil and Gas production companies and Network equipment sellers. The hedge fund manager believes that both Chinacast Education Corporation (PINK:CAST) and Herbalife Ltd. (NYSE: HLF) are frauds.
In the last letter for the quarter ending in March 2012, the fund was already losing on its investments in HLF and CAST. The letter elaborated on how the previously profitable short investment in CAST turned to a losing streak, owing to mismanagement and fraud at the top level of the company. Similarly Herbalife Ltd. (NYSE: HLF), a company that makes ‘repugnant’ shakes, according to Dialectic, experienced negative impact after David Einhorn of Greenlight Capital, a leading hedge fund manager, questioned the way the company categorizes customers and distributors. The stock has consistently declined in price over the last quarter.
In the Software sector, the fund has positions in Pervasive Software (NASDAQ: PVSW), Citrix Systems Inc (NASDAQ: CTXS), Informatica Corporation (NASDAQ: INFA), and Broadsoft Inc (NASDAQ: BSFT).
In Telecommunications, Dialectic’s portfolio include Tellabs Inc. (NASDAQ: TLAB), AT&T (NYSE: T) and Verizon Communication Inc (NYSE: VZ).
We believe that the fund still has a short position in Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM), which is now involved in a fight with Bill Ackman over General Growth Properties Inc (NYSE:GGP).
The Dialectic Capital Partners fund was up 0.59 percent in July, while the year to date returns are down 3.13 percent. Overall, the fund gained on its long and short investments by 0.2 and 0.4 percent respectively. The capital fund reduced exposure on the short side and increased on the long side during the period of Jan-July 2012.
The Dialectic Antithesis Partners fund was up 0.23 percent in July, while it is down 12.51 percent on a year to date basis. Overall the fund was up 0.78 percent on short investments, while it lost by 0.31 percent in longs. Antithesis fund reduced exposure in short, while more or less maintained its portfolio in longs on the calendar year basis.