In a story that appeared on Reuters today, Svea Herbst-Bayliss calls Richard “Mick” McGuire’s Marcato Capital Management “one of the country’s hottest hedge funds,” and rightly so. In equity hedge fund business—where one rarely sees anybody shine in media other than the likes of Einhorn, Loeb, Ackman and of course Icahn—achieving what Mick McGuire has done in a short period of time is a true accomplishment.
Marcato Capital, the best of 2012
Marcato Capital manages $1.5 billion, and the flagship fund Marcato International netted a 7.1 percent gain in July, but was down 2 percent in August. The fund is up 17.1 percent YTD. Marcato Capital won the Emerging Hedge Fund Manager of the Year Award at Institutional Investor’s 2013 Hedge Fund Awards in June. Marcato Capital was founded by Mick McGuire, former analyst at Bill Ackman’s Pershing Square, and began business in September 2010. After detracting -4 percent in 2011, the fund was up 28.7 percent in 2012 and was among the best performing hedge funds of that year.
McGuire most recently has been involved in the auctioneer, Sothebys (NYSE:BID), where he has a 6.6 percent position. According to a 13D filing in June, McGuire explained that his fund planned to engage in discussions with the company, and that the shares appear attractive and undervalued. He said that these discussions could review various options to improve shareholder value through “strategic alternatives or operational or management initiatives including, but not limited to, improving capital structure and/or capital allocation, M&A, and general corporate strategies.“
While his play at Sothebys (NYSE:BID) is still unraveling, McGuire has made some pretty brilliant calls in the last three years, not to mention already having five activist runs under his belt, including Sotheby’s. Like his mentor’s portfolio, McGuire’s publicly disclosed holdings are a mix of concentrated positions which constitute a big chunk of the total assets under management. Marcato holds a position in nine companies, according to 13f filing for quarter ending on June 30, with a total portfolio value of $1.04 billion.
McGuire’s success at Lear Corp, DineEquity and others
Most recently, McGuire got his nominations accepted to the board of Lear Corporation (NYSE:LEA), where it holds 5.6 million shares. In April this year, Lear Corporation (NYSE:LEA) agreed to ramp up its share buyback program and also added a new board member. Shares of Lear, which is currently Marcato’s top position, are up 53 percent this year.
McGuire’s other attempt at activism was at DineEquity Inc (NYSE:DIN), where he used to hold a 5.5 percent position. However, the stake was cut in the first quarter and now Marcato holds only a fraction of his previous position, down from 1.7 million shares to 66k shares in Q2 2013. Between Jan 2012 to March 31′ 2013, shares of DIN were up 63 percent.
Another target of McGuire’s activism was Trinity Place Holdings Inc., formerly Syms Corp, which emerged from bankruptcy in late 2012. Marcato’s Mark Ettenger is a member of Trinity’s board. Corrections Corp Of America (NYSE:CXW), which used to be a position of Bill Ackman as well, was also bought by Marcato. The fund joined other activist investor Corvex Management to push CXW for REIT conversion. Marcato exited the holding in Q1, when it was one of his top positions. Shares of CXW rose over 100 percent since the end of 2011 to March 31′ 2013.
Stock picks at Harbor Conference and Value Investing Congress
His picks at Harbor Investment Conference this year have not done very well yet, including CyrusOne Inc (NASDAQ:CONE), which deals in providing critical data storage services. McGuire said that the company would climb higher as the demand for data storage increases. Marcato Capital owns 2.1 million shares of CyrusOne.
He also presented the bull case on PROSAFE SE (OTCMKTS:PRSEF), where Marcato holds a position. The Norwegian company provides accommodation services in the oil & gas industry. Shares of PROSAFE SE (OTCMKTS:PRSEF) are slightly up for the year.
Most of his stock picks have done well this year. In last year’s Value Investing Congress, McGuire presented the bull case on three companies in the real estate business. He presented Gencorp Inc. (NYSE:GY) and said that the company has great growth potential in both its core and non-core business. He also presented Alexander & Baldwin Inc (NYSE:ALEX), which has gained 27 percent since October of last year. ALEX was the target of Bill Ackman’s activism in 2010. McGuire explained that he easily sees a 50 percent upside in ALEX, and believes that it should trade at $47. Shares of Alexander & Baldwin Inc (NYSE:ALEX) trade around $37 these days, however, they touched a peak price of $45.9 in July of this year.
Another of his picks presented at VIC 2012 was Brookfield Residential Properties Inc (TSE:BRP), which has gained 64 percent since Oct 2012. So McGuire does have some charm—if you are a value investor you might want to listen to him closely when he speaks at the next Value Investing Congress, scheduled to be held in New York September 16-17.
We are also expecting McGuire to succeed at Sotheby’s, where he is the largest stakeholder among hedge funds. Dan Loeb and Nelson Peltz also hold large positions.