Bow Street, founded by Third Point alum Howard Shainker and Brahman alum Akiva Katz in 2011, netted a 1.5% return in Q3 in its master fund. This brings the year to date return for the long/short equity fund to +6.1%. The Bow Street Master Fund was up 11.5% in 2012, according to a shareholder letter reviewed by ValueWalk.
The fund’s top contributors in the past quarter were Actavis PLC, Cheniere Energy, Inc. (NYSEMKT:LNG), LIN Media LLC (NYSE:TVL), which was a new position, Rite Aid Corporation (NYSE:RAD), and Nordion Inc (NYSE:NDZ).
The fund thinks LIN Media, a local broadcasting company, can be either a buyout target or an acquirer; either way it would be an upside for the hedge fund. Bow Street added the position after the stock declined 20% over a few weeks due to a series of unfortunate events. Nevertheless, the company has many strategic and high quality assets which should bring it up to a higher market value than current levels.
Take a look at Howard Shainker’s presentation from the Harbor Investment Conference in Feb 2013.
While it was not its top contributor, Bow Street profited from its short bet in NuStar GP Holdings, LLC (NYSE:NSH). In a previous missive, the fund predicted that the company was suffering from decreased cash flow. The fund covered the position as it hit the lowest this year at $20/share in late September.
Akiva Katz, best in class
According to the quarterly letter, returns at Bow Street detracted due to the unfavorable winds in Japan macro, and it is fair to assume that the fund suffered due to the rally in yen and dip in Japanese equities during this period. Other negative contributors were undisclosed shorts, Ryman Hospitality Properties Inc (NYSE:GET) and Concentradora Fibra Hotelera Mexicana SA, a REIT based in Mexico.
Here is a fun fact: Akiva Katz competed in the Portfolios with Purpose in 2012, a fantasy stock picking competition for charity. Katz played in the Professional class, the second level, and won $10,467 for his favorite charity. Katz’ portfolio beat such bigwigs as Dan Loeb, Lee Cooperman, David Einhorn and James Dinan who played in the master class. PwP is open for registrations for 2014 until Dec 31, so pick a charity and play for a good cause. The master class of 2014 includes such big names as Kyle Bass, Marc Lasry, David Einhorn and others.
John Malone is right, say Bow Street execs
Bow Street has focused on M&A activity since its inception, and several of its positions are either acquirers or buy-out targets. The letter states that 60% of the fund’s assets are allocated in companies involved in or likely to go through mergers and acquisitions.
In their Q3 letter, Shainker and Katz shower praise on the visionary that is John Malone. His prediction that eventually people will pay to watch television led to his now blockbuster investments in DIRECTV (NASDAQ:DTV) and Sirius XM Radio. among others.
Malone also said that content delivery through channels will become extinct, and based on that Bow Street has invested in European media companies which are undergoing consolidation. The new companies are now offering quadruple play, meaning fixed-wire, cable-television, broadband and mobile offerings through one provider. Bow Street says that these packages have already boosted the profits of these businesses, which are likely to go even higher as customer loyalty increases with multi-offerings. Based on this theme, Bow Street invested in Portuguese company ZON OPTIMUS SGPS (FRA:PMV) which recently emerged after Zon Multimedia joined with Optimus, which provides mobile communication.
The letter mentions the increased deal volumes in the European media industry, which came up to $72 billion as of July 2013, breaking the record set in 2000. Other than Bow Street’s bullish thesis on this sector, we have also seen several new investments in European cable companies from some well-known hedge funds. Odey Asset Management, Polygon Global and Allen Global have invested in Koninklijke KPN N.V. (OTCMKTS:KKPNY) (AMS:KPN), which is a hot and heavy take-over target. Nearly all analysts have the opinion that M&A will rise in the Eurozone as scattered industries consolidate.