Denali Investors, a value oriented hedge fund founded by H. Kevin Byun, had spectacular returns in 2013. Denali’s fund returned 66% in last year, after adding a 12.7% profit in the last quarter, according to a letter to investors reviewed by ValueWalk. The fund has compounded a total return of +115% since its inception in 2007. Denali applies a value-oriented equity long/short strategy which it calls ‘Buffett’s 1950s’ style’. The 4Q2013 letter notes that,
“Today, most people associate Buffett with a buy-and-hold-forever philosophy. What the popular view discounts is that Buffett began his career managing a hedge fund that was value-based and heavily involved in special situations. Basically falling into two categories, his “Generals” were undervalued stocks (still studied by many today) and his “Workouts” were special situations investments (unstudied by almost all).”
is looking at an attractive 2014
Denali wrapped up its position in several names as the holdings hit their price targets. The fund exited positions in Murphy Oil Corporation (NYSE:MUR) after bagging profits as Murphy USA Inc (NYSE:MUSA) was spun off. Stake in United Online, Inc. (NASDAQ:UNTD) was also sold after the company spun out FTD Companies Inc (NASDAQ:FTD) in November 2013.
While speaking of this year, Byun said that he is looking at several spin-off opportunities where Denali can invest. He also noted that already in the first quarter of 2014, there are fourteen viable spin-offs in the making.
Denali Investors on John Malone’s empire, Liberty Media
Byun talks about the complex web of Liberty entities which seem hard to comprehend at the outset. He points out that the media is only paying attention to the joint bid of $132.50/share forwarded by Liberty Media Corp (NASDAQ:LMCA) and Charter Communications, Inc. (NASDAQ:CHTR) to buy Time Warner Cable Inc (NYSE:TWC). Byun says that there are attractive events unfolding in other entities of Liberty as well, which are being ignored by the market.
He mentions that Liberty Interactive (NASDAQ:LINTA) is set to reclassify itself as Liberty Digital (LDCA) and QVC Inc. Liberty Interactive (Ventures Group) (NASDAQ:LVNTA) is also undergoing changes by selling its stake in Tripadvisor Inc (NASDAQ:TRIP) and spinning off assets into the newly formed TripAdvisor Holdings. Liberty Global plc (NASDAQ:LBTYA) could also shake itself up by selling Latin American assets, so all in all whatever goes down at Liberty Media, there is still lots of ways to make money in Malone’s empire.
Putting more money in best ideas
The letter further notes that the fund’s investment style is not limited to a certain sector, geography or asset class. It strives to capture flexibility and grabs at creative opportunities. Another key fundamental on which Denali focuses is keeping its investments concentrated in 5-10 names, thus allocating more money to their best ideas. Byun goes on to call free cash a fortress, which gives the fund a level of freedom. At the end of 2013, 25-35% of the hedge fund’s assets were in cash. He also expressed his dislike of increasing assets by leveraging up the portfolio, which makes it harder to liquidate investments when needed. Byun also said that ‘lion’s share’ of his net worth was invested in Denali Investors, which means that his own interests are aligned with those of his investors.
The full letter to investors is embedded below.