Eton Park Capital Management barely came out even last quarter, up 0.9% on an aggregate basis (including the Eton Park Fund and Eton Park Overseas Fund, excluding special investments) prior to fees and expenses. The hedge fund, founded by former Goldman Sachs Partner Eric Mindich, wrote in its first quarter letter to investors that losses in Asia mostly offset gains in the US and Europe, and US equities lost ground in the last ten days of the quarter due to widespread de-risking.

Eton Park 1q14 performance 0514

Eton Park’s Top Winners

Eton Park’s top contributor last quarter was a long position on Cheniere Energy, Inc. (NYSEMKT:LNG), which gained 28% during the quarter when the Department of Energy accelerated the approval process for LNG export projects, possibly motivated by tension between Russia and Ukraine and the desire to reduce Europe on Russian gas. The stock was also recently purchased by Seth Klarman of the Baupost Group, according to regulatory filings.

A long position on TruPS (trust preferred) CDOs performed well as bank fundamentals improved and regulators announced that the asset class would be grandfathered under the Volcker Rule, making it more attractive than other similar assets.

The hedge fund had a big gain on a short in Pearson, as the stock fell 21% after the company reported disappointing earnings in February. Eton Park believes the company faces fierce competition from cheaper and free alternatives.

A short position on an unnamed communications company produced big gains because the majority of the company’s profits come from a single client (also unnamed), and there are reports that negotiations to renew the contract are proceeding poorly.

A long position on Ocado coupled with short positions on a handful of other UK food retailers (Wm. Morrison Supermarkets plc (LON:MRW) is the only one named) paid off as Ocado outperformed the market and Eton Park’s shorts fell between 10% and 20% last quarter, but the hedge fund thinks that a wave of cost cutting is coming and that the short positions still have room to play. Incidentally, Ocado is a popular short position among hedge funds, as we have discussed in the past.

Chart via Novus Research
Chart via Novus Research

Finally, Constellation Brands, Inc. (NYSE:STZ) shares gained 21% on the back of higher volumes and higher prices for its beer business in January, which Eton Park believes has continued further into the first quarter. Constellation Brands’ wine segment also showed improvement, and Eton Park argues that the stock is still good value.

Eton Park’s Top Losers

A long position on Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was Eton Park’s biggest detractor last quarter. Spirit stocks fell 17% because of the unexpected loss of its 787 development program and below consensus guidance, but Eton Park still thinks that Spirit’s new management team will streamline operations and turn the company around.

Eton Park’s long position on German retailer METRO AG (FRA:MEO) also suffered when the stock fell 16% because of its exposure to Russia, which threatens 25% of EBIT and forced the company to postpone the IPO of its Russian operations. The hedge fund believes the long thesis is intact, and notes that the retailer had strong results in 2013.

Gree Electric stocks fell 14% in the first quarter despite having good 2013 results and strong 2014 guidance as macro sentiment moved against China. With 2014E PE of 7x, Gree has a low valuation that Eton Park attributes to the perception of not having a viable internet strategy. Interestingly, the firm has a long position in Ukrainian TV  and internet provider Volia; considered to be a “Special Investment” by the hedge fund.

Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW) shares fell 8% last quarter after the company announced plans to buyout minority holders of Scania with a generous premium, financed with €2 billion in new equity, though Eton Park thinks the deal will ultimately prove to be beneficial. The hedge fund also argues that Volkswagon’s 2014 guidance is conservative and that 2013 numbers were too low because they had over-provisions for warranties and other items.

Eton Park also lost money on short-dated S&P upside options as market stagnation caused many of them to mature out of the money. The hedge fund added longer maturity options and non-US options to its portfolio last quarter in response. Additionally, longs in SMFG, which Eton Park calls ‘the best bank in Japan’, as well as Coca Cola East Japan, contributed to modest losses. Finally, a short in  Li & Fung short led to a loss as shares of the Chinese company rose 15% during the first quarter.

Eton Park Organization updates

Eton Park currently has 130 employees and continues to hire ‘selectively’ in all the company offices, according to the letter.