UK hedge fund Polygon is upset at the negative performance of its most high profile holding: Quindell PLC (LON:QPP) (OTCMKTS:QUPPF).  According to a recent investor letter reviewed by ValueWalk, Polygon posted a slight -1.39 percent decline in May and is now up 8.69 percent on the year.

Polygon June 2014 allocations

Polygon June 2014 returns

Polygon had attacked Gotham over a short research report on Quindell

“One of our under performing strategies during the month was Quindell PLC (LON:QPP) (OTCMKTS:QUPPF), which traded down 17%, still reacting, we believe, to the publication of the Gotham report in April,” the report said.  Readers will recall Polygon had attacked Gotham over a short research report that was said to have been distributed to certain hedge fund clients and then publicly released, as previously reported in ValueWalk.

The vicious nature of the research report, titled “Quindell: A Country Club Built On Quicksand,” called speculated about questionable practices among board insiders.  The Gotham research showed Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) as having negative cash flow and rising debt, which Quindell says is due to investing in the future through research and development.  Further, the books of Quindell have been called into question, as an intriguing and obfuscating web of acquisitions and related party transactions raise questions regarding current management and board of directors was outlined in the Gotham report.

“What we didn’t expect was a new short side research firm called Gotham (who appear to have been in business for less than two years and provide little transparency about themselves on their website) to publish a 74-page (in our opinion, highly sensationalized) dossier rehashing Quindell PLC (LON:QPP) (OTCMKTS:QUPPF)’s historical red flags, and neglecting to mention any of what we feel are strongly mitigating factors such as the valuation and high-quality new business contracts which we have highlighted above,” Polygon wrote in their previous investor letter. “In fact, this report was not fact-checked with the company.”

Polygon believes the company might surprise positively on cash flow this year

In today’s investor letter, Polygon is more subdued, pointing to the numbers which might not deceive. “We believe the company has the potential to surprise positively on cash flow this year, a key variable for believers and critics alike,” the investor letter said.

On the other side, as reported yesterday, Tiger Cub Coatue now has a short in the company.

Polygon other investments

Other losing investments for the fund were Inmobiliaria Colonial SA (BME:COL), the Spanish real estate company, highlighting a trend for major investors to increasingly embrace Spanish real estate as an asset as previously reported in ValueWalk.

Looking on the positive side was Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), a Polygon holding which traded up 10 percent on the month.  “We believe that the exceptionally strong balance sheet, significant IP portfolio and improving Nokia Siemens Networks business bode well for the company going forward,” the fund said.  Another strong performer was French resort owner and operator Club Mediterranee, the subject of takeover interest from Fosun International Limited (HKG:0656) (OTCMKTS:FOSUF), the Hong Kong based investor, and Ardian, the French private equity group, from back in 2013.