Foundry Value Master Fund commentary for the month ended January 31, 2016.
Investment Objective
The goal of the Foundry Value Master Fund, LTD. (“FVMF” or the “Fund”) is to generate portfolio alpha over market cycles, while minimizing market risk. We focus on companies trading at a deep discount to intrinsic value with a catalyst on the horizon. We invest where valuations are irrational and catalysts misunderstood to achieve superior performance over time. The Fund will only hold our “best ideas”, resulting from deep, fundamental analysis and engagement with a wide network of industry contacts. While we intend to hold positions for a 1-3 year time horizon, we occasionally will invest to exploit shorter term opportunities. In certain situations, the Fund will utilize public activism strategies in to unlock value for all shareholders.
Investment Strategy
The Fund employs an event driven strategy with an activist focus, applying private deal analysis with public market liquidity. The Fund seeks to invest in a concentrated portfolio of companies with:
- secular tailwinds
- competitive advantages
- operating leverage
- low financial leverage
- management teams and boards that are “principals” not “agents”
Why Foundry Value Master Fund
Our smaller fund size enables a nimble investment strategy to extract value in areas larger funds and institutions do not find investable. We believe the public market offers significant inefficiencies in specific areas:
- Micro- and small-cap companies
- Companies that should not be public
- Companies operating sub-optimally
- Companies ripe for activist strategies
- Companies that are under the radar and/or underappreciated
Foundry Value Master Fund – January 2016 Commentary
The Fund was down 8.50% for the month of January, while the Russell Microcap Index was down 10.35% during the same period. This brings our since inception return, beginning on June 2, 2015, to -18.69%, essentially inline with the Russell Microcap Index and slightly underperforming the broader Russell 2000. In 2016, the market got off to one of the worst starts in history, but slightly bounced back at the end of the month. Going into January the Fund was holding roughly 36% in cash & cash equivalents (cash + SPAC’s + delisted German security). During major down moves in the market, it always feels like you are not holding enough cash. We did not make any major moves in the month, as we did not want to be reactionary or emotional. Internap (INAP) has continued to disappoint losing roughly 40% of its value just in the month of January, on no news, which apparently was taken as bad news.
We sold our Telecommunications (TSYS) position in early January. While we felt comfortable the buy-out would be completed, we decided to realize our gains and not take deal execution risk.
We did not buy any new names for the month of January.
Increased Positions:
CST Brands (CST) – Gas station convenience store spin-off, activists involved, and potential buyers very interested.
Kansas City Life Insurance (KCLI) – selling at 50% of tangible book value, no debt, recently delisted shares from major exchange after doing a reverse stock split to get shareholders under 250 out, at $52.50. (Stock currently trading at $37).
QLT Inc (QLTI) – Selling for less than net cash on the balance sheet. Proven management team. Invested $45 million in newly formed Canadian pharmaceutical company (Alarez).
Tribute Pharmaceuticals Canada, Inc (TBUFF) – Small Canadian pharmaceutical company, combining with Pozen (POZN) to form newly created pharmaceutical company (Alarez).
Through our ownership of QLTI and TBUFF, the Fund will own a piece of Alarez once it officially goes public.
Troy Marchand
