We continue our blog series: Market Musings, Volume 2, Edition 3, giving our (hopefully not too random) thoughts on recent goings-on in the markets. Today, we present Et tu, Mangrove (Crypto Edition)?
In a sign of the times, we noticed an interesting nugget in a recent SEC filing by hedge fund Mangrove Partners (company website here). By way of background, Mangrove is an extremely successful fund run by a late 30-something named Nathaniel August. Below is an excerpt from a 2015 Barron's article regarding Mr. August and Mangrove (link to full article here - note: may be behind paywall):
There's no doubt that Mangrove Partners' returns have been quite stellar. As the Barron's article notes: "Since the fund’s launch in April 2010, it has returned more than 28% a year with relatively subdued volatility. Mangrove, which typically has 100 to 150 positions, has never had more than three consecutive down months". Below is a summary of Mangrove's top-15 disclosed U.S. long portfolio holdings as of September 30, 2017 (the most recent data available; source here)
So why do we mention all of the foregoing? Take a look at the #7 holding above, Atlantic Power Corporation (ticker AT), which was a 4.5% position for Mangrove as of 9/30/17. Note that AT has been a relative dud investment since Mangrove initially acquired it in early 2016, as the average price Mangrove paid for its 11.5 million shares was ~$2.25/share, exactly where the stock traded several days ago (i.e., just prior to the most recent Schedule 13D/A filing (for which, see further below; link to filing here); nor does the company pay a dividend):
With respect said Schedule 13D/A by Mangrove on AT, filed this morning, notice the highlighted text from Section 4 therein, excerpted below:
"Item 4. Purpose of Transaction. Item 4 is hereby amended to add the following: The Reporting Persons have had discussions with the President and Chief Executive Officer of the Issuer regarding alternative uses for the Issuer’s power plants that have expired or expiring power purchase agreements. On January 10, 2018, the Reporting Persons had a telephonic meeting with the President and Chief Executive Officer of the Issuer to discuss plans to develop and supply power to collocated data centers as well as to explore utilizing surplus power for cryptocurrency mining and other blockchain applications. The Reporting Persons also expressed interest in providing co-investment capital for such projects. These discussions are continuing."
To which which reply, Et tu, Mangrove? When mainstream hedge funds like Mangrove are urging management at their laggard investees to "explore...crytpocurrency mining and other blockchain applications" in order to get the stock up, you know for sure we are in the midst of a full-blown crypto mania. Hey, if it works, why not? Pay no attention to the man behind the curtain or the doubting Buffetts on the sidelines.
(And...you guessed it, the stock is up 11% today. Well played, sir.)