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Christopher Kiper’s Legion Partners Asset Management’s Return, AUM, and Holdings

Nina Zdinjak

Back in April 2012, Ted White and Christopher Kiper decided it was time to launch their own activist hedge fund, and they called it Legion Partners Asset Management. The Beverly Hills-based fund got the seed money from California State Teachers' Retirement System, which has invested in the fund more than $250 million since its inception. Legion Partners finds this stable capital support to be one of the most important benefits that help it stick to its long term orientation. Prior to launching Legion Partners, Ted White sharpened his investment skills at Knight Vinke Asset Management (a Europe-based activist manager), where he was Chief Operating Officer and Managing Director, and at California Public Employees’ Retirement System where he was a Director of Corporate Governance and a Portfolio Manager in charge of everything related to its Governance Program. Ted White, a Chartered Financial Analyst and a former Deputy Director of the Council of Institutional Investors also worked at Deputy State Treasurer at the California State Treasurer’s Office, where, as an Investment Officer, he was in charge of trading and fixed income portfolio analysis. He earned his MBA with a concentration in finance from California State University.

Before co-founding Legion Partners, Christopher Kiper was a Portfolio Manager of the Shamrock Activist Value Fund, and prior to joining Shamrock Capital Advisors, he launched and ran Ridgestone Small Cap Value Fund, which was an activist fund in partnership with Ridgestone Corporation, whose main focus was on small-cap stocks. After graduating magna cum laude with a B.S. in Business Administration in Accounting Program from the University of Nebraska, he cut his teeth at Ernst & Young as an auditor, mainly concentrating on the financial service industry.

Christopher S. Kiper Legion Partners Asset Management

According to the words of its founders, Legion Partners was launched with the idea of forming the leading small-cap activist fund that would answer long term needs of investors. Among the fund’s investors are high net worth individuals, pension funds, institutional clients, and foundations. The fund’s investment philosophy relies on thorough research, keeps a concentrated portfolio, holding its positions for a long time in order to attain excellent risk-adjusted returns. The essential parts of its investment process are: choosing the right stocks and professional activism. Speaking of its activism, Legion Partners doesn’t like to make a lot of noise, instead, it prefers to collaborate with the management teams of the companies it invests in. The fund usually tries to obtain a seat among the board of directors or to provide strategic guidance that would help the company attain better long-term performance.

Legion Partners Composite Index delivered 34.08% in 2013, followed by a flat (0.0%)  return in 2014, and it went down by 4.34% in 2015. Then in 2016, it delivered a strong 12.44%, and even higher return of 29.52% in 2017. Last year through October Legion Partners Composite Index brought back 23.37%. Its total return amounted to 273.15%, for a compound annual return of 20.17%, while its worst drawdown stood at 20.46.

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At the end of the fourth quarter of 2018, Legion Partners’ equity portfolio was valued $327.15 million, down by 30.62% from one quarter earlier. In the portfolio, there were 13 long positions after the fund had added one and dumped one. It didn’t hold a single stock of those 30 Most Popular Stocks Among Hedge Funds in Q4 of 2018. More about the fund’s largest fourth quarter positions you can find on the next page.

The most valuable position the fund held at the end of 2018, was in American pizza restaurant franchise, Papa John's Int'l, Inc. (NASDAQ:PZZA). The company was all over the news last year, when its, then current, CEO John Schnattr made racially sensitive remarks which lead him leaving the board. In spite of this scandal, which has made many investors to question their stakes in the company, Legion Partners actually thinks that Papa John’s still has real potential and that it should continue with its primary business. Year to date, Papa John’s stock gained 15.20%, and on March 14th it had a closing price of $46.23.  The company has a market cap of $1.47 billion, and it is trading at a price-to-earnings ratio of 5,217.83.

Legion Partners held 1.73 million shares of Papa John’s, which carried a value of $68.72 million, amassing for 21% of the fund’s equity portfolio. For the fourth quarter of 2018, the company disclosed total revenue of $373.98 million compared to $467.61 million in the same quarter one year earlier. It also reported a diluted loss per share of $0.44 and adjusted diluted EPS of $0.15 for Q4 2018, versus diluted EPS of $0.81 and adjusted diluted EPS of $0.54 in the corresponding period of 2017. Recently, this fourth biggest pizza delivery restaurant chain in the US declared a national partnership with DoorDash, one of the most successful on-demand food delivery companies. On March 8th, Citigroup lowered its price target to $55.00 from $64.00 with a ‘Buy’ rating on the stock, while somewhat earlier Stifel Nicolaus downgraded its rating to ‘Sell’ from ‘Hold’ and also lowered its price target to $35.00 from $38.00.

Legion Partners held the second biggest stake at the end of December 2018 in a Chesterfield-based consumer products company, Edgewell Personal Care Co (NYSE:EPC). The fund’s position in the company was worth $41.91 million, on the basis of 1.12 million shares outstanding, accounting for 12.81% of Legion Partners’ portfolio. Edgewell Personal Care has a market cap of $2.33 billion while trading at a price-to-earnings ratio of 24.24. For the full-year 2018, the company reported diluted EPS from continuing operations of $1.90 and adjusted EPS of $3.52, versus diluted EPS from continuing operations of $0.10 and adjusted EPS of $3.97 for the full-year 2017. It also disclosed adjusted net earnings of $192 million, compared to $228 million in 2017. At the beginning of March 2019, SunTrust Banks raised its price target on the stock to $45 with a ‘Hold’ rating. Edgewell Personal Care’s stock lost 12.43% over the last 12 months, having a closing price of $43.09 on March 14th.

The third biggest position in the fund’s portfolio was in Primo Water Corporation (NASDAQ:PRMW), a company that provides multi-gallon purified bottled water, water dispensers and self-service refill water across the U.S. and Canada. It runs its business in three sectors: Refill, Dispensers and Exchange. The $594.00 million market cap company’s stock lost 19.55% over the last six months, and on March 14th it reached a closing price of $15.26. At the beginning of March, Imperial Capital restated its ‘Outperform’ rating on the stock with a price target of $20, while B. Riley raised its price target to $21.00 from $19.00 with ‘Buy’ rating on it. Legion Partners’ position in the company at the end of the fourth quarter of 2018 counted 2.64 million shares, which carried a value of $37.02 million, accounting for 11.31% of its equity portfolio.

The only new stake Legion Partners initiated during the fourth quarter was in a company that provides a plethora of services and products to help customers gain healthy lifestyle habits, such as acquiring and holding ideal weight, exercising regularly and having a positive outlook on life, Weight Watchers International, Inc. (NASDAQ:WTW). The fund invested around $9.83 million in the company, by purchasing 255,000 shares outstanding. Over the past 12 months, Weight Watchers’ shares went down by 68.96%, having a closing price on March 14th of $20.09. Its market cap is of $1.35 billion, and the company is trading at a price-to-earnings ratio of 6.29. For the fourth quarter of 2018, Weight Watchers disclosed net revenue of $330.4 million and EPS of $0.63, versus net revenue of $312.5 million and EPS of $0.91 in the corresponding quarter of 2017. Around the beginning of March, Morgan Stanely set a price target of $21.00 on the stock with ‘Hold’ rating on it, while Sidoti lowered its price target on it to $47.00 from $99.00 with a ‘Buy’ rating.

Disclosure: None.

This article was originally published at Insider Monkey.