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Nantahala Capital Management’s Returns, AUM, and Holdings

Nina Zdinjak

Nantahala Capital Management is a New Haven-based hedge fund founded in 2004 by 26-year-old Wilmot Harkey. He named his firm after the river in the Smoky Mountains which he visited with his family when he was a kid, as he wanted a name that would remind him of his background.

Although, Wil Harkey was very young when he decided to start his own firm, he did have some investing experience, as he worked at Sagamore Hill Capital where he focused on capital structure arbitrage. That is where Wilmot Harkey met another arbitrage analyst, Dan Mack, with whom he had a shared interest in comprehending the real reasons why some securities appear to be so mispriced. As Mr. Mack pointed out: “We both thought the best way to get an edge was to know the companies' businesses better than anyone else.”

Three years after Nantahala Capital Management's inception, Dan Mack joined as a managing partner, helping usher in a faster and more productive decision making process. Wil Harkey holds a BA in Mathematics and Economics from Williams College, while Dan Mack holds a BS in Economics and a BSE in Computer Science and Engineering from The University of Pennsylvania.

Wil Harkey Nantahala Capital

Nantahala employs a long/short investment strategy, risk arbitrage, and capital structure arbitrage, focusing on small-cap stocks. It uses thorough analysis and combines it with a top-down and bottom-up approach to make its investments. It seems that its investment strategy and the collaboration between Will Harkey and Dan Mack are a perfect combination, as the fund has seen some positive returns over the years. From August 2004 through the end of April 2009, it beat the Russell 2000 index by 25 percentage points, earning a fantastic net annualized return of 19.1% versus -5.9% for the Russell 2000. According to its plain brochure, on December 31, 2016, the fund had $1.07 billion of regulatory assets under management. On June 30, 2018, Nantahala Capital Management’s 13F portfolio was valued at $2.47 billion.

Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 121% vs. a cumulative gain of 66.6% for the S&P 500 ETF (SPY) (see the details here).

During the second quarter, Nantahala Capital Management made several changes to its portfolio, adding 13 new companies to it, lowering its position in 15 stocks, raising its stake in 28, and dumping four companies. We’ll discuss these changes in more detail on the next page.  

The most valuable new position added to Nantahala Capital Management's portfolio during the second quarter was a stake in Iovance Biotherapeutics Inc (IOVA), consisting of 825,000 shares worth around $10.56 million. This company is slowly drawing the interest of some of the hedge funds in our database, as 20 of them reported having long positions in it as of the end of June, up by two from the end of March. Next up among the fund's big new positions is Roadrunner Transportation Systems Inc. (RRTS), as the fund acquired 2.55 million shares valued at $5.33 million during the second quarter. At the end of June, 11 smart money investors tracked by Insider Monkey’s system were bullish on this stock, unchanged over the quarter. Paul Singer’s Elliott Management had the largest stake, counting 3.31 million shares worth around $6.91 million.

Nantahala Capital Management is getting more optimistic about some of the stocks it held in the previous quarter, as it raised its positions in them during the second quarter. One of those stocks is Bridgepoint Education Inc (BPI), in which the fund boosted its stake by 201% to 2.13 million shares worth $13.89 million. Another is Galmed Pharmaceuticals Ltd (GLMD), in which it raised its stake by 141% to 741,108 shares worth $8.82 million on June 30. Other smart money investors from our database are also getting more bullish on Galmed Pharmaceuticals Ltd (GLMD), as the number of them with long positions doubled in the second quarter, with 12 of them long the stock at the end of June.

Lastly, Nantahala dumped four companies in the second quarter. The biggest position it said goodbye to was Cogentix Med Inc (previously CGNT), as the company was acquired by LABORIE Medical Technologies; prior to the acquisition, the fund held 3.64 million Cogentix shares worth around $14.01 million. The next in line is Playags Inc (AGS), in which the fund dropped the position of 399,158 shares valued at $9.28 million which it had held at the end of March.

Disclosure: None. This article is originally published on Insider Monkey.