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ValueAct: 15% Per Annum With Activism

Last week I covered the performance of the TCI Fund, which is one of the world's largest and best-performing hedge funds.

But despite its performance, TCI tends to fly under the radar. It does not attract as much attention as some of the big-name funds such as Bridgewater Associates.

There are a handful of other hedge funds in the industry that have a similar set up.

For example, ValueAct Capital, which has $16 billion in assets under management, also tends to fly under the radar. This is despite the fact that it has achieved double-digit annualized returns for investors since its inception.

Indeed, according to a report by Reuters earlier this year, ValueAct, which is managed by Jeffrey Ubben, has returned around 15% per annum since inception.

An activist approach

ValueAct, like TCI, uses an activist approach. Last year, the firm launched the $350 million Spring Fund, intending to invest in companies addressing environmental and social problems.

While only a small percentage of total assets under management, the Spring Fund's very existence is notable. It has already made investments in public listed companies such as power utility Hawaiian Electric Industries Inc. (NYSE:HE) and gene-editing company Horizon Discovery Group PLC (LSE:HZD). On top of this, the Spring Fund has made small investments in other funds with the same goals.

ValueAct's primary portfolio is highly concentrated. According to its latest 13-F filing, at the end of the second quarter of 2019, the firm had around 23% of assets under management invested in just one position, Citigroup (NYSE:C). The hedge fund owned 31.5 million in this global investment bank at the end of the second quarter, a position worth around $2.2 billion.


ValueAct initiated this position in 2018, and over the past 18 months, Citi's management has been quite receptive. At the beginning of January, the banking group announced that it will share confidential information with the activist hedge fund about strategy, governance and planning, a move that the market welcomed as ValueAct has a history of driving successful change at stagnant companies.

The second-largest position in the activist hedge fund's portfolio at the end of the second quarter was Seagate Technology (NASDAQ:STX). First added to the portfolio in the second quarter of 2016, shares in the technology business now make up 15.2% of the overall portfolio.

ValueAct owns 31.5 million shares, a position worth $1.5 billion. Moving down the 13-F list of owned positions at the end of the second quarter, the third largest position was KKR (NYSE:KKR) and the fourth was Morgan Stanley (NYSE:MS). Together, ValueAct had around $2.5 billion invested in these two financial services businesses at the end of the second quarter.

ValueAct first invested in private equity giant KKR back in 2017, saying it estimated that the shares were substantially undervalued. Speaking at the Active-Passive Investor Summit in 2017, ValueAct President Mason Morfit said, "The company has eight to 10-year locked up capital and generates a great management fee." He added, "I think the future is quite bright." This was before the private equity business decided to convert from a partnership structure to a company structure, which has unlocked some value for investors.


These large holdings have remained virtually unchanged for some quarters.

However, the hedge fund did add several positions to the portfolio in the second quarter of 2019. New additions included The Stars Group Inc. (NASDAQ:TSG) and Booking Holdings Inc. (NASDAQ:BKNG).

At the end of the quarter, the hedge fund owned 13.6 million shares of The Stars Group and 35,000 shares of Booking Holdings, making them a 2.4% and 0.7% portfolio weight.

Ubben's firm also added Parsons Corp. (NYSE:PSN) and XPO Logistics (NYSE:XPO) to the portfolio in the second quarter. Together these two positions make up around $120 million of assets under management.

Disclosure: The author owns no share mentioned.

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This article first appeared on GuruFocus.