Lakewood Says ‘Virtually No Long Position’ Spared in Quarter

(Bloomberg) -- Lakewood Capital Management LP posted a net loss of more than 31% in the first three months of the year, as “virtually no long position was spared from the market sell-off,” according to a letter sent to clients that was viewed by Bloomberg.

The fund’s equity exposure was 98% long and 40% short, with net equity exposure coming out to slightly more than 58%. Nearly all of the fund’s long positions “were reporting record financial results with bright outlooks for the year ahead” up until a “few short weeks ago,” the April 2 letter said.

“As fears of the spread of the coronavirus rapidly escalated and ultimately paralyzed the global economy, the markets were thrown into sudden turmoil, leading to a swift repricing of all stocks in our portfolio that we unfortunately did not adequately anticipate,” Lakewood’s Anthony Bozza told clients in the letter.

The bruising quarter for Lakewood illuminates the struggle for managers as they cope with fallout from the Covid-19 outbreak, which has roiled markets. In March, hedge funds posted their biggest monthly decline in six years, according to Bloomberg Hedge Fund Indices data.

For Lakewood, the most pronounced declines in its long bets occurred in the fund’s financial, industrial and European holdings, according to the letter.

The process of responding to the new environment led the fund to reduce some positions, increase others and add “a substantial number of new positions,” several of which it has previously owned.

Winners, Losers

The fund’s largest winners in the quarter were “all short positions of roughly equal contribution,” including GreenSky Inc., Ollie’s Bargain Outlet Holdings Inc. and Hennes & Mauritz AB. Conversely, the biggest losers in the same period were long positions in the financial sector including CIT Group Inc. and Citigroup Inc.

The fund’s current core shorts include AAON Inc., Korean biotech companies and “certain highly-d ‘growth’ financials.”

Among the Korean biotech companies in the fund’s core shorts are Celltrion Inc., Samsung Biologics Co. and SillaJen Inc. It is short financial stocks with “earnings multiples that would be difficult to justify even in a bull market,” naming Kinsale Capital Group Inc., RLI Corp. and First Financial Bankshares Inc.

The letter said Lakewood employees are working remotely and the company isn’t having disruptions in its workflow process or experiencing interruptions in service from its key service providers.

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