Jonathan Lennon’s Pleasant Lake Partners has filed a 13D form disclosing another increase to its position in MagnaChip Semiconductor Corporation (NYSE:MX), to 3.39 million shares. The hedge fund firm has submitted a few other Schedule 13D filings with the SEC since our last coverage on June 12 (see details here), all of which disclose gradual increases to the fund’s position in the manufacturer of semiconductor products. Pleasant Lake Partners has gradually acquired 746,903 shares of MagnaChip since our last coverage, so the hedge fund’s stake currently accounts for 9.95% of the company’s outstanding common stock. The hedge fund also sent a letter to MagnaChip’s management yesterday stating its belief that the market price of the company’s stock does not reflect its intrinsic value and requesting it to take action to maximize shareholder value.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 and these stocks beat the market by 84 percentage points (135% return vs. S&P 500’s 55% gain) over the last 34 months (see the details here).
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Pleasant Lake Partners is a New York-based hedge fund firm co-founded by its current portfolio manager, Jonathan Lennon, in 2012. Lennon spent three-and-a-half years as a general stock analyst at JAT prior to launching his own shop. Prior to that, Lennon also worked as an investment-banking analyst at Goldman Sachs. Lennon has been employing a concentrated approach to investing in global stocks with a focus on consumer, industrial/natural resources, and media companies. It is also worth mentioning that Lennon was initially backed by a very skilled team of professionals including analyst Ryan Parks, formerly of Orange Capital; marketing head Brock Saunders, formerly of Citigroup; and chief financial officer Spencer Raymond, previously of Garrison Investment. Ryan Parks, Brock Saunders and Spencer Raymond are no longer with the firm. As stated by the most recent 13F filing of the fund with the SEC, the value of Pleasant Lake Partners’ public equity portfolio stands at $109.61 million.
MagnaChip Semiconductor Corporation (NYSE:MX) is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for consumer, computing, communication, industrial, automotive and IoT applications. The company’s business primarily consists of three key segments: Display Solutions, Power Solutions, and Semiconductor Manufacturing Services. Hence, MagnaChip produces and markets a wide portfolio of analog and mixed-signal semiconductor products, which allows the company to tackle different high-growth end markets and quickly develop and introduce new products and services so as to meet the market demand. However, the team of professionals at Pleasant Lake Partners believes that MagnaChip is significantly undervalued relative to its normalized earnings power and asset value.
