According to recent 13G filings with the Securities and Exchange Commission, Dmitry Balyasny’s hedge fund Balyasny Asset Management and Jason Karp’s Tourbillon Capital Partners have acquired equity stakes in the newly-minted public company, Green Plains Partners LP (NASDAQ:GPP). Balyasny Asset Management disclosed owning 1 million shares, which represent 6.29% of the company’s outstanding common stock. Tourbillon Capital Partners’ stake contains 2.36 million shares, equal to 14.9% of Green Plains Partners common stock.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, but they managed to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds returned 135% since the end of August 2012 and beat the S&P 500 Index by some 80 percentage points (see more details here).
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To start off, let’s briefly introduce the two hedge fund firms mentioned above. Balyasny Asset Management is a Chicago-based firm founded in 2001 by Dmitry Balyasny with a team of 12 people. The hedge fund firm has expanded well beyond its original location and size, currently overseeing five main offices in three countries with over 200 professionals. Although Balyasny Asset Management’s strategy primarily focuses on long-short equity investing, the hedge fund uses a multitude of tactics across asset classes. The algorithmic probability concepts and fundamental macro indicators are allegedly dominating Dmitry Balyasny’s investment decision-making process, which clearly indicates that his stock picks are not random at all. As stated by its recent 13F filing, Balyasny Asset Management currently an equity portfolio worth $12.38 billion.
Tourbillon Capital Partners is global long-short equity firm founded by its current Chief Investment Officer and CEO, Jason Karp, in January 2013. Jason Karp had worked as a generalist portfolio manager and director of research at Steve Cohen’s SAC Capital Advisor’s CR Intrinsic unit and as co-chief investment officer at Clint Carlson’s Carlson Capital prior to launching his own firm. Even though Tourbillon Capital Partners is considered a global hedge fund, it tends to focus primarily on existing investment opportunities on the North American continent. At the same time, the investment management firm’s investment strategy strongly relies on thorough fundamental research, which turned out to be quite successful so far. Tourbillon’s flagship fund generated a return of 21% in 2013 and 10.05% in 2014. Remarkably, these gains have been generated while maintaining an average net exposure of only 18%. Tourbillon Capital Partners manages an equity portfolio with a value of $3.88 billion, which is an impressive figure, considering it started with only $250 million in 2013.
Green Plains Partners LP (NASDAQ:GPP) is a fee-based master limited partnership (MLP) formed by its parent company, Green Plains Inc. (NASDAQ:GPRE), to provide ethanol and fuel storage, terminal and transportation services. The common units of Green Plains Partners began trading on the NASDAQ Stock Market on June 26. The net proceeds from the offering of 10 million common units were roughly $157.9 million after subtracting underwriting discounts, structuring fees and offering expenses. Most of the raised capital will be used to pay a distribution to Green Plains Inc., which “dropped down” the rail cars, ethanol terminals and other transportation and storage assets into the MLP. The parent company, Green Plains Inc., owns 62.5% of the outstanding common units and subordinated units of Green Plains Partners along with 2% general partner interest and Incentive Distribution Rights, while the public owns the remaining common units that represent a 35.5% limited partner interest in Green Plain Partners. It is also worth mentioning that Jason Karp’s Tourbillon Capital Partners is the largest shareholder in Green Plains Inc. (NASDAQ:GPRE) from our database with 2.32 million shares, while Dmitry Balyasny’s hedge fund closed its position in the company during the first quarter of 2015.
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Green Plains Partners LP (NASDAQ:GPP) is anticipated to serve as the primary downstream logistics service provider of its parent company. The company’s assets are the main method of storing and delivering the ethanol that Green Plains produces. In addition to that, Green Plains Inc. will most likely benefit from this vertical integration by making better use of the economic value of these operations within the ethanol value chain. The Chief Executive Officer of the parent company, Todd Becker, has also claimed that the IPO of this MLP will strengthen the balance sheet of Green Plains Inc. as its management intends to make more acquisitions. For instance, the parent company has recently announced production expansion at its ethanol production plants by roughly 100 mmgy and will seek for other expansion projects in the future. Thus, Green Plains Partners will indubitably benefit from new growth opportunities as the MLP is expected to generate stable cash flows from fee-based revenues for receiving, storing, transferring and transporting ethanol and other fuels. Moreover, the company will not be influenced directly by any fluctuations in commodity prices.
At the moment, Green Plains Partners owns 27 ethanol storage facilities near its parent company’s ethanol production plants, eight fuel terminal facilities that are primarily located near important rail lines to transport fuel, and other transportation assets, including a leased fleet of 2,200 rail cars to transport ethanol from Green Plains’ facilities to refineries both domestically and worldwide. Let’s now briefly outline and summarize the main reasons for the spin-off. The first reason of this spin-off is that the marketing and distribution segment is very profitable and the IPO will provide capital for new growth opportunities. The second reason is that the spin-off will reduce the parent company’s risk associated with the transportation business. Hence, it seems that the two companies will be better-off by operating separately. Ultimately, as master limited partnerships have experienced increased investor interest lately, Green Plains Partners LP (NASDAQ:GPP) should be no exception. So it is definitely worth keeping an eye on the newly-created MLP as it might represent a great buying opportunity.
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