Tiny Activist Fund Making Big Impact

Ben Axler’s hedge fund firm Spruce Point Capital is making a name for itself as a short seller—as well as some handsome returns—through deep-dive research. This according to a recent article in Bloomberg.

The article reports that the Manhattan-based firm is on a “hot streak,” with its Spruce Point Research Activism Partners fund ($182 billion under managements as of YE 2018) returning 24 percent last year and becoming the top performer tracked by BarclayHedge.

Josh Black, editor-in-chief of research firm Activist Insight, said: “Ben puts a lot of work into unearthing red flags in various parts of the business, and you can see from his presentations that he has information packed into every margin.” Black says that those presentations are intended to convince “sophisticated analysts. To do that in as many situations as Spruce Point does, in a bull market, is impressive.”

Axler, who earned a master’s degree in statistics from Yale, started the firm in 2009 (after being laid-off from his investment banking job) as a value fund “looking for bargains at the end of a brutal bear market.” At the time, he struggled to attract investors, although he says “it was probably the best time of our lifetimes to do so.”

The article notes that short selling, once a focus of hedge funds, has fallen off over the past decade due to the enduring bull market as well as the growth in passive investing. But the article reports that, according to Axler, “low interest rates and a White House hellbent on ripping up business regulations are creating a bumper crop of overvalued companies.”

According to the article, Axler believes in the “cockroach theory,” a notion popular during the subprime crisis that “likens financial problems to those dreaded insects: If you find one bug scurrying across the floor, there are likely a bunch more hiding nearby.” He often analyzes a company’s management and board of directors first, including career histories, connections and conflicts of interest. “His favorite place to start,” the article reports, “is with corporate proxy statements that reveal the backgrounds and experience of board members and detail how executives are compensated.”

In this age of Big Data, the article explains, Axler is competing with deep-pocketed firms that can invest in computer and math “wizards.” It notes, however, that “Axler’s edge often comes from digging up obscure information others haven’t thought about. That means filing Freedom of Information Act requests and writing to a wide variety of government agencies” which Axler views as widely untapped resources.

Axler likes the digging. ” I enjoy being a contrarian. I enjoy stirring debate, being against the grain.”