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The Bodenholm Spin-Off

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Stockholm (HedgeNordic) – At least three spin-offs emerged from the closure of Swedish hedge fund Bodenholm in March of last year. Jakob Nordestedt launched a market-neutral strategy at Nordea Asset Management, Erik Orving and Per Johansson joined forces to launch Boden Capital in late 2020. Mads Thamsborg (pictured), the former Partner responsible for the short book at the now-closed Bodenholm, took the majority of the Bodenholm investment team under his wing to re-launch a long/short equity strategy under the umbrella of Nyhavn Capital.

Thamsborg and his team launched Nyhavn Global Equity Long Short Fund in June of this year to run a strategy similar to the one used at Bodenholm. With two people in operations and six people in the investment team, most of whom worked at Bodenholm, “we hit the ground running right away,” says Thamsborg. “When we started working together on the fund pre-launch in April, it was very quiet in the office. You could hear a pin drop because everyone knew what to do.”

Nyhavn Global Equity Long Short Fund operates as a global-focused long/short fund, focusing on Europe and North America, and runs with a low net exposure between minus five to plus 25 percent. The long/short fund runs a so-called “two alpha” strategy “because we have two dedicated teams, one long-dedicated team and one short-dedicated team,” according to Thamsborg. “Both teams are focused on executing alpha-generating strategies. We believe that you have to perform on both sides of the investment book to be able to get consistent alpha.”

“We believe that you have to perform on both sides of the investment book to be able to get consistent alpha.”

Despite the common perception that hedge funds are obsessed with short selling, dedicated specialists on the short side are few and far between. Thamsborg’s short selling experience, however, brings a different perspective to the table. “Apart from being involved in long-only and long/short portfolios, I also had the opportunity to be focused solely on the short side, build a franchise to be as good as possible on the short side,” emphasizes the former Bodenholm short specialist. “I wish I had that experience earlier in my career because it makes you think differently about risk management and how you extract performance. You have to be paranoid that you’ll be wrong.”

“I also had the opportunity to be focused solely on the short side. I wish I had that experience earlier in my career because it makes you think differently about risk management and how you extract performance.”

“Corporate Focus” Opportunities

Nyhavn Global Equity Long Short Fund maintains a long portfolio consisting of 15 to 20 positions, with its long-dedicated investment team predominantly looking for transformational opportunities. “On the long side, we look for transformational opportunities or what we call corporate focus opportunities, which involve companies going through spin-offs, break ups or major fundamental changes,” explains Thamsborg. “That gives us an opportunity to get our hands dirty to dig deep into the fundamentals and use our analytical skills to better understand how the companies will look like over the next two to four years.”

“On the long side, we look for transformational opportunities or what we call corporate focus opportunities, which involve companies going through spin-offs, break ups or major fundamental changes.”

Analyzing and understanding these corporate focus opportunities such as spin-offs requires more expertise and effort than the average ideas, thereby, creating a fertile hunting ground for finding alpha. “We tend to take a two- to four-year view on these opportunities because that is typically the amount of time the market requires to realize what a company will look in a more mature, steady-state phase,” says Thamsborg. “We are looking for five to seven opportunities a year, we can be very selective, very greedy.”

“We complement our pool of investments in transformational cases with investments in quality companies at the right price.”

“We complement our pool of investments in transformational cases with investments in quality companies at the right price,” continues Thamsborg. “We have a list of about 350 quality companies, both cyclicals and compounders,” says the CIO of Nyhavn Capital’s fund. “We have a slightly broader definition of quality, which captures companies with strong contribution margins, long runway of growth, with strong reinvestment opportunities. But we are very greedy and want very strong margins of safety before committing to such opportunities.” The allocation to either companies undergoing transformations or quality companies changes organically depending on the opportunity set, according to Thamsborg.

Short Book and Low Net Exposure

Nyhavn’s short-dedicated investment team, meanwhile, builds and maintains a portfolio of 20 to 25 shorts. “We are forensic accounting-driven for the idea generation process of our core short strategy,” explains Thamsborg. Nyhavn’s forensic shorting approach relies on an internally-developed screener that looks for “opportunities where the underlying numbers are deteriorating versus the reported numbers.” According to Thamsborg, “we are looking for those opportunities where the gap is suddenly increasing, where reported remains good but underlying numbers are deteriorating.”

“We are forensic accounting-driven for the idea generation process of our core short strategy.”

The short-selling team at Nyhavn uses investigative tactics and detailed accounting analysis to find and analyze short selling candidates. Part of the work involves “finding accounting red flags using our screener and figuring out why that is happening,” according to Thamsborg. This process involves “doing a lot of work on the behavioral side, understanding key man/woman departures, how employees trade their company stock, looking for pattern changes, and studying the communication by the company. There is always a fundamental reason why things are changing. We have to be very good fundamental analysts for shorts, not just very good forensic accountants.”

“The other part of the short case is understanding how and when you are getting paid,” elaborates Thamsborg. “We are looking for the highest probability that KPIs are going to miss expectations. That is very important to get consistent alpha generation.” Although it is more difficult to make money selling short, “we are never short of finding short opportunities,” says Thamsborg. “There are always subsectors facing difficulties and companies that may be a little more creative to mask the underlying fundamental deterioration. This is mostly within IFRS or US GAAP, but the skeleton gets out of the closet at some point.”

“If we find more long opportunities in a given market environment, the net exposure will increase and vice versa. But we have that capital preservation mindset as well. We also want to do well in downturns.”

The net market exposure maintained by Nyhavn Global Equity Long Short Fund is opportunity-driven, according to Thamsborg. “If we find more long opportunities in a given market environment, the net exposure will increase and vice versa,” says the CIO. “But we have that capital preservation mindset as well. We also want to do well in downturns,” he continues. “We do have the market backdrop in mind, we try to take that into consideration without making any macro forecasts. We are trying to understand the market environment we are in and position ourselves accordingly.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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