Stockholm (HedgeNordic) – Adrigo Small & Midcap L/S enjoyed its strongest monthly gain since launching more than five years ago after a challenging first half of the year. The fund managed by CIO Staffan Östlin and portfolio manager Johan Eriksson gained 14.2 percent in July, with 11 of its mid-sized positions rising more than ten percent during the month. Positive contributions were also driven by a cash offer for its shares in Norwegian game-based e-learning platform Kahoot!, along with successful short positions.
“We needed a month like this after a rough first half of the year,” Östlin tells HedgeNordic. “However, it is not unusual to have this monthly volatility from time to time due to our highly concentrated portfolio,” he emphasizes. Adrigo Small & Midcap L/S maintains a high-conviction portfolio of 25 to 30 long positions across three building blocks: Core Five, Dynamic, and High-Potential.
“We needed a month like this after a rough first half of the year.”
The fund’s larger holdings in offshore drilling rig company Dolphin Drilling and orthobiologics company Bonesupport significantly contributed to the performance. Eleven of the mid-sized Dynamic holdings rose by more than ten percent during the month, with the portfolio management team strategically trading around these positions during the month to further add to performance.
Arjo and Kahoot
Furthermore, a recently initiated position in Arjo, a supplier of medical devices and medical solutions, also made a significant contribution to the July performance of Adrigo Small & Midcap L/S. The team closely monitored Arjo for years before building a medium-sized position during the last trading days of June. Staffan Östlin and his co-portfolio manager closed the position in mid-July to secure a 20 percent return over two weeks. This gain was a result of a strong second-quarter report, reflecting stronger organic growth, solid cost control, and good cash conversion. “Mr. Market has been worried about the balance sheet risk, which is why a strong cash flow probably contributed to a stronger share price reaction after the report,” explains Östlin.
Kahoot!, the Norwegian game-based e-learning platform that has been a long-standing part of Adrigo Small & Midcap L/S’s portfolio, received and agreed to a voluntary cash offer of NOK 35 per share, amounting to a total of NOK 17.2 billion. The offer was presented by a private equity business within Goldman Sachs Asset Management, along with a group of other investors. “It is with mixed feelings that we divested our shares in Kahoot after the NOK 35 cash offer in July,” says Östlin. “The 13 percent premium seems somewhat modest, but the share has nevertheless recovered strongly from its NOK 15 low in mid-January.” Adrigo Small & Midcap L/S made the decision to divest considering the likelihood of competing bids being low and the fact that the offer received strong backing from the larger owners, many of whom are part of the bidding consortium.
“It is with mixed feelings that we divested our shares in Kahoot after the NOK 35 cash offer in July.”
Adrigo Small & Midcap L/S first invested in Kahoot! in October 2018, when the company was in the early stages of monetizing its customer base, which comprised about 15,000 paying users compared to several million playing. The team recognized several positive factors, including high customer satisfaction, a compelling value-add offering, and a scalable business model driven by low marketing costs, high gross margins, and advance payments from its customers.
The share price of Kahoot! has displayed significant volatility over the years, peaking at around NOK 130. Adrigo Small & Midcap L/S actively traded the share but always with a long-term focus. Östlin affirms that their active trading and long-term approach have proven advantageous for their co-investors, with Kahoot contributing approximately 13.5 percentage points to the gross return, out of the cumulative net return of about 75.7 percent.
In the Green for the Year
After ending the first half of 2023 down 9.6 percent, last month’s advance of 14.2 percent brought Adrigo Small & Midcap L/S back into positive territory for the year at 3.2 percent. Since its launch in November 2017, the long/short equity fund led by Staffan Östlin has achieved an annualized return of 10.3 percent. The fund’s cumulative return of 75.6 percent compares favorably to the 69.7 percent gain by the Carnegie Small Cap Return Index despite maintaining about half the market exposure on average.
