market folly

Hedge Fund Jana Partners has seen some rough times recently, just like everyone else. Their $4 billion flagship fund has fallen 14.7% year-to-date as of September 30th. And, if they can't turn things around in the next few months, Jana is on track for its first yearly loss ever. That scenario looks highly likely, given that Hedge Funds as a whole are headed for their worst year since 1990. Jana has "survived" thus far by not employing leverage and positioning their portfolios in a defensive manner. However, they were not able to fend off the massive drop in the price of crude oil, which slammed Jana's energy positions, which happen to be some of their top holdings. Additionally, Jana owns a 9/1% stake in MF Global (MF) which has caused them pain, as shares have dropped 90%. In a letter to shareholders, Jana said that, "This stock has been an utter disaster so far and is headed for the Jana hall of shame."

Jana's Piranha fund is down 3.1% year to date. This fund targets companies with market caps of $2 billion or less. Additionally, Jana's Nirvana fund is down 8.9% year to date. This fund focuses on Jana's best investment ideas and returned 17% since it was started in April of 2007.

Managed by Barry Rosenstein, Jana was founded in 2001 and typically employs activist, market neutral, and long/short equity strategies in public equity markets. Rosenstein received his BS from Lehigh University and his MBA from the Wharton School of Business at the University of Pennsylvania. Jana has returned 20.9% each year annualized from 2001 til 2007. Rosenstein sees Jana's future in a strategy that uses management adjustments to strike changes in companies, which in turn can send shares higher. Alpha magazine ranks Jana #79 in their hedge fund rankings. Jana Partners was -9% for the month of September, and find themselves -14.7% for the year, as I noted in my hedge fund performance update.

Taken from Bloomberg,

"Activism Jana-style is disciplined value investing -- with attitude. The firm relies on deep-diving research by its more than 20 analysts to pick companies whose stock is undervalued. Jana Master devotes as much as 15 percent of its portfolio to activist investing.

Rosenstein says Jana is always on the lookout for a catalyst -- say, a possible merger -- that will lift a beaten-down stock. When he buys, he looks for what Benjamin Graham, the father of value investing, called a margin of safety -- that is, a fat discount to an investment's fair market value.

Rosenstein says the market crash didn't affect his method of finding fair value: by looking at fundamentals and discounting future cash flows. He accumulates his stakes in target companies over time, so buying shares in those companies got cheaper in September. Finding a catalyst to drive up the price, he says, is just as important as ever."