market folly

Today we're detailing the first quarter investor letter out of Jay Petschek (pictured) and Steven Major's hedge fund Corsair Capital Management. For the first quarter, they were up 6.7% net of fees. So, why should you care what Corsair has to say? Well, how about the fact that they've returned 15.5% annualized since inception in 1991 and have seen a total return of 1509%, absolutely demolishing the S&P 500 over the same timeframe. In January, we covered their previous investor letter and below we'll detail their latest thoughts.

First off, we see that their five largest positions are in Global Specialty Metals (GSM), Innophos Holdings (IPHS), Kapstone Paper & Packaging (KS), Lyondell bank debt, and Maiden Holdings (MHLD). In the first quarter of 2010, they also started some brand new positions including Expedia (EXPE), W.R. Berkley (WRB) and Live Nation (LYV). Stephen Mandel's hedge fund Lone Pine also started a LYV position recently.

Corsair's stake in EXPE is interesting as we've previously seen many hedge funds hold shares of Expedia's rival Priceline.com (PCLN) ~ it was a favorite stock among many Tiger Cub hedge funds. We even saw one fund add shares of Orbitz (OWW), another competitor in the online travel space. However, the only fund we've seen with a sizable position in Expedia is Roberto Mignone's Bridger Management. It's intriguing that more funds are starting to look into this space and this name in particular. Corsair's thesis in Expedia revolves around flat to rising ADRs and continued strong transaction growth. The company has a 10% free cash flow yield and they highlight a good point that EXPE definitely holds an asset in TripAdvisor. Online travel sites are gaining a hedge fund following certainly.

Additionally, we see that Capitalsource (CSE) was Corsair's largest winner in the first quarter. We make note of this because many prominent hedge funds hold a stake in CSE, including Seth Klarman's Baupost Group and Mohnish Pabrai as well. Lastly, Petscheck's hedge fund is bullish on shares of W.R. Berkley (WRB) as they think the property & casualty insurance company is only trading at an 'average' price, despite being one of the better names out there. Corsair notes that, "the P&C sector is trading at its cheapest valuation in at least a decade because we are at the weak point in the cycle." They've written an entire page summarizing their bullish stance on WRB at the end of their letter so we will defer to that for their thoughts.

Embedded below is the first quarter letter from Jay Petscheck's hedge fund Corsair Capital Management:



You can directly download a .pdf here.

We found their update an insightful read just like their previous letter as well so hopefully you enjoyed it. We'll continue to track Corsair as they are an ideal long/short equity fund to follow. We're starting to receive first quarter commentaries from hedge funds, so make sure to catch up on all the other hedge fund letters we've started to post.