Sahm Adrangi's Kerrisdale Capital 1st Quarter Letter

Sahm Adrangi, a hedge fund manager first profiled on Distressed Debt Investing a year or so ago and most recently with his Kerrisdale's 4th quarter commentary, released his 1Q 2011 letter to investors today and boy was it remarkable: The fund was up 73% net to investors in Q1 2011. According to all my sources, this is the best performance for a fund in the first quarter of this year. Since inception the fund is up 299% net to investors vs the S&P up 49.4%!

How did he do it? As we discussed in the last post and from reading his commentary, he found his niche (Chinese frauds), and generated massive amounts of alpha from that niche. To me, the letter below reads very similar to some of the older letters of Scion Capital penned by Michael Burry: Explanatory of what the fund is doing, commentary of thematic issues affecting the portfolio, and with a strong sense of humbleness.

From re-reading a report Kerrisdale Capital penned on CEU (China Education Alliance), it shows me this is the kind of work emerging hedge fund managers need to be performing. Not taking positions in multi billion dollar market cap stocks. Yes they may be cheap, but what differentiating factors are you bringing to the analysis? I want someone in the weeds, turning over every stone, and separating fact from misinformed market expectations. W.C. Fields used to say, and Hank Greenberg of AIG repeated often: "All I want from life is an unfair advantage." To me this sort of fund, where real, value-added due diligence is paramount, is where investors should be allocating capital in the future.

Enjoy the letter.

Kerrisdale Quarterly Letter 3-31-11