Passport to Wind Down Materials Hedge Fund After 31% Loss

Passport Management' John Burbank
John Burbank, founder and chief investment officer of Passport Management LLC. Photographer: Jacob Kepler/Bloomberg

Passport Capital LLC, the $3.4 billion hedge fund founded by John Burbank, plans to wind down its materials fund after a 31 percent loss this year, according to a letter to investors obtained by Bloomberg News.

The Passport Materials Fund fell 17 percent in the second quarter, the fund’s portfolio managers, James Cunningham and Sebastien Boifort, said in a letter to investors dated yesterday.

The fund has taken longer than expected to exit private investments, the three largest of which are Ferrous Resources Ltd., Satimola Ltd. and Canadian Sinosun Energy Inc., the managers said. The fund lost 45 percent over one year, an annualized 13 percent over three years and 9.8 percent over five years. The fund still is up at a 6.6 percent rate since inception in March 2006.

“The privates in the portfolio are taking longer than expected to achieve liquidity, making it impractical to expect liquidity from the privates to increase trading capital in the near term,” Cunningham and Boifort said in the letter.

Steve Bruce, a spokesman for San Francisco-based Passport, declined to comment on the letter.

The 14 private investments in Passport’s materials fund make up about 62 percent of the portfolio, the managers said. On or near July 15, Passport intends to give back about 75 percent of the public portion of the fund’s net asset value to investors, according to the letter. The wind-down of those positions will continue “over the ensuing months,” the managers said.

Ferrous Stake

Billionaire investor Carl Icahn is seeking to buy a stake in Ferrous Resources, a closely held Brazilian iron ore mining company, from Phil Falcone’s Harbinger Capital Partners LLC, four people familiar with the talks said in April.

Ferrous has been trying to find a strategic partner to help finance its Brazilian projects since at least 2009, having shelved plans in June 2010 for a $400 million initial public offering in London because of fluctuating equity markets. In December, Ferrous proposed a $2.3 billion takeover of rival MMX Mineracao & Metalicos SA, the Rio de Janeiro-based iron-ore producer controlled by Brazilian billionaire Eike Batista, according to a letter detailing the plan obtained by Bloomberg News. MMX said on Jan. 19 that it’s not interested in a Ferrous merger.

In the second quarter, Passport marked down the materials fund’s investment in Ferrous by 24 percent to $2 a share from $2.63 a share, reflecting changes in the company’s business plan as part of a strategic review by Chief Executive Officer Jayme Nicolato Correa, the managers said in the letter.

Satimola Holding

Changes in an unnamed acquirer’s proposal to buy Satimola, a closely held potash exploration company based in Kazakhstan, has reduced the value of the expected bid, Cunningham and Boifort said. If the transaction falls through, the company will probably require additional financing, which will be dilutive, according to the managers.

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