Investment Strategy
Passport Capital invests in businesses approaching inflection points that result from growing demand and strong market positioning. Passport has combined macro-economic and sector analysis to identify opportunities resulting from the long term expansion of leading emerging economies, select natural resource scarcity, and the power of networks, brands, and intellectual property common to the technology, consumer, and service sectors. Investments primarily emphasize public equity securities. Passport also makes highly targeted investments in equity derivatives, select private companies, and swap contracts.
Passport Capital seeks to achieve high compounding risk-adjusted returns in each of its investment strategies. While Passport employs various hedging strategies, we believe our best risk management tool is rigorous research, including consultation with industry, legal and regulatory advisers.
Global Strategy
The Global Strategy is Passport’s flagship strategy. Seeking to deliver attractive risk-adjusted returns over the long-term, the Global Strategy is a globally focused, long short strategy which looks to capitalize on the significant inefficiencies in the world’s most promising capital markets. Specifically, the investment team for the Global Strategy covers the following sectors: Basic Materials, Consumer, Energy, Industrials, Financial Services, Healthcare, Internet/Technology, Middle East & North Africa, and Mortgages and other fixed income investments. While our macro-economic analysis focuses the portfolio on large secular changes on a global basis we believe our sector analyses position and allow the portfolio to take advantage of pricing inefficiencies of businesses at inflection points. By combining both macro-economic and sector analysis, the Global Strategy seeks to identify opportunities resulting from the long term expansion of leading emerging economies, select natural resource scarcity, network brand and intellectual property-based business models common to the technology, consumer and service sectors. Concurrently the Global Strategy’s short positions are typically derived from risk management considerations and efforts to identify structurally over-invested industries. Diversified across geographies, industries and capitalizations, the Global Strategy draws upon the independent fundamental research of the firm’s sector teams and extensive international reach.
Long Short Strategy
The Long Short Strategy seeks to deliver attractive risk-adjusted returns over the long-term through a portfolio of liquid investments. As with the Global Strategy, the investment team covers the following sectors: Basic Materials, Consumer, Energy, Financial Services, Healthcare, Industrials, Internet/Technology and Middle East & North Africa. However, while the Global Strategy aims to be approximately 75% invested in liquid securities, the Long Short Strategy seeks to be solely allocated to liquid investments. Passport measures liquidity in a few different ways, but its primary calculation utilizes the last 180 days of average volume and calculates the number of days it would take to liquidate a security assuming it is not more than 25% of a day’s volume. Any security that takes more than 10 days to liquidate based on this calculation is classified as ‘illiquid’. With the increased incidence and importance of government intervention in markets, through both stimulus and dynamic and changing regulatory policies, the Long Short strategy places a premium on holding “liquid” assets, favoring agility over expected return if the cost is liquidity. Diversified across geographies, industries and capitalizations, the Long Short Strategy draws upon the independent fundamental research of the firm’s sector teams and extensive international reach.
Mortgage Strategy
The M1 Strategy’s goal is to achieve superior risk-adjusted returns by investing primarily in a portfolio of U.S. fixed-income securities with an emphasis on mortgage-backed securities (“MBS”). The portfolio aims to perform under varying interest rate scenarios, while seeking to hedge a number of the risks embedded in the portfolio’s securities. Investments focus primarily on residential Agency and Non-Agency MBS and derivative MBS including, but not limited to, Interest-only and Principal-only MBS (IOs & POs), Inverse IOs (InvIOs) and Inverse Floaters, and Collateralized Mortgage Obligations (CMOs). Primary hedges include U.S. Treasury and Agency debt instruments, options and derivatives, Agency mortgage-backed pass-through securities, interest rate swaps, option and futures contracts, and Credit Default Swaps (CDS) and Total Rate of Return (TRR) Swaps. We believe that the U.S. mortgage market is large and inefficient and that prepayment risk, which distinguishes MBS from other fixed-income securities, creates mispricings. We believe opportunities in the sector are the result of global economic concerns and uncertainty over policy that creates supply/demand imbalances, a steep yield curve combined with low funding rates providing potential for high carry strategies, and a lack of sponsorship from traditional investors. We believe that our highly experienced team of mortgage investment professionals is well-suited to exploit the current potential opportunities in the MBS market.
Energy Strategy
The Energy Strategy is a long-biased strategy investing in targeted sectors within the global energy industry. Specifically, the Energy investment team focuses on the following sectors: Oil Services, Exploration and Production, Renewable Energy and Shipping. The Energy team believes that even while discoveries have peaked and supplies continue to decline, demand for energy is projected to continue to grow at an aggressive trajectory. As a multi-layered bottleneck, Passport believes the energy industry provides attractive opportunities for owners of large resources, owners of “enabling” technologies and equipment as well as developers and adopters of new technologies. Based on our experienced Energy team’s analysis of contracts, sales growth, unrecognized potential reserves, enabling technologies, unique equipment and infrastructure, and other factors that have the potential to substantially affect enterprise value, the Energy Strategy seeks to identify sectors and companies with the potential to experience extreme pricing power and/or substantial growth. Leveraging the team’s extensive fundamental research, technical idea generation and industry relationships, we believe the Energy Strategy is well-positioned to identify promising investment opportunities in the global energy industry. The Energy Strategy can be offered with and without exposure to private investments.
Special Opportunities Strategy
The Special Opportunities Strategy seeks to earn superior long-term returns through a concentrated portfolio of public and private investments. As with the Global Strategy, the investment team covers the following sectors: Basic Materials, Consumer, Energy, Financial Services, Healthcare, Industrials, Internet/Technology and Middle East & North Africa. However, because of the portfolio’s longer targeted investment duration, the Special Opportunities Strategy is characterized by a high degree of concentration of our highest-conviction investments which generally consist of 15 to 25 positions. The longer targeted investment duration also allows for the Special Opportunities Strategy to allocate substantial investments to less liquid public and private equities which require substantial capital and/or value-added insight. As a result, the Special Opportunities Strategy’s unique framework enables Passport to leverage its sector expertise, and access early-stage investments and deal flow opportunities, while still seeking to maintain more liquidity, transparency, and shorter duration than many comparable alternative investments such as private equity funds.