MACH 100 LP seeks to generate superior returns by entering positions with high return risk profiles at the inflection point of their catalysts to capture discovery premium and multiple expansion.
Mach 100 LP is a global small and micro-capitalization, non-correlated, equity focused hedge fund possessing concentrated positions and capitalizing on discovery premium and information arbitrage (disparities from publicly available information). The Fund’s investment objective is to generate absolute returns that are largely alpha (the active component of investment returns that are in excess of the financial markets’ movement as a whole). The Fund utilizes fundamental quantitative and qualitative analysis, assessment of securities and broad market behavior, trading psychology and return risk profiling to determine portfolio exposure and select investments across asset classes, instrument types, industry sectors and geographies. Managed by industry veterans, the Fund is designed to generate consistent, positive investment returns with low net portfolio exposure and lower correlations than typical equity market benchmarks. As a pooled investment vehicle, the Fund may employ a diverse combination of equity, equity arbitrage, equity linked derivatives, debt, spot metals and other investment and hedging instruments (including cash) in order to achieve its objectives. The Fund’s long portfolio focuses upon emerging growth companies across the small and micro-capitalization tiers (~$50 million to $2 billion). Its short portfolio focuses upon fundamentally flawed companies and management teams. Our strategy presents both the opportunity to achieve higher gains, as well as creating unique challenges that require significant skill, as well as deep and broad experiences within these volatile capitalization tiers; and of paramount importance, the right trading psychology. Mach 100 LP believes it has the right team, strategy and tactics to successfully capitalize on these opportunities to produce superior investment returns.
The Fund is structured such that its portfolio composition seeks non-correlation to equity benchmark indices and balance in terms of return-risk profile, liquidity, volatility, sector weighting and their ability to be effectively hedged. The Fund invests both long and short and executes its hedged strategy in the portfolio in several ways, with the goal of keeping its hedging as simple as possible while maintaining significant flexibility to pursue its investment objectives. The Fund may also participate in private placement offerings. While not its focus, the Fund may invest in all capitalization tiers, including mid-capitalization and large capitalization tiers in order to achieve access to a particular industry sector or company. The Fund invests primarily in the United States in securities that are traded on U.S. markets and U.S. dollar denominated, but occasionally some securities may represent foreign companies or trade on a foreign exchange (e.g. Canada, Europe and Asia).
Automated Security Selection Models and Algorithmic Trading
Mach 100 LP constructs and implements its own automated security selection models to identify securities and trading signals for its portfolio. The models are both fundamental analysis (financial statement analysis, valuation and qualitative factors (including catalysts)) and technical analysis models. They are automated to provide optimum efficiency, maximum ability to identify securities that meet the result set criteria and provide rapid trading signals. In some cases, we are utilizing algorithmic trading (automated executions based upon our rule sets) to place the trades and optimally generate profits at a speed and frequency that is impossible to match by a human trader. Given the advantages of higher accuracy and lightning-fast execution speed, where appropriate we match our automated security selection models with algorithmic trading. Our fundamental research process augments our automated security selection models and algorithmic trading by providing validation and confirmation to the result sets of our screening; ensuring that the results actually meet the criteria identified.
Our process for evaluating and making a decision to invest in any asset (long or short), follows a comprehensive and rigorous review. This includes both a qualitative assessment as well as studying the quantitative metrics. From a qualitative standpoint: we speak extensively to management in order to formulate our own determination of their strengths and weaknesses and ability to execute the business model; we speak to other shareholders/customers/competitors/industry experts in an effort to gain further insight and perspectives in order to assess the opportunity for success; and we conduct our own internal research and review process of the product/service offering and market size and growth opportunity. We also place a high degree of significance on the quantitative metrics, as the success (or trends toward success) of any business are ultimately reflected in the numbers (on the balance sheet, P&L and cash flow statement). In our quantitative review we analyze growth, operating performance (margins and trends), profitability, cash flow, balance sheet leverage, financing needs, management ownership, and other key metrics and variables.
We believe that trading psychology is the greatest factor determining investment returns. We possess the right trading psychology (mental and emotional composition) to position the Fund to be successful for our investors and drive superior investment returns. We have internally established trading rules. Trading rules facilitate risk control and determine return risk profile, position size, scaling positions, loss limits for long and short positions, price targets, trading around our core positions and balance and prioritize technical vs. fundamental analysis and event driven occurrences by position. We Recognize greed and fear, regret, euphoria and panic and over-trading We Understand that price action does not make a sound premise necessarily correct. Constant application of trading psychology is required to deliver superior and of equal importance, consistent, investment returns.
Return-Risk Profile and IRR
For potential investments that meet our criteria, we conduct a detailed review to understand the potential risks and downside relative to the current market valuation and potential investment return. Even if a security meets our diligence review, we will only invest at the right valuation, where we estimate the investment opportunity to have an appropriate and attractive ratio of upside reward potential versus any downside risks (return-risk profile). For Mach100 LP that means the Fund’s investment opportunity must have the potential of geometric return-to-risk profile of at least 3-to-1 and usually much higher. We also seek to maximize each and every investment with respect to its expected time value of return, or IRR. We closely evaluate the anticipated timing of when we believe an investment will reach its milestones and yield a sharp positive return.
Our Managing Principal, who is our lead investment manager, and senior research analyst, are battle-hardened professionals that have actively invested and managed two prior funds (one together in the 90’s and one separately thereafter), consulted and advised in the smaller company universe for 25+ years, each. They have both navigated multiple macro-economic cycles (bull and bear-markets), invested in a range of small companies, and served as consultants/advisors and owner/operators in a number of specific operating companies. Their collective skills, successes, and endured challenges, afford them with the necessary type of experience that will greatly influence and provide a positive impact on the performance of the Fund.
David N. Baker is the Managing Member of Mercadyne Fund Management LLC and the Managing Principal of the General Partner of Mercadyne Funds LP and Mach 100 LP. He is the principal portfolio manager of the Fund. For the last 25 years, Mr. Baker has been a financial markets professional. His career has included positions as the managing principal of two previous small cap and micro-capitalization, hedge funds; and was ranked as a Top 10 performing Hedge Fund Manager in 1997 by MAR Hedge. Additional positions have included other investment management capacities, proprietary trading, investment banking and securities brokerage. Mr. Baker has extensive experience managing capital for boutique institutional and accredited investors. He has led as investment principal, originating, structuring, financing and investing in private, alternative going public and public transactions for numerous emerging growth companies, as well as advising them at all stages of their corporate lifecycle, from startup through subsequent public financings. Mr. Baker has co-authored two financial analytics patents, including a design for product/service hierarchy database for market competition and investment analysis, as well as a patent for a granular method for index performance by sector. These issued patents were the basis of a Company he co-founded (Revere Data LLC fka Sectorbase) that was eventually acquired by Factset Data Systems, Inc. He is also the Founder and Managing Member of Mercadyne Automated Properties LLC, a portfolio of self storage facilities. Mr. Baker earned a B.A. in 1989 from the University of Colorado and received a J.D. in 1992 from Golden Gate University (and interned with the SEC, division of enforcement). He has previously held Series 7, 63, 65 and 55 securities licenses.
Steve Shum is the Senior Research Analyst of Mercadyne Funds LP, the General Partner of Mach 100 LP. Mr. Shum’s tenure includes 25 years in the financial services industry where he has an extensive background in equity research, macroeconomics and operations management. SInce October 2015, he has served as the chief financial officer of Eastside Distilling, Inc, a NASDAQ listed company. Prior to Eastside, Mr. Shum served as an officer and director of XZERES Corp from October 2008 until April 2015, a publicly-traded global renewable energy company, in various officer roles, including chief operating officer and chief financial officer. Mr. Shum also served as the managing principal of Core Fund Management, LP and the Fund Manager of Core Fund, LP. He was a founder of Revere Data LLC which patented an equity research application (now part of Factset Data Systems, Inc.) and served as its executive vice president for four years, heading up the product development efforts and contributing to operations, business development, and sales. He spent six years as the senior investment research analyst and co-portfolio manager of D.N.B. Capital Management, Inc. At DNB, he co-managed the hedge fund portfolio. Steve began his career with the Red Chip Review where he helped transform a start-up publishing company into a professional research firm with over 2,000 institutional clients. He earned a B.S. in Finance and a B.S. in General Management from Portland State University in 1992.
Fund Service Providers
|Primer Broker||Escrow Bank||Administrator||Auditor||Securities Counsel|
|Interactive Brokers LLC||CIBC||Opus Fund Services LLC||KPMG||Faegre Baker Daniels LLP|