September 26, 2019 | Fund Updates, Hedge Funds, News

The hedge fund manager was up 32% in 2019, but vaping bans loom

Jason Mudrick, manager of Mudrick Capital Management, has been one of the industry’s top performers in 2019.

The hedge fund manager had made a series of clever bets on socially responsible assets and NJOY. The latter is an e-cigarette maker that he purchased from bankruptcy just two years ago. Those wagers have fueled a 32% return this year.

However – with about $800 million (or about 30%) of his fund in NJOY, the question is how recent vaping developments will impact the fund.

The Trump administration could ban flavored e-cigarette products even if the FDA approves them. Meanwhile, the ongoing health panic over vaping has Congress holding hearings and states considering product bans. (Note: It has been the black market product driving health problems. What better way to increase a black market than to ban products instead of properly regulate them).

Then, on Wednesday, Juul Labs co-founder and CEO Kevin Burns stepped down due to public pressure and regulatory investigations in California. Some have accused Juul Labs of marketing to children (and the company has ended U.S. advertising). The news came after merger talks broke down between Altria Group and Philip Morris International.

Next, Walmart quickly pledged to ban sales of end e-cigarette sales in the U.S. China is considering a national ban. India has already banned the products.

CNBC analyst Josh Brown even went on to publicly said he hopes that Altria Group (NYSE: MO) – a large investor in JUUL – sees its stock “go to zero.”

What Does Jason Mudrick Do Now?

NJOY has struggled to raise money due to the moral panic hitting the market. The firm was on the verge of raising capital at a $5 billion valuation. That figure would be up from the $2-billion valuation it experienced in May. Mudrick has reportedly moved its capital into longer-term vehicles to lock up capital.

The hedge fund purchased 51% of NJOY out bankruptcy at a valuation of about $40 million. The firm sold shares recently to recoup its original investment. It now owns a 40% stake in the firm.

Mudrick Isn’t Alone

The hedge fund manager isn’t alone on his bets in e-cigarettes. Fidelity’s $28 billion Blue Chip Growth fund has a large stake in Juul Labs. The fund has exposure of roughly $761 million to the troubled company. The figure represents about 2.7% of the fund’s assets, according to July 31 disclosures. It’s likely that Fidelity hoped that the company would go public or it would be purchased outright by Altria Group.

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