Sylebra Capital continues to kill it this year.
The Tiger Grandcub founded by Dan Gibson posted a 3.8 percent gain in April in the Sylebra Capital Partners Master Fund when the major market indices suffered their worst losses since last September, according to someone familiar with the results. As a result, Sylebra is up 27.2 percent for the year.
Sylebra declined to comment.
The hedge fund firm can thank its short book. In April, Sylebra’s longs cost it 3.8 percent of performance as the shorts kicked in 8 percent to gains, the source says. For the year, the hedge fund made just 5 percent from its longs but 23 percent from its shorts.
Nonetheless, Sylebra tells investors that though shorts have continued to be the dominant contributor, its excitement lies with the long book, where it sees huge asymmetry and return potential over the next 12 months.
“Despite overall strong performance in Q1, the long book includes several stocks that have underperformed but where we anticipate a number of market catalysts throughout the year,” Gibson told clients in his first-quarter letter, obtained by Institutional Investor. “This shows us material potential upside in these laggards, and we are excited to see them realize their value.”
Gibson was previously a partner at Philippe Laffont’s Coatue Management. He heads up Sylebra with chief operating officer Matthew Whitehead, who joined the firm in January 2016 from LIM Advisors, a hedge fund firm based in Hong Kong.
Sylebra currently manages about $2.8 billion. It lost 1.9 percent in 2023 but gained 15.7 in 2022, when many tech-oriented funds suffered huge losses, so its recent two-year run was very profitable compared to many other funds. However, it did lose 35.1 percent in 2021.
Sylebra likes to tell its investors that its team is made up of old-fashioned stock pickers who are adept at shorting. Its largest longs rarely come from the ranks of the most widely held hedge fund stocks. The fund generally runs a very low net exposure that falls in a range between plus and minus 15 percent, a much lower figure than that of the typical tech hedge fund.
Entering the second quarter, however, its net exposure was 21.4 percent. Throughout the first quarter, gross exposure had risen from about 190 percent to 250 percent, which, the firm insists, reflects “a growing confidence in our long strategies and a response to the positive market dynamics.”
In the first-quarter letter, Sylebra singles out several long positions and one shorting strategy. For example, it points out that semiconductor company Impinj has surged since the first half of 2023 and says Sylebra believes it retains considerable growth potential.
“Impinj is one of the only semiconductor names outside of Nvidia that has been beating and raising numbers, and its strong operational results have come during a challenging period for end markets,” the hedge fund explains. “Further boosting Impinj’s outlook, the inventory issues that plagued it in 2023 have now stabilized, and we believe that the company is poised for a return to secular growth.”
Plus, it significantly resolved a lawsuit with NXP Semiconductors.
Sylebra also likes American-Dutch company Elasticsearch, a search company that builds self-managed and software as a service (SaaS) offerings, even though it was one of the hedge fund’s biggest long losers in the first quarter. “We continue to own the stock due to several factors that indicate a potential rebound and further performance in the year ahead,” Sylebra says.
The hedge fund stresses the growing demand for generative AI applications, an area where Elastic’s products excel, particularly in vector search and notes. It also believes that the acquisition of software company Splunk by Cisco Systems “could inadvertently benefit Elastic by creating additional market space and wallet share gains.” And Sylebra points out that Elastic’s contracted subscription cloud growth has been impressive, accelerating to 46 percent growth in the fiscal third quarter.
“The company is witnessing accelerating growth along with strong margin expansion, which could lead to earnings surpassing current expectations,” Sylebra says.
Then there is cybersecurity company SentinelOne, another first-quarter loser for the hedge fund. Sylebra asserts that it has the potential for a strong recovery and robust growth, noting that it recently reported a solid earnings quarter as well as positive guidance: “The company continues to lead as a top security technology platform, commanding a significant presence in the expansive endpoint security market.”
Sylebra adds that SentinelOne is the fastest-growing company in the software sector and has introduced several new product categories: “We anticipate the company’s growth rate, currently over 40 percent, to remain robust throughout the year.” Meanwhile, the stock trades “at a massive valuation discount compared to its competitors, including CrowdStrike,” Sylebra says.
On the short side, Sylebra tells clients its de-SPAC shorts had “an impactful quarter” for the fund, contributing 6.2 percent in the first quarter. These are shares of companies trading after merging with blank-check companies. It is a strategy Sylebra identified in 2021 as “a unique, once-in-a-lifetime opportunity,” coinciding with a peak in the number of companies coming to market via SPAC. The hedge fund firm says that over the past three years, these positions generated 50.3 percent in absolute performance and more than $1 billion in gross profits across the Sylebra funds.
Still, in first-quarter 2024, Sylebra “strategically reduced” the de-SPAC short exposure, noting that about 50 percent of its inception-to-date de-SPAC P&L had been realized. Today the de-SPAC trade has moved from being Sylebra’s largest short exposure to about 15 percent at the end of the quarter.