Chris Hansen’s Valiant Capital Partners is bullish on the power sector.
In the second-quarter letter, obtained by Institutional Investor, the Tiger Grandcub told investors that during the quarter his long-short hedge fund firm initiated new long positions in the sector. Valiant also created a new side-pocket vehicle so investors could increase their exposure to these investment opportunities.
“As we continue our work on artificial intelligence and the ongoing infrastructure investment cycle implications, we are increasingly excited about the investment opportunity posed by the U.S. power industry and associated value chain beyond the rising data center demand,” Hansen stated. “With AI as an accelerant, we appear to be at an inflection point in U.S. power consumption.”
Hansen stressed that after decades of near-zero growth, his firm expects accelerating demand in the U.S. for the next decade.
“While not normally a cause for alarm, it is when the demand is met with a flat and increasingly intermittent generation base,” he added. “Even more concerning is the grid’s inability to cope with demand growth due to decades of minimal investment.”
Valiant expects U.S. aggregate demand will grow at a 3.5 percent compounded annual growth rate (CAGR) over the next seven years, which Hansen notes is the kind of growth the U.S. has not experienced since before the 1980s. “This is well above market expectations in both magnitude and duration,” he said.
There are a number of diverse drivers of this demand inflection, according to Hansen. They include manufacturing onshoring that has accelerated in the recent past, electrification of several residential and industrial functions, and, most recently, data center and AI investments.
“The inflection is already happening, as shown by recent demand revisions from several large regional transmission organizations in the U.S.,” Hansen added.
He noted that PJM Interconnection, a regional transmission organization, raised its ten-year load forecast by 8 percent in the past year, and another group recently published a forecast for 2030 that Hansen said “implies an annual growth cadence” nearly 11 times the amount seen in the previous two decades.
Hansen said these developments have provided Valiant several sub-investment themes, including a revaluation of existing merchant power assets, a race to gain access to power, a need for new base load generation, and a critical investment cycle to overhaul the U.S. electric grid
He singled out at least two stocks that he initiated positions in during the second quarter. They include Constellation Energy, a merchant power generator that he thinks will benefit from a growing supply-demand imbalance that should continue to put upward pressure on wholesale electricity prices in certain regions. He says it has the largest fleet of nuclear power assets in the country. “CEG appears ideally positioned to monetize growing power demand given its regional focus, and is one of the few companies [that] can provide the hyperscalers with a solution to their current power predicament through potential behind-the-meter opportunities,” Hansen explained.
In the second quarter, Valiant initiated a medium-size stake in the company, making it the firm’s 11th-largest U.S.-listed common stock long position, according to the most recent quarterly 13F filing. It bought call options on the stock as well.
Hansen also singled out Core Scientific, which became Valiant’s fifth-largest long position in a U.S. stock after the firm initiated the stake in the second quarter, according to the regulatory filing. It is a bitcoin miner that Hansen says has begun transitioning into a data center REIT.
He described it as a “hyperscaler” that has secured access to reliable power in attractive geographies. “This business model pivot will change the way the market perceives the company and should drive material multiple expansion,” he added.
Hansen is so optimistic about the prospects for power generation that he has launched a dedicated side pocket vehicle that will allow his investors to increase their exposure to these investment opportunities. He says the vehicle will make concentrated investments across the themes he is focused on and can be adjusted based on market developments and incremental research findings. This will be Valiant’s fourth SPV. Two of them have had high returns.
His Inflation Hedge Swaption SPV has generated a 282.5 percent net internal rate of return, and his GLPI (Eli Lilly) vehicle has generated a 237.6 percent IRR — with a realized return of approximately 120 percent of invested capital after the firm trimmed the position. In contrast, Hansen acknowledged that he “overstayed” his welcome in his Zillow SPV, which had a negative 74.7 percent IRR.
Valiant’s hedge fund’s liquid portfolio was up 13.28 percent through the first half after surging 7.84 percent in the second quarter, according to the second-quarter letter. However, it lost 8.7 percent in July, most of the decline occurring in the month’s final ten days when the market’s leadership and trends reversed, the letter reveals. Its fortunes sharply reversed at the beginning of August. The portfolio was up 4.1 percent net amid August’s downturn as of August 12, according to the letter.