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October 19, 2016  

Founder's Arrest Catching Up to Kerrisdale

Kerrisdale Capital’s assets have shrunk dramatically since the August arrest of founder Sahm Adrangi on charges of cocaine possession and driving under the influence.

The redemptions have left the New York activist shop with about $200 million, down from $354 million at midyear. And more withdrawals may be on the way.

The firm permits monthly redemptions with a 60-day notice, or quarterly redemptions with a 45-day notice. Either way, unless Kerrisdale let investors out early, withdrawal notices submitted following Adrangi’s Aug. 13 arrest may not have been processed yet.

Adrangi was taken into custody following a late-night car accident in Amagansett, N.Y., that injured another driver. He was charged with possessing a small amount of cocaine, a misdemeanor, and refusing to take an alcohol-breathalyzer test. On Sept. 22, he pleaded not guilty in East Hampton municipal court. A hearing is scheduled for Nov. 16.

The East Hampton Star published a photograph of Adrangi in handcuffs. In many cases, such negative publicity would be a fatal blow for a small hedge fund operation. But until this year, Kerrisdale produced consistently strong returns for its limited partners. A source said a number of backers plan to stick with the firm, though it’s unlikely it would be able to raise fresh capital for some time.

Year-to-date, the flagship Kerrisdale Partners fund was down 5.6% at the end of August, following gains of 16.4% last year, 14% in 2014, 27.2% in 2013 and 26.4% in 2012. Since inception in 2009, the fund’s annualized return stood at 26.8% as of Aug. 31.

Adrangi, formerly an analyst at Longacre Fund Management, takes an activist approach to investing in small and mid-size companies. Rather than engage management directly, he prefers to influence decision-making by publishing his research and using social media to highlight his work — particularly regarding his short positions.

Adrangi started the business in 2009 with less than $1 million of family money, and didn’t take in outside capital until 2011. As it posted enviable returns, Kerrisdale attracted increasingly large amounts of capital — which to some degree has suppressed performance. Assets peaked around $450 million at the beginning of this year.