A Look at Indaba Capital's Shifting Portfolio: Q3 2022 vs. Q4 2022

Indaba Capital Management, L.P. recently released their 13F holdings report, detailing changes made to their portfolio in Q3 2022 compared to Q4 2022. The report revealed significant shifts in the fund's holdings, with some major positions reduced or eliminated while others were increased.

In this blog post, we will take a closer look at these changes and explore the reasoning behind them. We'll also discuss the potential impact of these moves on Indaba Capital's investment performance and what it could mean for investors.

Overview of Indaba Capital

Before we dive into the specifics of the holdings report, let's briefly recap who Indaba Capital is and what they do. Indaba Capital is a hedge fund based in New York City, founded in 2011 by Derek Schrier and Nick Dignam. The fund focuses on event-driven investing, which means they invest in companies that are undergoing significant changes or experiencing corporate events such as mergers, acquisitions or bankruptcies.

Indaba Capital has a relatively small portfolio of around $500 million invested across 15-20 positions at any given time. Their portfolio is highly concentrated, with the top 10 holdings accounting for over 80% of their total portfolio value.

Q3 2022 vs. Q4 2022 13F Holdings Comparison

Now let's take a closer look at the changes made to Indaba Capital's portfolio between Q3 2022 and Q4 2022.

Reductions and eliminations:

- Fintech company Benefitfocus (BNFT) was a major holding in Indaba Capital's portfolio in Q3 2022, with 3.96 million shares valued at $25.2 million. However, by Q4 2022, the fund had completely eliminated their position in the company.

- Healthcare technology company Tabula Rasa Healthcare (TRHC) was another significant holding for Indaba Capital, with 6.5 million shares valued at over $31 million in Q3 2022. However, the fund reduced their position by 97,222 shares in Q4 2022, bringing their total position down to 6.4 million shares.

Increases:

- Cloud-based software company Sprinklr (CXM) was a new addition to Indaba Capital's portfolio in Q4 2022, with the fund purchasing over 1 million shares worth $32.5 million.

- Specialty chemicals company Momentive Global (MNTV) was another new position for Indaba Capital in Q4 2022. The fund purchased just under 50,000 shares worth $2.6 million.

Potential impact on Indaba Capital's investment performance

It's important to note that we don't have access to Indaba Capital's entire investment strategy and philosophy, and therefore cannot make definitive predictions about the impact of these changes on their performance. However, we can make some educated guesses based on what we know about their portfolio and investment style.

The elimination of the BNFT position suggests that Indaba Capital may be moving away from fintech plays in the current market environment. It's possible that the fund's managers see better opportunities to generate returns in other sectors.

Conversely, the addition of CXM and MNTV indicates that Indaba Capital may be bullish on cloud computing and specialty chemicals, respectively. These sectors could be drivers of outsized returns for the fund if their investments pan out.

Conclusion

Indaba Capital's recent 13F holdings report provides a glimpse into the fund's shifting investment strategy. While it's impossible to say for sure how these changes will affect the fund's performance, they do offer some insights into where the fund sees potential opportunities in the current market environment. As always, investors should do their own research and consider their own risk tolerance before making any investment decisions.