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Maredin Capital Advisors 2014 Full Year Report

|Includes: MannKind Corporation (MNKD)

To view a pdf copy, click here to visit our website and blog.

Maredin Capital Advisors
7700 North Kendall Drive, Suite 506
Miami, FL 33156
305-648-6459
www.maredin.com

Marcelo Zinn, Managing Partner January 19, 2014

Dear Family, Friends, and Clients,

For 2014, the Zinn Fund Partnership ("ZFP") returned a total after fees of 7.9%. Since inception (March 2009), the ZFP has returned a total of 283%.

We provide additional details regarding our performance under the "results" section. Considering the scope of changes at Maredin, we felt it was important to highlight, upfront, our new services, which we discuss below. We will return to our traditional format in the next quarterly letter.

Registered Investment Advisors

This letter marks the beginning of a new era at Maredin Capital Advisors. Early last year, after much thought and discussion with many of our friends and clients, we decided to become Registered Investment Advisors ("RIA"). In October of last year, it became official.

Becoming an RIA has been a significant undertaking, especially since we take the responsibility and trust our clients bestow upon us so seriously. We couldn't have accomplished this without the assistance of a few friends and partners. We wanted to thank and recognize Jon Welch, Cale Smith, Ann Recob, and Terry Nelson for their diligence, expertise, experience, and concerted effort, in helping us become an RIA.

The catalyst for our decision to become an RIA came from numerous friends, friends of friends, and friends of clients that have been unable to invest in our two hedge funds, which by their inherent design, are quite restrictive. Now, as an RIA, we can offer our services to anyone interested in investing with, and alongside, us.

A significant benefit in being an RIA is the manner in which we can assist clients. In addition to the traditional hedge fund vehicles we utilize, we are now offering Separately Managed Accounts ("SMA's"). SMA's are open and held in each client's name, and can include IRA's, 401(k)'s, Individual, Joint, Trusts, Savings, Minors, and other account types.

Separately Managed Accounts allow Maredin to tailor investments to the needs of each individual client. With SMA's there are few limitations as to what a client can invest in.

Though each client's SMA can be individually tailored, clients' investment goals generally lead them to invest in growth and/or income focused vehicles. To address our client's needs, we have created two portfolio's (Goodwin and Ibis) which we believe will help them achieve long-term above-average results.

The Goodwin Portfolio

The Goodwin Portfolio was created to provide long-term capital growth for all investors. Goodwin is ideally suited for those interested in growing their accounts over the long-term. Goodwin can serve as the growth arm of a client's overall portfolio. It's managed by Marcelo Zinn, and nearly all of his family's investable savings are in Goodwin.

The Ibis Portfolio

Ibis is specifically managed to deliver investment income in the form of dividends, and interest through the investment in bonds, bond funds (ETF's and other), debt instruments, REITS, stocks, and other securities whose primary goal is income producing. We will invest across the entire security spectrum, in whatever duration we feel best provides investment income, given the appropriate level of risk.

The Goodwin and Ibis portfolios are managed within each client's separately managed account. This helps increase transparency, reduce costs, provides a direct line to the investment manager, and long-term, we believe it will provide above-average, risk-adjusted returns.

In addition to all the added benefits of being an RIA, it also brings considerable responsibilities. Chief among them is being a "fiduciary" (must legally put our clients' interests ahead of our own). While we have always considered ourselves, as well as operated as fiduciaries, we now have the legal designation. This is something we are quite proud to discuss, as we believe it's an important differentiator.

We highly recommend everyone check out our recently updated website (www.maredin.com), which we've painstakingly worked on, so as to thoroughly explain all the new changes, benefits, and offerings that Maredin now has available.

The Blog: Contrarian by Cynicism

As mentioned above, we completely remade our website in order to better convey all the new changes and offerings that have occurred recently at Maredin. One of the more exciting changes from our point of view has been the creation of our blog: Contrarian by Cynicism. This exciting tool provides Maredin a platform to convey our thoughts, news, articles, and anything else that we believe might interest or benefit our clients. Clients are also able to provide feedback and interact. Make sure you check out the website and input your information in the newsletter section to receive all our blog postings.

Reporting

Historically, reporting was done semi-annually, in the form of client letters. With the addition of our two new investment vehicles (Goodwin and Ibis), we will be consolidating the results and reports of our four vehicles into a single quarterly letter. This constitutes our first attempt.

Results

Zinn Fund - 2014 return of 7.9% vs. 13.7% for S&P500. Cumulative return since inception is 283% for the ZFP vs. 282% for the S&P500, and 64% for BHFI;

We are pleased with our current year's performance, but even more so of our long-term performance compared to the S&P500 and hedge funds. Surpassing the S&P500 is no small feat. In fact, less than 5% of investment fund managers have been able to do so, over the past 6 year period.

Though we exceeded the S&P500 by the narrowest of margins, it's still a considerable feat. The outperformance, and difficulty, of exceeding the S&P500 over the past 6 year period is particularly dramatic when viewed in the context of our results relative to the average hedge fund (BHFI). The average hedge fund has lagged the ZFP, as well as the S&P500, by an average of 10% per year!!

Goodwin Portfolio* - first period return of 3.4%, which occurred in back-half of 2014;

Frontline Fund* - (1%) return over final 3 months of 2014;

Ibis Portfolio* - Started in January, first results will be posted in first quarter of 2015.

*The starting periods for our two new vehicles, as well as Frontline, are not aligned on a calendar basis. Moving forward it will be straightforward to compare results across our vehicles.

As discussed previously, 2014 was a pivotal year for Maredin. We made considerable changes to our operations, increased our offerings, and expanded the types of clients we can now offer our services to. This transition required significant time and energy to execute properly; time, which we would have preferred to dedicate to research and analysis of new investments.

Nonetheless, including the volatility of MannKind, and all the changes that were necessary in 2014, we are pleased overall with our performance. This is especially true, considering that the average hedge fund returned just 3.7% last year, less than half our results.

MannKind

Our investment portfolios witnessed higher than normal turnover as we sold off several of our legacy positions, and invested the proceeds in new positions trading at greater discounts to intrinsic value. While we divested many of our positions, some key legacy positions remain.

Predominant amongst our legacy positions is MannKind Corporation. We have discussed MannKind at considerable length in previous letters, so we will not revisit the entire thesis. However, we wanted to share our general investment frame-work criteria for biotechnology companies (we currently have 4), inclusion in our portfolio:

  1. Large Market
  2. Poorly Met Need
  3. Moat
  4. Improved Therapy/Convenience
  5. Reduces total health care related costs
  6. Discount to Intrinsic value is measure in multiples

MannKind's Afrezza meets all the aforementioned conditions:

  1. 29M diabetics in US alone, nearly 300M Worldwide.
  2. Diabetes is a poorly managed disease.
  3. Only company offering Ultra Rapid Insulin; Patents.
  4. Improved PKPD, and significantly more convenient, especially for new patients.
  5. Less hypoglycemia/hospitalizations, lower long-term care risks = significantly reduced costs across healthcare spectrum.
  6. Should demand meet our low expectations, price is at least 6x current levels.

While the price of MannKind has been quite volatile over the past few years, the rubber will finally meet the road, and speculation will be replaced with cold hard facts over the next 18 months. We are optimistic that our thesis will begin to play out shortly, causing investors to dramatically reassess their view on the company.

Current View

Everyone has an opinion regarding the markets so here is ours: While the stock market is fully valued, it isn't overvalued. Stocks, as a whole, are no longer radically cheap, but good bargains still exist; they are simply more difficult to locate.

Additionally, we do not believe a drastic decline is likely to occur immanently. A decline in the market will inevitably occur at some point in the future, yet, one cannot say with any certainty, when that day will arrive.

As such, we will continue to invest, as we always have: search for undervalued investments which can provide above-average returns. When we successfully identify an investment that meets our criteria, which we have recently, we will put money to work. If we have difficulty identify investments, we will simply hold cash until an opportunity presents itself.

Summary

2014 was a year of positive changes at Maredin. Becoming an RIA was a considerable accomplishment which will have long-lasting benefits for all our clients. As an RIA, we look forward to helping many more individuals than we could have previously.

Separately Managed Accounts provide Maredin the platform to attain the goals of each and every one of our clients, both new and current, for decades to come. Regarding our two new vehicles Goodwin and Ibis, we believe they will provide investors two portfolios that should, over time, provide above-average returns.

We are pleased with our current year's performance, but even more so of our long-term performance compared to the S&P500 and the BHFI. While we cannot be certain regarding any specific years performance, we do believe that several of our positions have clear catalysts which should become apparent in 2015. If we are correct, it should lead to a significant revaluation of their current discounted price, which would be quite positive for our future results.

As always, if you have any questions regarding this report, investing, or anything else for that matter, contact us at 305-648-6459 or email me at marcelo@maredin.com.

Thank you and we look forward to discussing our next results at quarter-end.

Sincerely,

Marcelo Zinn
Managing Partner
Maredin Capital Advisors

Disclaimer

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, (NYSE:A) BY ANYONE IN ANY STATE OR JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR (NYSE:B) TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.

THE DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS, ARE NOT BASED ON HISTORICAL FACT AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "SHOULD," "COULD," "ESTIMATE," "ANTICIPATE," "POSSIBLE," "PROBABLE," "CONTINUE," OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE "CERTAIN RISKS" SET FORTH IN THIS DOCUMENT CONSTITUTE CAUTIONARY SPECIAL CONSIDERATIONS AND STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS DOCUMENT HAVE BEEN COMPILED BY THE GENERAL PARTNER AND THE PARTNERSHIP ON THE BASIS OF ASSUMPTIONS MADE BY THE GENERAL PARTNER AND CONSIDERED BY THE GENERAL PARTNER TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE PARTNERSHIP, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS. THEREFORE, PROSPECTIVE PURCHASERS OF INTERESTS ARE URGED TO CONSULT WITH THEIR ADVISORS (THE OPINIONS OF WHICH MAY DIFFER FROM THOSE SPECIFIED IN THOSE FORWARD-LOOKING STATEMENTS) WITH RESPECT TO THOSE ASSUMPTIONS OR HYPOTHESES.

THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS DOCUMENT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. IF THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS, AND ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS.

Disclosure: The author is long MNKD.