(Jennifer S. Altman/ FOR THE WASHINGTON POST ) - Sahm Adrangi, principal at Kerrisdale Capital Management, is seen in offices on July 18 in Manhattan, N.Y. Adrangi runs a fund that roots out fraud at Chinese companies then shorts the stocks.
Sahm Adrangi works with six other people in a small room on Madison Avenue with a view of an adjacent brick building. He doesn’t speak Chinese. He’s never set foot in China. At 30, he claims no special insight into the sources or durability of the Chinese economic miracle.
Yet he has managed to dig up enough information to wreck the fortunes of several Chinese companies — while building up his own.
One way to make a bundle
Two years ago, Adrangi, a 2003 Yale graduate, left an investment banking job and set up a small hedge fund, largely with money from himself and his parents, as well as a few other supporters. Since then, his red-hot fund has increased sixfold, partly a fortuitous accident of market timing but mostly a product of his ability to spot flimsy Chinese companies listed on U.S. markets — which he bets against by short-selling them.
The firm is tiny by hedge fund standards, with $20 million under management. But Adrangi has promoted his bets through newsletters and online postings that savage U.S.-listed Chinese companies he views as “scams.” In doing so and doing well, he has grabbed the attention of eager U.S. investors and fearful Chinese executives — not to mention U.S. regulators who are trying to keep track of about $20 billion worth of small- to medium-size Chinese companies listed on U.S. exchanges.
Here are a few samples of Adrangi’s scathing assessments:
China Education Alliance “is mostly a hoax,” he wrote of a Chinese for-profit education firm, which then had a $150 million market value on the New York Stock Exchange and is now worth less than $25 million. The company’s Harbin “training center” — which CEA said had “17 modern classrooms” for 1,200 students — had no desks and was all but empty, Adrangi said. It boasted of online revenue, but its Web site didn’t work.
China Biotics claimed to have more than 100 outlets for its nutritional supplements; Adrangi said he hired researchers who checked all the company’s business addresses and found only four outlets. Later, on June 22, the company’s auditors resigned, citing “irregularities” that might “constitute illegal acts” and for which the board had “not taken timely and appropriate remedial actions.” The company is contesting a shareholder suit in Washington that makes the same allegations.
China Marine, a maker of snacks and an algae drink, reported revenue to China’s State Administration of Industry and Commerce that was 85 percent lower than what it reported in U.S. filings, Adrangi said. The company reaffirmed its U.S. reporting, but on Aug. 8 (considered an auspicious day in China), it announced just $1 million in quarterly profits, down 85 percent from a year earlier.
Noting extremely high profit margins claimed by one of China’s battery manufacturers, Adrangi wrote that he believed the firm was “fabricating its SEC financial statements.” He added that the company’s battery plant “is either the world’s most spectacular battery manufacturing facility or the company’s financial statements are fiction. We believe it’s the latter.”
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