“It was just me and a computer and a whole bunch of people who thought I was unemployed,” he says.
Lots of hedge-fund managers are happy to operate in secrecy, but Adrangi decided early on to make himself known. Once a month, he e-mailed an investment write-up to a list of 30 or 40 people he knew in the industry. In time, one of his roommates, who ran a blog for distressed-debt investors, began posting these notes online, and his distribution list grew. He also began spending time on geeky finance websites like Value Investors Club, SumZero, and Seeking Alpha, where investors gather to exchange stock ideas and call each other idiots in the comments section.
Adrangi was good from the start. In 2009, he made nearly 40 percent on his money, thanks to an esoteric trade involving the warrants of special-purpose acquisition companies that could be used for low-risk profits via some clever financial alchemy. (“Free money,” he calls it.) But his fund was still tiny by Wall Street standards, and he was still a no-namer outside his webby finance clique.
His mainstream break came in 2010, when he began researching U.S.-listed Chinese companies, outfits that were based in China but had managed to get themselves onto the American stock exchanges by performing what’s known as a reverse merger. As Adrangi looked through their U.S. filings and compared them to filings he had obtained from a Chinese regulatory agency, he found red flag after red flag: accounting irregularities, dubious growth claims, shady auditing practices. In one case, a for-profit education company, China Education Alliance, was claiming millions of dollars in revenue despite having a website that was barely functional. Adrangi hired a Chinese investigator to visit the company’s training center, which was found to be almost entirely empty. Once he was sure the company was, in his words, “mostly a hoax,” Adrangi spent more than 20 percent of his entire fund shorting its stock. He had been posting about his findings on Seeking Alpha under the pseudonym “ChineseCompanyAnalyst,” but he used the Kerrisdale name for his new research. The stock fell nearly 40 percent in two days. His fund finished up more than 60 percent for the year.
Adrangi, who was eventually outed as ChineseCompanyAnalyst by a Bloomberg Businessweek reporter, wasn’t the only trader questioning the legitimacy of reverse-merged companies—and had in fact been steered to them by a Texas investor named John Bird—but he was among the most persistent. Over the next few months, he found several more Chinese companies he suspected of fraud. Each time the routine was similar: Short the stock, write the report, post it online, and watch the stock fall.
He estimates he personally made “a couple million” from the Chinese shorts, but more important, he got his name out in the open. Most hedge-fund managers try to move markets by presenting their new investment ideas at big, flashy investment conferences or on CNBC, where they can be assured of an instantaneous reaction. But Adrangi realized that as long as he stuck to smallish, little-known companies and really did his homework, he didn’t need a huge audience to move a stock. He just needed his blog, his e-mail list, and a good idea. Institutional investors had once scoffed at hedge-fund managers who had Internet presences, figuring they were minor-leaguers. But Adrangi was different. Smarter. Luckier, maybe. He was the most successful guy in the online peanut gallery—and one with prime brokerage at Goldman Sachs and a team of white-shoe lawyers from Akin Gump.
“Publishing to support a stock position is something you see the big guys do, but really taking that on at a smaller level is probably more effective,” says Cal Wells, a close friend and former trading opponent of Adrangi’s. “Watching Sahm take that model and run with it has been pretty interesting.”
By the end of 2011, Adrangi was big time. Thanks to the Chinese shorts, Kerrisdale was up 180 percent for the year, and by the end of 2012, it was ranked one of the best-performing hedge funds in America over a three-year period, according to the Barclay Hedge Fund Index. His fund began attracting tens of millions from new investors, and his success freed him from trying to prove that he was a grown-up.
“In this business, you can be a total weirdo, be a nice guy, whatever,” he says. “All that matters is where your returns are.”
Lately, Adrangi has been enjoying the fruits of his success. He moved into a spacious Soho penthouse with twin terraces, began spending weekends at a shared house in the Hamptons, and switched out his suits for Hugo Boss. His life now includes assistants and occasional chefs and D.J.’s for the Thursday-night parties he throws in the summer. The most recent addition to Adrangi’s life is his girlfriend, Kim Taylor, a tech entrepreneur who starred on a Bravo reality show about Silicon Valley start-ups. Taylor, who runs a search engine for not-for-profit online colleges, met Adrangi while researching the University of Phoenix’s parent company, in which Adrangi owned stock. He was immediately smitten, and soon after, while on a trip to Las Vegas, he commissioned a painted portrait of Taylor wearing a Minnesota Vikings jersey. The portrait now hangs in Adrangi’s living room, and Taylor, who was tickled by the jokey gesture (she’s a hard-core Packers fan), has all but moved in.