A top hedge fund's reported $800 million bet on vaping could be in jeopardy as regulators set their sights on e-cigarettes

NJOY E-cigs

  • Jason Mudrick, the founder and chief investment officer of Mudrick Capital Management, has placed a massive bet on the vaping and e-cigarette space.
  • The high-profile investor's flagship fund has invested nearly $800 million - close to 30% of the firm's total assets - in e-cigarette maker NJOY Holdings, according to a report from Bloomberg.
  • The investment has powered most of the fund's 30% return this year, Bloomberg found. But Mudrick's prized stake in the e-cigarette maker could be in jeopardy as the future of the industry is being called into question by regulators.
  • Policymakers and regulators alike are warning an underage-vaping epidemic could be spreading as vaping-related lung diseases have killed eight people across the US and affected more than 500 others.
  • Visit the Markets Insider homepage for more stories.

As regulatory pressure ramps up against vaping and e-cigarettes, a top hedge fund's $800 million bet on the space could be in trouble.

Mudrick Capital Management - a hedge fund founded by high-profile investor Jason Mudrick that manages about $2.8 billion - has close to 30% of its total assets invested in e-cigarette maker NJOY Holdings, according to a report from Bloomberg. Advertisement

The firm's $800 million stake in NJOY has fueled most of its flagship fund's 30% return this year, Bloomberg found. Mudrick's flagship fund invests in distressed companies on the verge of or recovering from bankruptcy.

The fund purchased a 51% stake in NJOY back in 2017 when the company was worth $40 million and fresh out of bankruptcy, according to Bloomberg. The size of the stake has dropped to about 40% after Mudrick sold some shares to earn back its initial investment.

Mudrick's stake in NJOY was the sole driver of the its 25% return in the second quarter, and without the investment the fund would have posted a loss for the period, Bloomberg reported.
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The fund's outsize returns this year stand in stark contrast the fund's competitors in distress investing, according to data compiled by HSBC. The year-to-date average for distressed funds is 5.59%, the bank said in a report.

Read more: 'Invest in what's scarce': Famed economist David Rosenberg explains how the average trader can supercharge returns in a tumultuous market But Mudrick's investment could be in jeopardy as the vaping industry comes under greater scrutiny amid a growing number of vaping-related deaths and diseases.Advertisement

The Trump administration shocked the industry last week after announcing it would work toward removing almost all flavored e-cigarette products from the market. The Food and Drug Administration still needs to approve the effort.

Top Juul investor Altria has lost about $30 billion in market value since the FDA launched an investigation into a potential link between Juul's products and users experiencing seizures.

Bloomberg found that the recent scrutiny of vaping threw a wrench in NJOY's efforts to raise new funding. The company was recently looking to raise new capital at a valuation of as much as $5 billion, more than double what NJOY was valued at during a funding round in May.Advertisement

NJOY abandoned the fundraising effort as the regulatory pressure began heating up on the industry, according to the report.

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