Hedge fund Blue Duck Capital Partners is calling on Snap to raise external capital for its augmented reality glasses business, arguing that separating funding for the Specs unit could unlock value for shareholders without further diluting the social media company's equity, according to a report by Bloomberg.

Blue Duck Chief Investment Officer Alex Beinfield said Snap is “profoundly” undervalued and that bringing in outside investors for Specs could help address the gap between the value of the business and Snap's current market valuation.

In a letter to Snap's board on Tuesday, Beinfield said the technology behind Specs was “remarkable” and had significant long-term potential, but cautioned that the glasses were unlikely to achieve widespread adoption over the next one to two years.

A dedicated capital raise would allow Snap to continue funding Specs while limiting the impact on the parent company's cash flow and share count, according to Blue Duck. Beinfield also suggested that additional funding could help Snap reduce the current price of the glasses, which is around $2,200.

Blue Duck estimates that selling a 20% stake in Specs at a $5bn valuation could generate approximately $1bn, enough to finance the division's spending for about two years. The hedge fund suggested Snap consider raising the money from venture capital investors or a strategic partner such as SpaceX.

Failing to pursue such a strategy could leave Snap's share price depressed and constrain the company's strategic flexibility, while also making it harder to retain employees and achieve its ambitions for Specs, Beinfield said.

Blue Duck, a long-short equity manager based in Manhattan Beach, California, has invested in Snap but has not disclosed the size of its position. The firm's campaign adds to pressure from other investors over the amount Snap has committed to developing its AR glasses business.

Activist investor Irenic Capital Management has also built a stake in Snap and has argued that the company should either spin off Specs or shut the business down. Irenic has previously said Snap has invested more than $3.5bn in the unit and that it should now be capable of funding itself.

Snap reportedly did not immediately respond to a request for comment, while Beinfield reportedly declined to comment.