Hoplite Capital Management, the New York–based hedge fund firm founded by former Tiger Management analyst John Lykouretzos, has defied the tough fundraising environment for managers, pulling in $400 million in the first quarter of this year and boosting its total assets under management to $2.47 billion at the end of March.
The quarter-end asset figure also accounts for $59 million in redemptions in the first quarter. Hoplite had been closed but was briefly reopened to take in new money. “We are pleased with the interest we received from both existing and new investors for our opening in the first quarter,” Lykouretzos wrote in a letter to investors dated April 24. The Tiger Cub also stated he “will look to open again” in October for “a more limited amount of capital.”
Lykouretzos is one among several dozen Tiger Cubs, the name given to individuals who once worked for Julian Robertson Jr.’s Tiger Management. Lykouretzos worked as an industrials analyst at Tiger from 1998 to 1999. He could also be called a Tiger Grandcub because he then went on to work for Tiger Cub O. Andreas Halvorsen’s Viking Global Investors from 1999 to 2003, serving as an industrials analyst and financial services analyst and portfolio manager. He launched Hoplite in 2003.
Since founding the long-short equity fund, Lykouretzos has compounded at 11.66 percent, net of the management fee and expenses but gross of the incentive fee. During the same period, the S&P 500’s total return compounded at 7.18 percent, while the MSCI World Index compounded at about 8 percent.
In the first quarter of this year, Hoplite was up 7.93 percent net of the management fee and expenses but gross of the incentive fee. The fund has a gross exposure of 204 percent, much higher than it has averaged in recent years as well as since inception. Hoplite’s net exposure of 53 percent or so is slightly higher than its average of the most recent three years and much higher than it has averaged throughout its history.
Lykouretzos bet big on the housing market rebound. But in the first-quarter letter he told clients he sold out of his “meaningful positions” in homebuilders, though he still has large positions in their suppliers, such as cement and building materials.
On the short side, Lykouretzos — like virtually all long-short and short specialists — does not identify specific stocks. However, he told clients in the letter that he spends a considerable amount of time “tracking the handset and personal computer markets” while analyzing companies up and down the food chain. “I believe our continued work in this space will contribute handsomely in the coming years,” he added.
The letter also provides interesting insight into Hoplite’s multiple classes of investors. For example, at the end of the first quarter, 61 percent of Hoplite’s assets had quarterly liquidity. However, 14 percent had a one-year lock-up, 4 percent a two-year lock-up and 21 percent had a three-year lockup.
Hoplite’s largest investor accounted for 8.4 percent of assets, while the top five investors accounted for 28 percent of assets. In addition, just 4 percent of assets came from wealthy individuals; the rest came from foundations and endowments, funds of funds, family offices and pension or corporate assets.
Hoplite also announced that it has placed more restrictions on employees. As of April 1, they no longer have monthly liquidity in their own investments in the fund. Rather, they are able to withdraw capital only at calendar quarter-end and must provide the same 45 days’ notice as other investors.
Lykouretzos also announced that he did not take advantage of the terms of his self-imposed lockup policy, which would have allowed him to withdraw some of his money from the firm on March 31. In March 2009, the manager had staggered his lockup for some of his personal capital, so one third was eligible for withdrawal on March 31, 2013, one third on March 31, 2014 and one third on March 31, 2015. He told clients his March 2013 tranche rolled over for three more years. Even so, Lykouretzos may withdraw up to half of the profits from any series of interest to pay taxes. Altogether, 49.6 percent of his personal assets are not locked up.
Apparently, outsiders are just as confident as the founder in the fund’s prospects, judging by his fundraising success. Hoplite’s roughly 20 percent gross increase in assets in a single quarter is unusual for a hedge fund in the post-2008 environment, when a market sell-off spooked investors, including those with exposure to hedge funds.
It is possible that Hoplite’s feat could signal a turning point for managers in terms of raising assets. According to Hedge Fund Research, investors allocated $15.2 billion of net new capital to hedge funds in the first quarter, the best quarter in a year.
“In general, the capital raising environment is still challenging, but may be slowly improving and less challenging than it has been over past two years,” says Kenneth Heinz, president of HFR, in an e-mail, stressing that he is not addressing Hoplite specifically.
But managers may not want to get their hopes up just yet. Just 57 percent of all hedge funds took in net new money in the first quarter, according to HFR.
Peter Laurelli, vice president and head of industry research with eVestment, said in an e-mail that raising a large amount of capital in a short period is very fund specific, and the strategy will dictate the ease of doing this in the current environment (Laurelli also stresses that he is not commenting on Hoplite specifically). “I suspect it would be hard for a long-short equity strategy to raise $400 million in short order right now,” he adds.
