The long run-up in equity prices seems to be providing a lift to managers starting new equity hedge funds. Among the most closely watched of these is Meredith Whitney’s Kenbelle Capital. Whitney is the former Wall Street analyst who correctly predicted the subprime mortgage collapse but fell flat more recently after forecasting a string of municipal bond defaults that hasn’t occurred. Kenbelle’s American Revival Fund, a long-short equity strategy, started trading on November 1 with about $50 million that reportedly includes backing from Michael Platt and other partners at Guernsey-based BlueCrest Capital Management.
The biggest of the bunch by far, however, is the new long-short fund from Stephen Mandel’s Lone Pine Capital in Greenwich, Connecticut. The fund, Lone Tamarack, is expected to launch in January with $2 billion. Mandel, one of several successful Tiger Cubs, already manages $22 billion at Lone Pine. The big allocation to his firm indicates that investors still have a preference for large, established managers over newer ones.
One question that has been a hot topic of discussion within allocation circles is whether any of the money going into new equity funds represents reallocated capital that was previously invested with Steven Cohen’s SAC Capital Advisors. SAC recently agreed to pay a $1.2 billion fine to settle federal insider trading charges, plus a further $616 million in civil penalties to the Securities and Exchange Commission, and its investors have withdrawn an estimated $5 billion — an amount equal to about half of what was placed with equity hedge funds in the third quarter of this year. There has been considerable speculation on where those SAC assets will land, but one likely spot for investors looking to redeploy funds with another big-name equity specialist would be Mandel’s Lone Pine.
Although the rising stock market creates an opportunity for equity managers, simply riding the beta wave won’t impress investors. They want to see managers who can outperform the market. “It has become a lot better environment for stock pickers,” says Robert Leonard, global head of capital services at Credit Suisse in New York.
Credit Suisse, which periodically surveys institutional investors, saw a shift from macro funds, which were the top preference in 2011 and 2012, to long-short equity funds in 2013. In its midyear “Hedge Fund Investor Survey,” published in July, Credit Suisse found that long-short equity was the strategy favored by 57 percent of respondents globally, followed by event-driven (47 percent) and global macro (39 percent).
“We believe that there is still a significant amount of capital on the sidelines looking to come in,” Leonard says. There will be no shortage of start-up managers competing for that capital. Other recent equity launches include Gina Goodman’s Reid Street Capital, which will invest in U.S. consumer-related companies; a $200 million long-only fund from Rail-Splitter Capital Management; and an Asian long-short equity fund from Goldman Sachs Investment Partners.