| Raymond Nolte, SkyBridge Capital (Bloomberg) |
Most activist-oriented hedge funds have weathered the volatility that has plagued the markets this year — and that’s especially good news for one large fund of funds that is heavily skewed toward the strategy. The SkyBridge Multi-Adviser Hedge Fund Portfolios – Series G fund, run by New York-based fund-of-funds firm SkyBridge Capital, is up about 3.25 percent in the first quarter of this year after posting gains of 14.25 percent last year and 21.29 percent in 2012. It is managed on a day-to-day basis by chief investment officer Raymond Nolte.
Although the fund typically has 30 or so funds in its portfolio, the top ten holdings comprise about two-thirds of its assets. And those holdings are tilted toward activists, event-driven funds or those that benefit from some sort of catalyst, including the activities of activists and event-driven managers.
The fund’s top-ten investments include two offerings from John Paulson’s Paulson & Co. alone — Paulson Recovery Fund, SkyBridge’s largest holding with about 13 percent of assets — and Paulson Partners Enhanced. Its second largest holding is Daniel Loeb’s Third Point Ultra, at nearly 8 percent of assets; its fourth largest position is Barry Rosenstein’s Jana Nirvana Fund and its fifth largest investment is in Nelson Peltz’s Trian Partners.
“We have built a more thematic approach to fund-of-fund investing,” says Nolte. “We are more like a multi-strategy fund.”
SkyBridge, the fund’s investment advisor, was founded by Anthony Scaramucci. He along with Nolte serve as co-managing partners of the firm, which has $10.5 billion of assets under management, including $7 billion in discretionary assets and $3.5 billion under advisory. This year alone the firm has raised nearly $1.2 billion for its fund-of-fund vehicles. But it is also well known for the glitzy SkyBridge Alternatives Conference — or SALT — held each year in Las Vegas.
SkyBridge is the seventeenth largest hedge fund-of-funds firm in the world, according to London-based Preqin, which keeps track of alternative investment firms. Nolte joined SkyBridge in June 2010 when the firm acquired the Hedge Fund Management Group of Citigroup Alternative Investments, where he had served as chief executive officer and chief investment officer of the group as well as chairman of its investment committee.
Nolte says that until the end of 2012, 40 percent of the SkyBridge fund’s assets were comprised of funds tied to pre-payment sensitive mortgages, a bet that interest rates would decline or stay low. He also says that for an 18-month period from 2010 to 2011, he had a sizable bet on gold, peaking at 10 percent of assets. He then got totally out of the position in one quarter in 2011.
From 2012 to 2013 he starting reducing the mortgage exposure and simultaneously increased the fund’s move into event-driven equities, which now account for 40 percent of assets spread over eight managers.
Nolte also does not like macro funds these days. “The environment is too difficult to make money,” he says. He adds that there is no predictive power to determine how they would act if the market moves and whether they would make money. This is especially true for systematic traders — those that rely heavily on computers to make investment decisions — although he says it is harder for discretionary managers as well. Part of the problem is they are heavily affected by global central bank decisions and pronouncements by the likes of Federal Reserve chairman Janet Yellen.
In any case, Trian is the only fund among Skybridge’s top ten holdings that is a pure-play activist fund. The Paulson Recovery fund is an event-driven fund that was Paulson’s best performer in 2013, with a 63 percent gain, while Paulson Enhanced is a leveraged version of Paulson’s merger arbitrage fund, Paulson Partners.
Neither Third Point nor Jana devote their entire portfolios to activism. However, both firms, especially Jana, spend considerable time trying to play an active role in a company’s strategy to extract additional value.
SkyBridge also chose those firms’ riskier offerings. For example, Third Point Ultra uses borrowed money to boost returns, while Jana Nirvana is a more concentrated version of the flagship Jana Partners fund.
How long does Nolte figure to remain heavily exposed to the activist/event-driven strategies? He figures to remain this way through the end of the year, although he stresses it is tough looking out more than six months.
However, he does say if the markets went up another 10 percent to 15 percent he would lower his exposure to the group. “A lot of it is market dependent,” he concedes.
