Soroban Capital Partners has launched a new hedge fund and is expecting to raise about $1.5 billion for the vehicle, which will focus on the firm’s best investment ideas.
Soroban, a New York–based long-short equity firm, debuted the Soroban Opportunities Fund on August 1. The firm told clients in a recent letter that Soroban partners will invest $50 million of their own money, and they expect to hard close the fund “over the next few months,” adding that the fund is “significantly oversubscribed.” The new fund “will be an opportunistic, concentrated portfolio,” according to the letter.
Soroban was launched in late 2010 with $130 million. As of the end of the second quarter, it reported having $6.3 billion in assets, up from $5.4 billion on January 1. The firm is headed by Eric Mandelblatt, one of the founding partners and portfolio managers of TPG-Axon Capital Management, and Gaurav Kapadia, a former TPG-Axon partner.
Mandelblatt worked at Goldman Sachs from 1998 through 2005, starting as an equity research analyst in the investment research department, covering natural gas pipeline and distribution companies and master limited partnerships. He eventually rose to become chief operating officer of the U.S. Principal Strategies business in 2004. Kapadia graduated magna cum laude from the Wharton School at the University of Pennsylvania with a BS in economics with concentrations in finance and management.
Soroban raised its profile earlier in the year when the Williams Cos. reached an agreement with Soroban and Keith Meister’s Corvex Management. Under the deal, Mandelblatt was immediately appointed to the Williams board of directors. The two hedge fund firms also agreed to a standstill provision and other provisions and not to launch a proxy fight at the 2014 annual meeting or any subsequent meeting as long as their representatives serve on the board.
Soroban is not exactly a staid, conservatively managed fund. The Soroban Master Fund gained 14 percent net in the second quarter alone after losing less than 1 percent in the first quarter. As a result, it was up 13.3 percent for the first half of the year, according to its quarterly letter.
In the second quarter its gross exposure ranged from 160 percent to 196 percent and finished up at 193 percent. Its net exposure ranged between 8 percent and 33 percent and ended the quarter at 12 percent.
Soroban said longs kicked in 22 percent to second-quarter performance, led by energy and technology investments. The only losing trade was S&P 500 call options. Williams alone accounted for 7.79 percent of performance thanks in large part to the company’s acquisition of the remaining 50 percent of Access Midstream it did not own. Apple call options kicked in 3 percent to performance, while Cheniere Energy and Autodesk were also singled out for their gains.
Soroban added that after using the market sell-off in April to add to risk positions — especially in the consumer discretionary and technology sectors — it “dialed down” the exposure in July following the May and June rally.
“The fund continues to be fully invested as we are seeing a good flow of opportunities on both the long and short sides of the portfolio,” the firm stated in the letter. “We continue to believe the backdrop of an extraordinary low interest rate regime, combined with a solidly growing global economy and a strong flow of corporate activity, will lead to an overall positive environment for equities.”
At the same time, Soroban stressed that it remains “disciplined with regard to portfolio risk taking and levels.” So, for example, it is now long “a significant quantity” of out-of-the-money equity puts on a variety of global indexes, sector exchange-traded funds and individual stocks. This is a prudent strategy given that volatility is at or near decade lows, Soroban explained.
Soroban told clients that as of the writing of the letter, it had 24 long positions of 50 basis points or larger in size. Its top ten positions accounted for roughly 72 percent of long exposure, excluding call options. At the same time, the short book included 36 positions of 50 basis points or greater in size.
Soroban’s five largest positions on what it calls “a dollars-at-risk basis” are Williams, Autodesk, CBS, Dollar General Corp., and Air Products and Chemicals. It also owns a huge stake in Apple strictly through call options.