| O. Andreas Halvorsen, Viking Global Investors (Bloomberg) |
John Paulson’s Paulson & Co., David Einhorn’s Greenlight Capital, William Ackman’s Pershing Square Capital Management, Larry Robbins’s Glenview Capital Management. These four New York–based firms are among a larger group of hedge fund managers that are taking a big beating this year, posting losses well into the teen and 20 percent range for the first ten months of the year. Many of them have loaded up on health care, media, Internet and technology stocks that have plummeted by breathtaking amounts.
However, a number of long-short managers — especially those with roots in Julian Robertson Jr.’s Tiger Management — who have not fared too well with their long positions are still up for the year and poised to do well by their investors because they did a good job with their short bets.
In other words, these funds actually did a good job of meeting their promise to hedge during perhaps the stock market’s most volatile period since the 2008 financial crisis. And these are the firms that are likely to be rewarded down the road by new investors, while the losers — some of whom seem to be doubling down on their biggest losing bets — are poised to suffer big redemptions if their losses continue to mount or they are unable to reverse their decline in the next year.
For example, we recently pointed out that in the third quarter Passport Global’s equity longs lost 23.3 percent in the September period. However, the portfolio’s shorts were up 27 percent, enabling the fund’s long-short equity portfolio to gain 3.7 percent, on a gross basis, according to the firm’s third-quarter letter to investors. The fund is managed by San Francisco–based Passport Capital Management.
Not surprisingly, many Tiger Cubs and other descendants of Tiger Management have also fared well with their short positions. A good example is Viking Global Equities, the long-short fund managed by O. Andreas Halvorsen’s Greenwich, Connecticut–based Viking Global Investors. It managed to post a 4 percent gain over the first nine months of the year despite having a big bet on health care stocks, several of which plunged in price in the third quarter. The reason: deft short-selling.
For example, VGE’s longs lost 6 percent in August and again in September. Yet in those two months the shorts gained 3.7 percent and 2.4 percent, respectively, on a gross basis, according to the fund’s third-quarter letter. As a result, for the first nine months, the longs were up just 0.7 percent while the shorts rose 6.1 percent. The top short sector was energy; the fund gained 3.7 percent on its bets against the sector in the first three quarters of the year. In fact, the only sector on which Viking lost money on the short side was consumer staples. On the long side, energy bets fell 2.1 percent, while investments in industrials lost 1.8 percent.
Hound Partners, the New York–based Tiger Seed headed by Jonathan Auerbach, also avoided huge potential carnage thanks to its short positions. For example, the firm’s longs lost 5.82 percent and 9.64 percent, gross, in August and September, respectively. However, during the same two volatile months, the shorts gained 2 percent and 2.9 percent, respectively. Those are not great gains considering how much the fund’s longs and the overall market fell those two months.
Still, for the year, the longs were actually up 4.42 percent and the shorts were up 7.3 percent, which works out to a 10.9 percent gross gain for the year, or 7.69 percent net. Pretty impressive results.
Benjamin Gambill III’s Tiger Eye Capital, a New York–based Tiger Seed, posted a 9.7 percent loss from its long positions in the third quarter. But this was offset by a 5.5 percent gain from its short book. For the year through September, the short book had gained 6.2 percent, while the longs fell 5.6 percent, enabling it to eke out a roughly 0.5 percent gain.
Chase Coleman’s Tiger Global Management can also thank its short portfolio for limiting the damage at its long-short funds, collectively called Tiger Global Investments. The funds were down 5.1 percent net through September.
Its long positions, however, lost 11.2 percent in the third quarter, while the shorts gained 6.6 percent. For the first nine months of the year, the longs were off 5.3 percent while the shorts were up 4.5 percent.
Negative bets on technology stocks accounted for two thirds of the gains on the short side. However, the funds lost 0.7 percent on their tech longs. On the other hand, Tiger Global lost 1.6 percent on its health care shorts. During the market’s rally in October, the funds were able to return to the black after gaining 8 percent for the month, putting them up 3 percent for the year.
