A hedge fund firm founded by SAC Capital Advisors alums is emerging as one of the industry’s fastest-growing players.
Redwood City, California–based Dorsal Capital Management, founded in 2009, has more than doubled its capital in the past year and now manages about $1.5 billion.
One big reason for the red-hot growth: The firm’s flagship long-short equity fund has posted double-digit gains in three of the past four years, with a small 1.1 percent loss in 2013 sandwiched in. This year the fund is up about 7 percent through October, while the HFRI Equity Hedge (Total) Index is up 0.65 percent over the same period, according to Chicago-based data tracker HFR.
Dorsal, which declined to comment for this story, was founded by Ryan Frick, who serves as chief investment officer, and Oliver Evans, who was the firm’s sector head for semiconductors and hardware/networking. Frick and Evans were technology experts at SAC, the firm founded by Steven Cohen. In July 2014, Evans left the firm “to pursue family and personal interests” and not to join another firm, Dorsal emphasized in a letter to clients obtained at the time by Alpha.
Jeffrey Barnett, who joined in June 2009 and serves as chief financial officer and chief compliance officer, is also a partner, and Youlian Petkov, who arrived at the company one month after Barnett, was promoted to partner in 2012.
Dorsal launched its fund with $32 million and closed the fund to new investment after growing capital to more than $700 million in 2012. The firm gradually reopened the fund to new investment during the summer of 2014. By the end of the first quarter of 2015, it brought in between $550 million and $600 million.
The rest of the asset growth comes from performance. Dorsal’s long-short fund, which concentrates on technology, media and consumer companies, tries to generate alpha on both the long and short sides. Among its long positions, the firm seeks out companies with strong free-cash-flow generation, high return on invested capital and reasonable valuations. It considers itself “uncorrelated and idiosyncratic” compared with other hedge funds that emphasize the so-called TMT stocks — technology, media and telecommunications. Dorsal also has been able to operate with minimal volatility, trying to run its portfolio neutral to the market. Its worst drawdown is only about 7 percent.
Several years ago we reported that Dorsal’s gross exposure ranged between 173 percent and 196 percent, and its net exposure ranged from 12 percent to 17 percent. “The tight range . . . underlies our strategy of relying on stock-picking to generate alpha and absolute returns, as opposed to trying to time the market,” the firm stated in its 2012 year-end letter to clients.
Dorsal’s two largest positions at the end of the third quarter — at nearly identical sizes — were software giant Microsoft Corp. and American Tower Corp., which operates wireless sites.
Microsoft was Dorsal’s largest position for two straight quarters, but in the September period, the firm boosted its stake in American Tower by 50 percent.
In the third quarter of 2015, three of Dorsal’s newest positions immediately ranked among its top seven holdings. They include tech giant Hewlett-Packard, media giant CBS Corp. and Crown Castle International Corp., a major provider of wireless infrastructure. Dorsal also boosted its stake in Tableau Software, which makes business intelligence software, by 80 percent, making it the firm’s fifth-largest holding.
