Glade Brook Capital Partners, the Greenwich, Connecticut–based hedge fund firm founded by Paul Hudson, is raising money for a new dedicated private equity fund, Glade Brook Private Opportunities Fund.
The firm tells clients it has received “a strong response” for the new offering. It plans to close the fund on April 1.
The announcement was made in the firm’s fourth-quarter letter, dated February 20 and obtained by Alpha. The letter reveals that as of December 31, the firm had more money invested in its private funds than its hedge funds, a disparity that is likely to widen over the next few months.
“Going forward, our private investments will be made from this fund,” states Hudson, a former managing director at Chris Shumway’s Shumway Capital Partners, in the letter.
He adds that the new fund is expected to invest in four or five companies over the next two years and will focus on “high growth, dominant TMT [technology-media-telecommunications] and consumer companies that will transition to a public company within three years.” Hudson writes, “Our idea pipeline for this strategy is extraordinary.”
We reported in December that Glade Brook raised at least $141.5 million for another fund, Glade Brook Private Investors V, according to a regulatory filing. That fund was designed to invest in one stock: Uber Technologies, the taxi and car-sharing service that can be accessed only from a smartphone app.
Altogether, Glade Brook has a little more than $1.4 billion under management, including $684 million in its hedge funds and $755 million in private equity funds. At the end of the third quarter, it had $898 million in the hedge funds and $483 million in the private funds.
In addition, at year-end the hedge funds had about 13 percent of their assets tied up in illiquid private equity and pre-IPO investments. “Direct and indirect positions” in Alibaba Group Holding accounted for about 9 percent of the firm’s core hedge fund assets, according to Glade Brook’s letter.
One major reason for the private funds’ recent surge in assets is performance. The Glade Brook Global Domestic Fund and the Glade Brook Global Offshore Fund, the firm’s core hedge funds, each were down 0.9 percent in the fourth quarter and lost 1.3 percent for all of 2014.
By contrast, the three share classes of Glade Brook Private Investors gained between 19 percent and 19.7 percent in the fourth quarter alone. For the year, they returned between 61.6 percent and 76.7 percent.
Chinese e-commerce giant Alibaba Group Holding and Spanish-language media company Univision Communications drove the fourth-quarter gains in the private funds.
“We are pleased with performance as well as our ability to generate and execute on two extraordinary new ideas,” Hudson tells clients.
These are Koudai Corp., “a fast growing” mobile e-commerce company in China, and Uber. “We continue to see compelling opportunities in private growth equity and are bullish on the return profile for our pipeline of ideas,” Hudson asserts.
Meanwhile, Glade Brook Private Investors II, which invests solely in Univision, returned 2.8 percent in the fourth quarter and 10.8 percent for the year, according to the report.
Hudson tells clients it has a roughly 4 percent private equity exposure to Univision. “We remain positive on Univision’s positioning as we believe the company is becoming increasingly strategic in the U.S. media landscape given their growing demographic base,” he elaborates in the year-end letter. “With ongoing growth and deleveraging, we believe the company will continue to be in a strong position for the foreseeable future.”
Looking ahead, Hudson goes out on a limb and tells clients he is anticipating “a profitable year” in both the hedge funds and private funds.
And although he is disappointed in the hedge funds’ performance last year, Hudson insists he learned a valuable lesson and in the fourth quarter reduced the total number of names in the portfolio, “concentrating on our best ideas.” The portfolio now has only 15 long ideas and 25 short ideas, which Hudson stresses is “consistent” with his original strategy when he launched the hedge funds in 2011. The hedge funds are 41.4 percent net long.
The biggest portion of this exposure is to technology. Its biggest position is Expedia, the online travel company. “We believe the company is well positioned to capitalize on favorable secular tailwinds as travel bookings shift from offline to online and economies of scale as the sector consolidates down to a few global winners,” Hudson elaborates. “We believe the current valuation is compelling on the core business alone but also see significant hidden value in emerging assets such as Trivago and eLong.” Trivago is a hotel search company, while eLong is an online travel company in China, similar to Expedia.
Hudson also says he is still positive on two Chinese Internet companies, Alibaba and Tencent Holdings. He describes the latter as a “leading PC and mobile social media platform in China.”
In the fourth quarter, he initiated a position in South Africa–based Internet company Naspers, which Hudson describes as a proxy for exposure to Tencent “as it is the company’s largest holding.”
Glade Brook is 5.3 percent net long the telecom sector and 1.8 percent net short media and entertainment.
