Tiger Grandcub Valiant Capital Management is opening its main fund to new money for the first time in four years.
The San Francisco hedge fund firm headed by Christoper Hansen tells clients it will accept “a limited amount of new capital” sometime early next year, according to the firm’s third-quarter letter to clients, obtained by Alpha. Hansen stresses he wants to keep the liquid fund’s assets under management below $4 billion, which he says provides “a clear differentiator and competitive advantage on the short side.” More specifically, Hansen says that after accounting for prior and estimated future redemptions, he aims to keep the liquid fund’s assets under $2.5 billion.
At the end of the third quarter, the firm managed more than $2.3 billion in its two main hedge funds: Valiant Capital Partners and Valiant Capital Partners Offshore. Valiant had $1.76 billion in liquid assets, suggesting it is willing to boost this pot by as much as 40 percent or so.
Hansen, who was a managing director at Tiger Cub John Griffin’s Blue Ridge Capital, says he will give existing investors the first crack at putting additional money into the fund, which has been closed to new investment since 2012. The funds are up 2.33 percent for the year after gaining about 6.9 percent last year. Since its August 2008 inception, Valiant lost money only once, in 2013, when it declined 11.5 percent. So far it has not returned to its high-water mark.
However, as we have previously reported, Valiant has placed a big bet on private companies, which it calls side pocket investments. These investments account for roughly one quarter of the funds’ assets.
The big risk, of course, is that this slice of the fund is illiquid. But unlike firms such as Tiger Global Management and Glade Brook Capital Partners, Valiant does not place its private bets into separate, longer lockup vehicles.
The side pockets, which are invested in companies such as Uber Technologies and Pinterest, lost 6.83 percent net in the third quarter and are down 0.41 percent for the year. However, last year the side pockets gained nearly 20 percent and were the stars of the show.
Valiant has so far made seven private investments this year, including two separate investments totaling more than $13 million: FirstCry.com, an India-based e-commerce company specializing in children’s items, and more than $10 million in Mahindra First Choice Wheels, which sells used cars in India.
Valiant, an early investor in Facebook, made ten separate private investments in 2014.
India has historically been a major focus of the firm, both on the private and public side.
At the end of the third quarter, India accounted for 35.15 percent of the liquid portfolio’s 115.19 percent long exposure, as well as more than 17 percent of its short exposure, for a net 17.48 exposure to the country. However, Hansen stresses that these are not cash exposures, adding that he purchased out-of-the-money put options against an Indian stock index earlier this year “that came into the money” after the market plummeted during the quarter.
In any case, the only other big bet among a number of countries and regions Valiant singles out is on the U.S., which it aggressively increased in the past three months. For example, Valiant entered October with a 48.31 percent long exposure to the U.S., up from 31.27 percent three months earlier. Its net exposure to the U.S. is now 16 percent, up from 3.5 percent at the end of June.
Altogether, the fund’s net exposure stood at 30.35 percent at the end of the third quarter, way down from 44.34 percent in the first quarter and down from about 33 percent at the end of June. Hansen tells clients a net exposure of about 35 percent “gets close to market neutral.”
The low net in the third quarter seemed to pay off. The liquid portfolio’s short attribution was 10.6 percent for the three months, but after adjusting for exposure levels, its “implied return” on its shorts was closer to 12.61 percent, according to Valiant’s letter. As a result, the firm enjoyed its second-best short-selling quarter in its history.
This was also its second straight strong quarter shorting stocks. “We do not believe it is a coincidence,” Hansen tells clients, adding that the past two quarters “came on the heels of what was questionably one of the most brutal short selling environments of the last two decades.”
He says this tough period caused other investors to alter their shorting strategy or abandon it altogether. “While these collective actions further exacerbated short underperformance as strategies and exposures were adjusted, this phenomenon also led to most of our shorts becoming even more attractive as valuations and expectations climbed, borrow freed up and borrow costs receded,” Hansen elaborates.
He adds he has long maintained that during market turmoil and uncertainty, investors throughout the world “tend to hold on to great companies and sell the crap.” And this is what happened in the third quarter.
