London-based Horseman Capital Management’s Horseman Global Fund, a long-short equity hedge fund we have highlighted several times recently for its stellar performance despite running net short, has instituted a soft close, meaning it will not take new investments for the time being.
The firm cites a high level of interest in the fund, according to its August letter to clients, obtained by Alpha.
The fund’s class-A shares have been closed since 2005, while the B shares — which charge slightly higher management fees and which offer quarterly redeption instead of monthly — are soft closed. Investors who want to allocate to the B shares will be placed on a waiting list and can invest only when another manager redeems, and the new investment is subject to manager approval, according to the firm.
The fund has $796 million under management, while the strategy has a total of $1.42 billion under management.
The closing is especially prudent, given the fund’s extraordinary recent success.
During August, a month marked by stock market volatility, the fund surged 9.37 percent for the month, putting it up 17.71 percent for the year. It gained between 12.6 percent and 19.15 percent in each of the three previous years.
During virtually the entire period, from about the start of 2012, the fund has been net short amid a bull market that is in its seventh year despite the recent market sell-offs.
For example, the fund finished August 50.84 percent net short equities; it was 48.35 percent net long bonds.
During the month, the fund made money on currencies and its short book, and lost money on bonds and long stock positions.
Autos, real estate, luxury brands, and oil exploration and refining produced the largest gains in the fund’s short book in August.
The fund has also been negative on China for the past few years. It explains in the letter that this meant withstanding a series of Chinese government initiatives to prop up its economy, including the recent move to devalue the currency.
“In my experience, in the mind of the international investment community, small devaluations tend to encourage even more capital outflow, which in turn leads to even larger devaluations,” the letter states. The letter was not signed, but the fund is managed by Russell Clark, an Australian who has lived in the UK for about 14 years and has been with Horseman since 2006.
Since 2010, the Horseman Global Fund has made most of its emerging-markets investments in debt rather than stocks. Meanwhile, the fund has benefited lately from the surge in the price of the dollar and the decline in commodities prices. The fund has been short the debt of emerging-markets financials as well as the debt of asset managers and banks in developed countries that are exposed to EM debt defaults, according to the August letter.
The letter also provides a rare insight into the current portfolio of the fund. For example, entering September, Horseman Global was net long financials and retailers and, to a lesser degree, defense and consumer staples.
It is most bearish on oil exploration and refining, autos, emerging-markets financials, real estate and infrastructure.
Geographically, the fund is roughly 30 percent net short the U.S. and net short several other regions to a lesser extent. On the other hand, the fund is about 10 percent net long the euro zone.
Of its ten largest individual longs, just one is a U.S.-based company — retailer TJX Cos. Its largest long holding is Rheinmetall, a German auto parts and military technology company. Otherwise, six of the fund’s ten largest longs are various foreign banks.
