| Larry Robbins, Glenview Capital Management (Bloomberg) |
Larry Robbins, whose two main funds continue to take a huge beating from the plummeting health care sector, is launching a new, limited life long-only fund.
The founder of New York-based hedge fund firm Glenview Capital Management is telling current investors the firm will accept capital on November 9, December 1 and January 4 for the new fund. It will accept only an amount up to the investor’s peak balance in the Glenview Funds and/or the Glenview Opportunity funds.
The new fund is available only to current Glenview and GO investors and it will not charge any fees. Glenview is also not permitting investors to redeem from Glenview or GO to put money into the new product.
In a nine-page letter that is part confessional, part contrite, part strident, Robbins says Glenview will invest in only highly liquid equity securities and will not take positions that exceed 10 percent of any company’s stock. The new fund will include quarterly liquidity with 30 days advance notice.
Glenview plans to liquidate the new product — which some people call a sidecar — and return all capital either on February 1, 2017, or when it eliminates the high-water mark for Glenview and GO, whichever event comes later.
The product will “likely be significantly healthcare oriented,” Robbins says in the letter, and it will be capped at $2 billion. However, Glenview is prepared to run it with as little as $100 million if that is all it raises.
Alpha reported earlier that Glenview posted big losses in September in its two main hedge fund strategies due to its long-running, highly concentrated bet on health care.
The Glenview Opportunity funds, which are run with a more concentrated portfolio than the firm’s flagship strategy, lost more than 20 percent last month. As a result, the Opportunity strategy — which closed to new capital last year — was down a similar amount for the year through September, having been roughly flat entering the month. The firm’s larger Glenview Capital flagship funds — which are closing to new capital at the end of the year — lost 13.5 percent in September and were down roughly the same amount for the year.
The flagship funds have posted further losses in October, according to a source, though so far they have lost about half as much as they did in September. The losses mostly came from losing health care positions, although the fund does not own shares of Valeant Pharmaceuticals International.
The letter announcing the new fund does not spell out any performance figures. But it starts out saying: “The last 90 days have been exceedingly disappointing and frustrating. I’ve failed to protect your capital, and mine, from a significant drawdown, despite a flat market.”
The health care sector had in recent quarters been very important to Glenview. In the first quarter, for example, the Opportunity funds’ equity-long portfolios gained between 9.7 percent and 10.2 percent, heavily driven by health care, which kicked in 8.5 percent to gross returns. The top five winners for the quarter were all health care stocks: Thermo Fisher Scientific, Endo International, Flextronics International, Anthem and Humana.
At the end of the second quarter, nine of Glenview’s 11 largest long holdings were healthcare stocks.
In September drugmaker AbbVie fell nearly 13 percent and its shares are now down nearly 5 percent this month. Tenet Healthcare Corp., which specializes in acute care hospitals and other healthcare facilities, fell 25 percent last month and nearly 18 percent so far this month. Community Health Systems, another hospital management company, plunged 20 percent in September and another 33 percent this month. Drugmaker Endo International lost 10 percent for the month and another 15 percent in October.
“In August, we believed that the market’s gyrations were not systemic but rather rotational, and we felt emboldened in the stability of our core holdings, particularly centered in U.S. healthcare,” Robbins tells clients. “Our investment committee and I viewed our healthcare portfolio as a rock-bed of strength in a world of choppy seas. That judgment, as measured over the past 60 days, was 100 percent incorrect. In hindsight, our self-perception of humility looks shockingly similar to hubris.”
This said, Robbins does point out that prior to the past quarter, the various healthcare sectors Glenview is invested in show a 60 percent correlation to the Standard and Poor’s 500 stock index. In addition, his healthcare sectors on average experienced a 45 percent correlation to each other prior to the past quarter.
“As such, we strongly believe we were following all of our risk management disciplines entering this period of extreme volatility,” he adds.
Robbins also partially backs away from his confessional, asserting that he and his team “strongly disagree with the market’s actions” in its stocks over the past 90 days.
“Our history has shown that swift drawdowns have proven to be significant buying opportunities over time, and in our funds we will stay the course and capture the rebound to and towards fair value in our core holdings and in our overall portfolio,” Robbins writes.
In the letter Robbins tells clients he will “earn nothing” this year.
However, his employees will not exactly be holding a telethon for him. In each of the past two years Robbins has ranked in the top ten on Alpha’s annual Rich List, making a combined $1.32 billion over that period.
