Hound Partners Leads Tiger Pack in First Quarter

The hedge fund firm’s offshore fund rises 8.64 percent after a slow start in January.

Jonathan Auerbach, the founder of New York–based Hound Partners, is the latest manager with roots to Julian Robertson Jr.’s Tiger Management Corp. to report very strong first-quarter results.

Hound Partners Offshore Fund rose 2.47 percent in March and 8.64 percent for the first three months, according to Hound’s one-page performance sheet for March.

Hound Partners is a so-called Tiger Seed because it received start-up investment capital from Robertson. It looks like the best-performing hedge fund sporting Tiger stripes by far this quarter.

The fund surged 6.34 percent in February after posting a slight loss in January. It has now made money in seven of the past eight months. The fund was up 10 percent in 2014.

Hound sends clients detailed reports only twice a year and only one report discussing its long-only funds. As a result, it’s difficult to know which stocks specifically contributed to its gains for the quarter.

The report does disclose that in the first quarter Hound posted a 12 percent gross gain from its longs and a 1.4 percent loss from its shorts. Last year its longs rose a gross 19.66 percent, while its shorts fell 4.11 percent.

The offshore fund’s net exposure at the end of March stood at 39 percent. This is toward the higher end of the fund’s monthly range of 30 percent to 42 percent over the past 12 months. Its gross exposure of 149 percent was near its multiyear low.

Like many of its Tiger-related peers, Hound Partners Offshore runs a very concentrated portfolio. The fund currently has 24 longs and 31 shorts.

At the beginning of the year, the hedge fund firm had a huge position in Citigroup call options, according to a 13F filing.

Several of its largest individual long positions at year-end that were disclosed in a regulatory filing fared very well in the first quarter.

Spirit AeroSystems, a maker of aerostructures for airplanes and the firm’s largest individual stock holding, rose about 21 percent for the quarter after being Hound’s best performer in 2014.

Children’s clothing company Carter’s, another top performer in 2014, rose 6 percent.

Valeant Pharmaceuticals International, Hound’s third-largest single stock holding, surged about 37 percent in the quarter.

Cable giant Charter Communications, the fourth-largest stock holding, rose 16 percent for the quarter.

In January we reported that Hound was seeking to raise $500 million for its long-only funds, which produced very strong gains in 2014, according to its year-end letter, obtained by Alpha. In addition, the firm said it was opening up $100 million of capacity for its hedge funds, available only to existing investors.

Last year it launched two different long-only funds, the Hound Partners Long Fund and an offshore counterpart, which mirror the firm’s long book. The biggest difference between the Long Fund and its offshore counterpart, and Hound’s long book, is that the new funds are generally fully invested and exclude companies whose market capitalizations are under $2 billion or are “names that trade like small-cap companies,” according to a description of the fund in an earlier Hound letter.

The firm also launched the Hound Partners Concentrated Fund and an offshore equivalent, which are more concentrated versions of the firm’s long fund.

Last year the Hound Partners Long Fund was up about 18.6 percent, while Concentrated rose about 20.6 percent.

Jonathan Auerbach Spirit AeroSystems Hound Partners Valeant Pharmaceuticals International Tiger Management Corp.
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