| Photo credit: Bigstock |
A health care-focused hedge fund founded by a former portfolio manager at Millennium Management continues to suffer painful losses and learn the hazards of emphasizing a single, volatile industry.
As a result, assets at the firm, North Tide Capital, have more than halved over the past two years or so.
Boston-based North Tide was founded in 2010 by Conan Laughlin, who previously was a portfolio manager and sub-adviser managing a health care-focused long-short portfolio for Israel (Izzy) Englander’s multistrategy funds at Millennium. Before that, he served as an equity research analyst covering healthcare in the asset management group at American Express and served as a sell-side analyst at Morgan Stanley Dean Witter, SG Cowen, and Deutsche Bank Alex. Brown.
North Tide specializes in health care services and medical technology stocks. It occasionally engages in activism as well.
It declined by 7.53 percent in the first quarter of this year during what was otherwise a very strong period for stocks in general. It fell 3.15 percent last year and lost 16 percent in 2015. The fund has not made money since early 2014. In the second half of that year, it lost 3.2 percent and 1.3 percent in the third and fourth quarters, respectively, and finished the year up 7.7 percent. However, last year’s return was almost a moral victory given that it was off 13.4 percent at the half-way mark. Laughlin did not return a call seeking comment or insight into the losses.
According to an investor in the fund last year, North Tide lost money on a core group of long holdings as well as from short bets against what it calls “safe” companies. As a result of these losses, the amount of money invested in its U.S. stock portfolio has fallen to less than $600 million at year-end, down from $1.3 billion in 2014. Its U.S. assets were also down nearly 40 percent in the most recently reported quarter alone.
North Tides woes are opposite the experiences of at least two other healthcare-oriented hedge funds. As we pointed out recently, the Perceptive Life Sciences Fund, a health care and biotech fund headed by Perceptive Advisors’ Joseph Edelman, returned more than 10 percent in the first four months of this year. It rose 3.8 percent last year and surged 52 percent in 2015. New York-based Deerfield Management Co. gained 6.4 percent in the first quarter after gaining 8.63 percent last year, 11.7 percent in 2015, and 30.4 percent in 2014.
So, what’s hurting North Tide this year? We won’t know for another few days which long positions it held at the end of the first quarter. But, entering that period, it owned 15 stocks. Three of them accounted for 55 percent of the assets, up from about 46 percent the previous quarter.
Select Medical Holdings Corp., a provider of outpatient physical rehabilitation, accounted for 22.65 percent of assets at year-end. The stock was up slightly in the first quarter after gaining more than 11 percent in 2016.
Tivity Health, which accounted for 17.5 percent of assets at year-end, has a portfolio of fitness and health improvement programs. On January 10 it changed its name from Healthways. The stock surged more than 28 percent in the first quarter.
Meanwhile, Supervalu, which accounted for 14.75 percent of assets at year-end, fell more than 18 percent in the first quarter. It is a wholesale and retail grocer. The stock lost 31 percent last year as well.
We don’t know exactly which stocks North Tide was shorting. Perhaps this book also hurt the fund as well in the first quarter.
