If Luxor Capital were a stock, its hedge fund would have been a good value play last spring.
After all, its event-driven fund, Luxor Capital Partners Offshore, just came off two straight years of losses — 9 percent in 2014 and 18.3 percent in 2015. In January 2016, the fund lost another 5.2 percent.
In addition, Rhode Island’s State Investment Commission said it was redeeming its investment in the fund in a high-profile announcement that it was ditching several of its hedge fund investments on the advice of consultancy Cliffwater.
“Underperformance has resulted from poor investment selection and inadequate hedging,” wrote Thomas Lynch, a senior manager director with Cliffwater, in a memo to the pension fund dated March 16, 2016, adding that performance has also resulted in “significant levels” of investor redemptions.
However, at mid-year, Luxor — founded in 2002 by Christian Leone with seed capital from Perry Capital — finally started to turn, posting gains in each of the final six months of the year. This included a large 9 percent gain in November.
As a result, Luxor finished the year up 12.2 percent. It is up another 5 percent so far this month. Luxor declined to comment on the results.
The firm likes to tell investors it focuses on what it calls non-consensus internet ideas and distressed debt opportunities rather than strategies like, say, mergers and acquisitions. According to people familiar with the fund, Luxor turned things around last year by unloading a number of key stocks and adding a few new ones.
In addition, some losing positions rebounded and became winners for the year. They include the bank debt of energy company Ascent Resources as well as the common stocks of food ordering app GrubHub and Golar LNG, a liquefied natural gas shipping company. Luxor also added to each of these positions last year on weakness.
Shares of GrubHub, Luxor’s largest individual U.S. stock position at the end of the second and third quarters, surged 55 percent, while Golar LNG, another major stock long, jumped 45 percent.
Luxor also unloaded a number of positions, including two casual dining companies, BJ’s Restaurants and Panera Bread Company, and media giant Twenty-First Century Fox. At the same time, it took several new positions last year that worked out well. They include Recruit Holdings, a Japanese company that provides human resources services, and the distressed debt of two energy companies that fared well: Basic Energy Services and C&J Energy.
Investors are starting to notice the improvements. The firm attracted inflows of $100 million in the second half of the year. This includes money from the $35 billion New York City Police Pension Fund, which increased its investment in Luxor.
It also launched two new funds: Qena Capital Partners, an internet fund, and Thebes Partners, a dedicated credit fund. Altogether, firm-wide assets under management now stand at about $3 billion, down from $3.8 billion a year ago and $6 billion in 2014.
However, if performance continues to rebound, the assets will likely rebound as well.