| Proposed Arena for a New Seattle SuperSonics team (Photo credit: Courtesy of the Sonics Arena Group). |
It is déjà vu all over again for investors in Christopher Hansen’s Valiant Capital Management hedge funds.
The Tiger Grandcub is heading up a group including Seattle Seahawks quarterback Russell Wilson, which is hoping to build a new arena in Hansen’s hometown and bring a professional basketball team — and perhaps hockey team — to the city. The last time Hansen flirted with owning a professional sports team, his investors suffered heavily.
Back in 2013, Hansen teamed up with former Microsoft Corp. president Steven Ballmer to offer to buy a controlling interest in the Sacramento Kings professional basketball team and move the team to Seattle.
While this campaign played out, Valiant suffered through its worst stretch until that point. The firm’s long-short funds, Valiant Capital Partners and Valiant Capital Partners Offshore, had lost money in nine of the 10 months stretching from October 2012 through July 2013. During that period, the hedge funds declined by about 24 percent. Hansen did not respond to requests for comment for this story.
Hansen & Ballmer’s bid failed, and Hansen went back to his day job of running several billion dollars of investors’ money.
And wouldn’t you know, after finishing 2013 down 12.8 percent (thanks to a strong fourth quarter), Hansen followed it up with a 6.6 percent gain in 2014.
Last fall it looked like the same movie was being shown in Valiant’s San Francisco office. In October the Seattle Times reported that Hansen’s group shelled out $25 million to buy a six-story building and a vacant lot next door, across from Safeco Field, the city’s baseball stadium. Altogether, Hansen has spent $122.5 million on real estate in the area where he wants to build his arena.
And what was happening at his hedge fund? Yep, you guessed it: Valiant lost 10.7 percent in November and another 4 percent in December, and the fund finished the year down 9.3 percent. (The fund has fared better since then, notching gains in the first two months of the year.)
“This was obviously a very difficult and strange quarter,” Hansen told clients in his year-end letter, stressing that the fund had been up nearly 6 percent entering the final two months of the year. He blamed the rotation out of technology and growth stocks following the U.S. election on November 8 for the performance.
Also, crucially, Hansen — who has always had a large exposure to India — pointed out that India instituted a “surprise demonetization,” which happened to take place the same day as the U.S. election.
“Although we have obviously faced drawdowns in the past, this one was unique in terms of both its voracity and swiftness,” he stated in the report.
Still, the sharp decline had to be unnerving to Hansen, whose assets under management fell to slightly less than $1.8 billion by the end of the year. This was down from nearly $2.4 billion one year earlier, a 25 percent decline.
Most of the difference was in Valiant’s liquid portfolio, which goes long and short publicly traded stocks. It accounted for 70 percent of assets at year-end. The firm’s $534 million side pocket portfolio is a collection of more than three dozen private investments, which include Uber Technologies, Pinterest, and Dropbox.
Hansen started off his year-end letter asserting that he and his team “are more optimistic about the medium term opportunity than we have been for some time.”
He pointed out that short borrowing costs are as low as they have been since he started his fund, the interest rate cycle appears to have troughed, asset correlations are falling, and skepticism of long-short investing is as high as ever.
He entered the year 50 percent net long; he was about 40 percent net long in the U.S. and 27 percent net long in India. (He was net short other regions.) Valiant’s five largest long equity positions were Apple, Facebook, Alphabet, Walgreens Boots Alliance, and Tencent Holdings.
So far, Hansen has delivered, putting his performance where his predictions were.
In January, Valiant gained 2.9 percent, led by a 4.12 percent gain in its liquid fund.
Hansen followed this up with a 5 percent gain in February, despite Valiant suffering a 4.13 percent loss in its side pocket portfolio, as the liquid book surged 8.55 percent.
Hopefully for Valiant investors, Hansen loses interest in his latest Seattle project . . . and technology, internet, and Indian stocks keep going up.
