| Stephen Mandel Jr., Founder, Lone Pine Capital (Photo credit: Bloomberg). |
Now, this is what you call an unforgiving hedge fund environment.
As we have chronicled on several occasions, a slew of managers with strong reputations and a long history in the business have suffered sizable redemptions in the past year or two.
This trend apparently has not spared one of the industry’s most respected long-short managers. In 2016, Stephen Mandel Jr.’s Lone Pine Capital had about $3 billion in redemptions through the year. This works out to roughly 10 percent of total capital at the Greenwich, Connecticut, firm, which ended last year with $25.2 billion. Lone Pine typically experiences an outflow amounting to closer to 5 percent of capital each year.
Part of the reason for the sharp increase in outflows is the firm does not penalize individuals who take out money to pay taxes or nonprofits that remove up to 5 percent of capital. And undoubtedly, some investors who have been with Mandel for many years found it prudent to take some money off the table and realize some of their hefty profits.
However, there is also no mistaking that many investors also redeemed after Lone Pine capped three years of mediocre to lousy performance. Still, the investors who bailed out or trimmed their positions last year may regret this decision, as Lone Pine has gotten off to a very strong start this year.
In the first quarter its long-short funds gained between 9 percent and 10 percent, while its long-only fund, Lone Cascade, returned 11 percent. This compares with a 6.1 percent gain for the Standard & Poor’s 500 stock index, including dividends reinvested.
Last year Lone Cascade returned just 1 percent, while the long-short funds declined by 1 percent to 2 percent. In 2015, Lone Cascade fell 1.2 percent, while the long-short funds gained between 8.3 percent and 8.9 percent.
In 2014, Lone Cascade returned just 2.7 percent, while two of the long-short funds, including the flagship Lone Cypress fund, gained less than 1 percent. The firm’s Lone Tamarack rose 4.4 percent.
Lone Pine also said in a regulatory filing that Marco Tablada has left the firm. The managing director had spent 16 years at Lone Pine, specializing in financials, especially banks. He was one of a handful of people, including Mandel, who sign the firm’s quarterly letters. According to a person with knowledge of the situation, it was Tablada’s decision to leave the firm.
In any case, the gains in Lone Pine’s long books in the first quarter of this year were said to be led by technology, media, internet, and cable stocks. Keep in mind that Lone Pine typically has a healthy exposure to non-U.S. stocks. At year-end its U.S. long book had $19.2 billion in assets, down from $22.4 billion the previous quarter.
By far Lone Pine’s largest U.S. long holding was cable and broadband giant Charter Communications. This was followed by Constellation Brands, Amazon.com, Microsoft Corp., and Activision Blizzard.
In the first quarter of 2017, Charter returned about 21 percent. Constellation, which owns a portfolio of wine, beer, and spirits brands, gained about 5.6 percent; e-commerce giant Amazon.com rose more than 18 percent; software and cloud giant Microsoft climbed about 6 percent; and video game maker Activision surged 38 percent.
Lone Pine’s shorts barely lost money, which was a moral victory in a quarter when the stock market returned 6.1 percent. The short bets were led by consumer stocks, particularly retailers.
