| Viking Global Investors headquarters, Greenwich, CT / Courtesy Hines |
Like most Tiger Cubs and other hedge funds with ties to the fabled Julian Robertson Jr., Viking Global Investors keeps a very low profile.
Its key people are never quoted in articles and never speak at hedge fund conferences. It is hard for members of the press to find more than one or two photos of co-founder O. Andreas Halvorsen, a former platoon commander on the Norwegian SEAL Team, when they want to highlight him in an article. The firm nonetheless enjoys a strong reputation, partly because it has racked up a 15.9 percent return in its long-short fund, Viking Global Equities, since its launch in 1999.
Yet this week’s announcement that chief investment officer Dan Sundheim is leaving and the firm is returning $8 billion to investors has brought unwanted attention to a firm that two years ago grew to become the eighth-largest hedge fund firm in the world.
As it turns out, Sundheim is the third CIO to leave the firm in seven years and the fourth critical person to leave since the firm was founded by former Tiger Management employees Halvorsen, David Ott, and Brian Olson.
Olson soured on their relationship early on. Unhappy over his compensation at the end of 2001, Olson announced he would leave Viking when Halvorsen refused to pay him more, according to a legal document.
Halvorsen and Olson subsequently revised their partnership deal. In March 2005, Olson took a six-month sabbatical to travel with his family. But when he tried to come back six months later, Halvorsen and Ott told him not to return.
He was unhappy with his settlement and sued his former partners in 2006. In late 2009, the Supreme Court of Delaware ruled in favor of Halvorsen and Ott, affirming an earlier judgment of the Court of Chancery.
In 2010 Ott, who was serving as CIO, said he wanted to spend more time with his family. He has since been working part-time and has not been managing money.
In July 2014, Viking announced that Thomas Purcell was taking a six-month sabbatical and would no longer serve as co-CIO, a position he had held since 2012. Sundheim, who had been co-CIO for four years at the time, became sole CIO.
In January 2015 Purcell returned, but by then Halvorsen did not seem to have a place for him. And six weeks later, the firm said Purcell was leaving permanently.
Now Sundheim is leaving. He had joined Viking in 2002 as an analyst covering financial and business services companies.
It is not apparent that there was any kind of dispute. Rather, people with knowledge of the situation suggest that Halvorsen, known for developing a deep bench, wanted to reward more of his lower-level people moving through the ranks. This would have required Sundheim to share a bigger piece of an asset pie that was shrinking by $8 billion, which the firm believes will enable it to perform better. As for Sundheim, the feeling is that he wants to run his own show, whether it is a family business or a firm with outside money.
“The strength of the team and its potential to advance, combined with Dan’s desire to expand his personal impact through a very flexible investment mandate, led us to come up empty-handed in our search for an optimal role for him within Viking,” Halvorsen stated in a letter to clients announcing Sundheim’s departure.
Underlying these big changes is also the reality that, like most hedge funds and mutual funds for that matter, Viking’s recent performance has not kept up with its historical numbers.
Since inception its long-short fund has compounded at 15.9 percent, a mark it has only hit five times in 16 full years and only once since 2009. Since 2008 it has lagged the Standard & Poor’s 500 stock index. However, this is partly because it was also shorting in a bull market.
Its long-only fund, launched in 2009, has outperformed the benchmark for six of its eight full years, compounding at nearly 18 percent per year.
Viking, more than most Tiger Cubs and other long-short funds, has done a better job at managing risk. It still takes pride in the fact it lost less than 1 percent in 2008, the year of the financial crisis, when many hedge funds posted double-digit losses.
And it also says something that its 4 percent loss last year was the long-short fund’s worst ever. As managers and investors know all too well, it just takes one blow-up year to destroy a lifetime of great performance. Still, firms don’t usually change CIOs twice in 2.5 years from a position of strength.
Perhaps the biggest takeaway is this: As with top professional sports teams, in the high-octane, high-stakes business of hedge funds and at firms like Viking, you always need to maintain a high level of performance to keep your position because there are others who can possibly take your job.
