A prime example of how the mighty can fall: Dinakar Singh, who co-founded TPG-Axon Capital Management in 2005 with the aforenamed private equity firm.
The former star Goldman Sachs trader ran as much as $13 billion in 2007.
Three consecutive losing years began in 2014 and culminated with a greater than 30 percent decline in 2016 that sent investors scurrying for the exits.
By the end of 2017, TPG-Axon was managing less than $600 million, according to a regulatory filing at the time.
[II Deep Dive: Assets Shrink at Dinakar Singh’s TPG-Axon]
In 2019, Singh made a number of changes in what he called a “reboot,” aiming for “a much simpler, longer term, and focused approach,” according to a “philosophy” memo sent to clients and obtained by Institutional Investor.
The firm rebranded as simply Axon and raised to co-CIO and co-CEO Kori Estrada, a longtime colleague of Singh’s. She is credited with being a big part of Axon’s progress, balancing Singh on investment process, risk, and other key matters.
Axon’s assets have sunk to $500 million in public and private investments, all of that from internal sources or high net worth individuals, public documents state.
Nevertheless, the “reboot” is showing promise so far.
Axon returned about 24 percent in the first half of this year, according to a performance document seen by II. Last year its onshore portfolio gained 15 percent, while the offshore fund surged 45 percent for a blended gain of 17.5 percent.
Axon declined to comment.
In its one-page philosophy document, Axon stressed several key principles. It strives to take a global perspective, make concentrated investments, avoid trading to for the short term, focus on its self-identified strengths, and avoid areas where it lacks edge or historical focus.
Ultimately, Axon stressed “it’s about ‘earnings stupid.” Asia and healthcare remain priorities.
“At the core, if you invest in companies whose earnings grow, and avoid buying at a ridiculous price, you will do just fine,” the hedge fund stressed. “Where you get in trouble is when you pay silly prices and therefore end up requiring perfection… and when you underestimate blowup risk, and buy something that turns out to be much more fragile than you expected (and you paid for).”
In a separate mid-year review, Axon called its global/Asia perspective “invaluable” this year as the novel coronavirus spread. “It alerted us to risk and damage as it began elsewhere in the world, even as it was being ignored in the U.S., and markets were rocketing to highs in February,” Axon explained in the report. “We simply never believed that ‘what happens in China stays in China,’ and even less believed it when it was clear that had even become (even in mid-February!) ‘what happens in China, and also Europe will stay in China and Europe.’”
President Donald Trump talking down the Covid-19 risk “gave investors an incredible gift – it kept markets resilient much longer than they should have, and enabled us to ensure our portfolio was sensibly positioned,” Axon added. That did not dramatically change the fund’s positioning, but did help traders to “bulk up” some hedges, “particularly by adding some volatility protection, with volatility still at lows in January and February.”
These moves hurt performance in January and early February, but have helped ever since.
Health insurers/middlemen Centene and Humana have been key performance key drivers this year. In the mid-year report, Axon called them “absolutely our highest conviction investments, quality adjusted, for some time, and especially so during the March downturn.”
Japan’s Olympus has been “perhaps the best percentage gainer” in the core portfolio this year. “It is a company that is slowly and steadily restructuring, by cutting costs, getting rid of junk, and focusing on core and healthy businesses,” Axon explained. Axon also added to its positions in Asahi Beer and longtime favorite Hitachi.
Several retail shorts delivered as well, the firm said, specifically singling out Gap and Kohls. “These shorts have been perfect for long-term investors like us,” adding that every quarter short-covering sends the stocks soaring, enabling Axon to put on another short position.
Axon also said its two big tech bets are Alphabet and Facebook, both substantial winners this year.
Its biggest losers this year were Indian banks. But Axon stressed that its investment team remains highly convinced and has increased its exposure to the group. Specifically, it has positions in HDFC Bank, ICICI Bank, and IndusInd Bank.
During the March selloff, Axon said added “a substantial investment” to a basket of its favorite stocks, most notably Paypal.
It also initiated an investment in London-based caterer and events outfit Compass Group.
