Last year was not exactly great for hedge funds, with several high-profile firms either giving back capital or shutting down altogether and nearly half of all funds posting losses, according to Chicago-based industry tracker Hedge Fund Research.
One firm is seemingly impervious to these trends, however. Tourbillon Capital Partners, the New York hedge fund firm headed by SAC Capital Advisors alumnus Jason Karp, just posted a 12 percent gain for 2015 in its long-short funds — Tourbillon Global Equities and its offshore equivalent. This follows a 10.05 percent gain in 2014 and a 20.69 percent return in 2013, when Karp launched the firm.
Not surprisingly, investors are elbowing their way into his two funds, including the long-only fund launched in July. Since October, the firm has raised a total of $800 million for the long-short fund, while the long-only fund raised $500 million after its launch. This brings its total assets to $4 billion, of which $3.5 billion is in the long-short funds, which are now hard closed to new investment. Tourbillon had just $250 million when it launched its long-short fund at the beginning of 2013.
Karp was previously a partner and co-chief investment officer at Dallas-based Carlson Capital, working closely with founder Clint Carlson before leaving in 2012 to start Tourbillon. Before that he served as a portfolio manager of global equities and the director of research at CR Intrinsic Investors, which was part of Steven Cohen’s now-defunct SAC Capital Advisors. (Cohen has since transitioned the firm to a family office, Point72 Asset Management.)
Prior to SAC, Karp had been a partner and portfolio manager at George Weiss Associates, a multistrategy hedge fund firm, where he worked as a so-called quant, or a person who specializes in using quantitative methods to invest. Karp was also an Academic All-American and Academic All-Ivy squash player at the University of Pennsylvania, where he graduated summa cum laude with a BS in economics with a concentration in finance from the university’s Wharton School.
Tourbillon is a long-short equity firm, with an emphasis on technology, media and telecommunications (so-called TMT), health care and consumer stocks. It usually maintains a very low net exposure, averaging 19 percent. Earlier last year it was known to have net exposure of about 30 percent.
However, Tourbillon aggressively uses options to hedge. So the firm tells investors it has zero net beta; all gains resulted from individual investment decisions. It also does not use much leverage.
Tourbillon was led last year in part by its largest long position: online travel agency Expedia, which surged about 46 percent last year. Another holding, Ctrip, a Chinese equivalent of Expedia, more than doubled, while Amazon.com surged about 118 percent.
In the first quarter Tourbillon’s best long investments were Horizon Pharma, BioMarin Pharmaceutical and Valeant Pharmaceuticals International.
However, Tourbillon presciently — or opportunistically — liquidated its entire Valeant position in the second quarter, before the drug giant’s stock began to collapse in early August.
After the first quarter Tourbillon also “significantly reduced” its gross exposure to health care in general, asserting that “the opportunity set is less robust than in the previous three quarters,” according to a letter to clients.
At various times last year, Tourbillon also did well on several short positions, including retailers Urban Outfitters and Dillard’s. However, perhaps its best investment last year was its short sale of MannKind Corp., a biopharmaceutical company that specializes in therapeutic products for diabetes.
“We are becoming more convinced that MNKD equity is worthless,” Karp told clients in his first-quarter letter, dated May 5. The firm is still short the stock, according to an investor.
Karp, who devoted a substantial amount of space in his letter to this investment, said he had “correctly anticipated a poor launch” of one of its drugs nine months earlier when the stock was trading at $10 per share. The stock is now a penny stock, trading at just $0.67 per share after closing as high as $7.23 in early June.
On Monday, MannKind tapped chief financial officer Matthew Pfeffer to be its new chief executive, replacing founder Alfred Mann. Last week the company announced the termination of its licensing agreement with Sanofi-Aventis U.S. for the development and commercialization of an inhaled insulin product.
The big question is whether Karp can continue his deft stock-picking on both the long and short sides now that he has so much more capital on hand.
