It’s dog days for Jonathan Auerbach’s Hound Partners.
While several funds with roots in Julian Robertson Jr.’s Tiger Management have been battling back from earlier-year losses, Hound, the New York hedge fund firm headed by Auerbach, continues to dig a deeper hole.
The once high-flying Tiger Seed (so-called because the firm received an early investment from Robertson) tumbled 1.3 percent in May. As a result, it is off by 12.5 percent for the year. It has lost money in four of the first five months of 2016 and nine of the past 12 months.
Last year Hound posted its first loss in its long-short fund since 2008, dropping 1.3 percent — only the fund’s second full-year loss since its October 2004 launch.
As we have noted in the past, Auerbach is probably the second-most-successful Tiger Seed, after Tiger Global Management’s Chase Coleman. At its peak last summer, Hound had $5.4 billion under management. At the time, its fund compounded at a little less than 13 percent since inception. Hound has also posted double-digit gains in every profitable year.
Hound thrived in the first half of 2015, when it surged 18 percent through July, and died in the second half owing to two key stocks: Laval, Canada–based drug company Valeant Pharmaceuticals International and Woerden, Netherlands–based telecommunications company Altice.
In the first quarter of this year, Hound slightly boosted its stake in Valeant. However, Valeant is only the firm’s eighth-largest individual U.S. long position, after being its second-largest position at year-end. The difference: price erosion, not fewer shares.
It is not clear where Hound’s Altice stake stands now, since the stock is foreign and thus not subject to U.S. quarterly disclosure rules.
Valeant has dropped more than 80 percent for the year through May. However, Altice has surged more than 20 percent.
Unlike last year, when Hound made money on its short bets but lost some on its long positions, this year Hound is losing money in both books. Through April — when Hound was down 11.35 percent — its longs were down nearly 6 percent on a gross basis, while the shorts were off by 2.4 percent, according to its April exposure report.
The firm’s “other” book was off another 2.5 percent. Hound defines “other” as performance from fixed income and certain “hedged” positions. It goes on to explain that “hedged” positions may include equity stubs, capital structure investments and sector hedges.
Spirit AeroSystems, a maker of large commercial aircraft structures and Hound’s largest U.S. long holding, fell 6.5 percent in the first five months of this year, while Chinese web search firm Baidu, Hound’s second-largest U.S. long, fell more than 5 percent. On the other hand, No. 3 holding FleetCor Technologies rose more than 4 percent in the first five months of the year.
Meanwhile, Hound has also been scaling back its risk. Although gross exposure is the mid-150 percent range — roughly where it has consistently been for a couple of years now — Hound’s net exposure was reduced to a multiyear low of 26 percent in April.
It didn’t do Hound much good in May.
