| Anand Desai, Darsana Capital Partners (Bloomberg) |
A hedge fund firm that enjoyed one of the most high-profile and successful launches in recent years continues to stumble.
The struggles of New York–based Darsana Capital Partners, the hedge fund firm founded in 2014 by Anand Desai, a former Eton Park honcho, underscore how hard it is for a supposed hotshot manager to live up to lofty expectations. They are also a reminder that just because a manager was a star at someone else’s firm doesn’t mean he will repeat that success on his own.
Desai grabbed headlines in May 2014, when he raised about $1 billion for his new firm. By the end of 2014, Darsana had $2.5 billion under management.
Desai had previously been a senior managing director and founding partner of New York–based Eton Park Capital Management, the multistrategy firm founded by former Goldman Sachs partner Eric Mindich. Desai was at Eton Park from 2004 through 2013, where he sat on the operating committee and ran fundamental long-short equity and structured-credit investing.
Darsana is known for making concentrated bets on a small number of individual stocks. It tells clients it seeks companies and industries it deems are undergoing significant secular change where Darsana “has a differentiated view of the outcome.” For example, at the end of the second quarter of this year, Darsana had more than $1.9 billion invested in just 16 different individual U.S.-traded securities, excluding options.
This kind of concentration has led to a fair amount of volatility for Darsana. In 2014, its first year in operation, Desai’s main fund was up 6.8 percent after posting a 5.9 percent gain in the fourth quarter.
In 2015, Darsana was down 1.6 percent at the end of June after losing money in each of the first two quarters. It then lost 9.4 percent in August, when the stock market suffered a sell-off. Darsana then rallied in the fourth quarter, gaining more than 10 percent for the period, enabling it to finish the year down just 0.4 percent.
This year has been worse. The firm posted a 3 percent loss in the second quarter in its Darsana Fund. As a result, the firm is now down 6.2 percent for the year.
This year four stocks have played an especially prominent role in Darsana’s portfolio: Spirit AeroSystems Holdings, the maker of large commercial aircraft structures; Chinese Internet search giant Baidu; hotel company Hilton Worldwide Holdings; and telecommunications provider SBA Communications Corp.
Shares of Spirit, the firm’s largest individual stock holding in each of the past three quarters, fell more than 8 percent in the first half of the year.
Baidu dropped about 12.7 percent in the first six months, while SBA lost 6 percent. On the upside, Hilton rose 5 percent in the first half of the year.
Moving forward, Darsana stood pat or lifted its stake in its nine largest individual stock holdings. It also liquidated its stake in Chinese e-commerce giant JD.com and call options on the shares of Baidu.
And the firm started the third quarter with a nearly 200 percent gross exposure, reflecting its aggressive stance. However, it was 38 percent net long, according to an investor in rthe firm.
This is a much more bullish stance than the firm had 12 months earlier, when it was just 29 percent net long on a total exposure of 157 percent.
