“I always envisioned something could go wrong,” concedes Alexander Roepers. “This was worse than I expected.”
Roepers, a shareholder activist who prefers to work behind the scenes when trying to sway management (“The Gentleman Activist,” July/August 2008), has seen billions of dollars under his supervision evaporate over the past year. Assets at his New York-based hedge fund firm, Atlantic Investment Management, had shriveled to $1.4 billion by the beginning of May from $4.2 billion in July 2008, the fallout of a combination of stock market losses and investor redemptions. Roepers, of course, is not alone in this predicament; other activist managers have had similarly horrific results (see “Third & Long”).
Like most money managers, Roepers underestimated the severity of the economic crisis. Thinking the stock market had hit bottom in October 2008, he plowed back into it. Bad timing. As a result, Atlantic’s oldest and biggest fund, Cambrian, a long-only vehicle that invests in a concentrated portfolio of publicly traded U.S. companies, lost 50 percent of its value in 2008. Performance in the long-short funds was only slightly better. With no gates or lockups to keep nervous investors at bay, Atlantic saw 10 percent of its assets redeemed last November and an additional 15 percent in December. Despite the losses, Roepers seems as upbeat as ever, probably because — thanks to the painful lesson he learned in 1998, when he was forced to sell one of his core holdings because his fund was leveraged 40 percent — none of his positions during this crash was leveraged.
“So the hit was just a hit,” he says, noting that Atlantic has done relatively well recently. Cambrian was up 22 percent this year through May, and the AJR Fund, Roepers’s long-short U.S. equities offering, was up 15 percent during the same period (the Standard & Poor’s 500 index was up 3 percent by comparison). Over ten years, Cambrian and AJR, with a combined $700 million in assets today, have returned, on average, 10 percent per year, versus the S&P’s annual average loss of 1.71 percent. (Three other Atlantic funds have also posted gains this year through May but do not have ten-year records.)
Roepers still has his team of 13 analysts, provides monthly updates to clients, resolves never to put up gates and wages behind-the-scenes battles with management. (He recently sent letters to the chief executives of six corporations offering suggestions for maximizing shareholder value.) Nor has his taste in companies changed. Roepers continues to look for ones that have recurring and predictable revenues and cash flows. His favorites include U.S. industrials like Precision Castparts Corp. and Goodrich Corp.
