Introduction:
Brahman Capital Corp., a prominent hedge fund, has made the decision to close its stock-picking hedge fund and return cash to its clients. With losses incurred over the past two years and underwhelming performance in the current year, the firm plans to shutter the fund and focus on its long-only fund to capitalize on market dislocations. This article explores the reasons behind Brahman's closure, its historical performance, and the firm's future plans.
The Underperforming Hedge Fund:
Brahman Capital Corp., managing $1.1 billion in assets, has faced a challenging period with its stock-picking hedge fund. The fund experienced losses of 18% in 2022 and remained flat throughout the year until April. Such poor performance compelled the firm to make the difficult decision to close the fund. Documents reviewed by Bloomberg indicate that less than half of the fund's assets will be returned to clients by mid-June.
Continued Operations with Long-Only Fund:
Although closing its stock-picking hedge fund, Brahman Capital Corp. will continue to operate its long-only fund. The firm aims to leverage market dislocations through this fund. However, the long-only fund has not been immune to challenges, with a 3.1% gain in the year through April, trailing behind the S&P 500's 8.6% increase. By focusing on this fund, Brahman seeks to improve its performance and provide better returns for its clients.
Historical Performance and Assets:
Brahman's stock-picking hedge fund, which started trading in 1991, has delivered an annualized return of 8% throughout its existence. However, the firm's assets have dwindled significantly, dropping from $5.5 billion at the end of 2015. This decline in assets, coupled with recent underperformance, likely influenced the decision to close the hedge fund.
Concentrated Portfolio and Losses:
Brahman Capital Corp. has traditionally maintained a concentrated portfolio, as evidenced by its investment in 20 stocks as of March 31. Regulatory filings reveal that four of these stocks accounted for nearly 60% of the firm's long equity exposure. Unfortunately, three out of these four stocks have experienced losses in the current year, adding to the challenges faced by the hedge fund.
Founders and Firm Philosophy:
Brahman Capital Corp. was founded in 1989 by Mitchell Kuflik, Robert Sobel, and Peter Hochfelder. The firm derives its name from a "bull that has evolved to thrive during feast and famine." While the closure of the hedge fund marks a significant development for the firm, Brahman remains committed to serving its clients and navigating market conditions through its long-only fund.
Conclusion:
Brahman Capital Corp.'s decision to shutter its stock-picking hedge fund reflects the challenges it has faced in recent years. With losses in 2022 and underwhelming performance in the current year, the firm has opted to return cash to its clients and focus on its long-only fund. The closure signifies a shift in strategy for Brahman as it seeks to capitalize on market dislocations and improve performance. Despite the closure, the firm remains dedicated to serving its clients and adapting to changing market conditions.
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