'Frustrating and humbling': Founder of hedge fund Folger Hill tells clients his firm has fallen short of 'our collective abilities and expectations'

  • Folger Hill Asset Management’s flagship fund returned 2.65% last year compared to a 21.8% gain in the S&P 500.
  • “The growing pains associated with building Folger Hill over the last three years have been frustrating and humbling,” founder Sol Kumin wrote in a client letter.
  • The firm now has about $US930 million in assets, bringing the firm back around to where it was in 2016.

Folger Hill Asset Management, the hedge fund started by billionaire Steve Cohen’s former chief operating officer Sol Kumin, says its underperformance is “not consistent” with expectations.

The firm’s flagship fund returned 2.65% last year and 0.89% for the fourth quarter, according to a client letter seen by Business Insider. That compares to a 21.8% gain in the S&P 500 last year and a 6.64% gain for the quarter.

“The growing pains associated with building Folger Hill over the last three years have been frustrating and humbling on both a personal and professional level,” Kumin wrote in the letter. “While 2017 represented a year of improvement, we have yet to deliver risk-adjusted returns for investors consistent with our collective abilities and expectations.”

The fund fell -17.5% after fees in 2016, according to a previous investor update seen by Business Insider.

Kumin added:

“While we are encouraged by the progress we’ve made in 2017, we also recognise that our performance relative to the broader markets is certainly not consistent with our expectations. It is important to note that the objective of our long/short investment strategy is to maintain low-net market exposure and is not intended to rely on market direction for returns. In retrospect, our low-net positioning was overly conservative in 2017 as equity markets raced higher without a material correction. However, our positioning was intentional, as we felt it was prudent to reduce the Funds’ volatility, preserve and grow capital, and slowly take advantage of our expansion efforts and opportunities in Asia.”

Kumin said that Folger Hill made “solid progress” on the firm’s primary objectives for the year.

“We tightened the risk limits on our portfolio managers, increased our global capital base, and hired a number of investment team members in the US and Asia. These efforts significantly increased diversification and reduced the volatility profile of the Funds in 2017.”

He cited the growth of the firm’s Asia business in Singapore and Hong Kong, led by Angus Wai, as a “key factor in our turnaround and a major contributor to our increased portfolio diversification.” Wai was previously Cohen’s SAC Capital’s as head of Asia Pacific. Kumin previously worked at SAC as COO, spotting investment talent.

Folger Hill now manages about $US930 million, and received a $US250 million cash infusion from Schonfeld Strategic Advisors into the firm’s Asia strategies, per the letter.

That brings assets roughly to what they were in mid-2016, according to the Absolute Return Billion Dollar Club ranking. Assets had falled to about $US600 million in 2016, according to Reuters.

The firm has 24 global portfolio managers, 13 in the US focusing on US and European markets, and 11 in Asia focusing on Asian markets, according to the letter.

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