A high-profile hedge fund founded by a Steve Cohen acolyte sent a letter to investors explaining all the reasons for its underperformance.
In a January investor letter, Folger Hill’s Sol Kumin set out why his firm’s flagship fund dropped 17.5% last year. Among the cited reasons: a difficult environment for stock pickers, hedge fund “crowding” and the US election.
“I am truly sorry that we have not delivered better results thus far to our investors who put their faith in me,” Kumin wrote in the letter, a copy of which was reviewed by Business Insider. “I can assure you that we are committed to fighting back in 2017.”
Folger Hill faced concerns over investor redemptions last year. At the same time, two of its portfolio managers have recently left for competitors, with one leaving as recently as last week, Business Insider reported.
The firm’s flagship fund, Folger Hill Partners LP, fell 17.5% last year net of fees, compared to a 12% rise in the S&P 500, according to the letter. In the fourth quarter alone, the fund fell 10% compared to a 3.8% gain for the S&P 500.
“[T]he Fund’s net short positioning (1.7%) served as a material headwind, as U.S. equity markets generally moved higher throughout the year,” Kumin wrote in the investor letter. “In addition, our short book performance was particularly poor following the U.S. election results in November.”
The firm also chose the wrong sectors to invest in, Kumin wrote, focusing on “out of favour” sectors like healthcare, consumer staples, and technology, media, and telecoms rather than sectors “with greater overall momentum” such as energy, financials and industrials.
Still, the firm expects a turnaround this year. “
We believe the U.S. election marks a major historical turning point for the global economic system and could create a target rich opportunity set, especially for shorting stocks,” Kumin wrote.
“We believe moving from a monetary to fiscal policy driven economy will favour fundamental security selection more than during the Quantitative Easing era and should reward active investment managers in the years ahead.”
Kumin, an ex-SAC Capital chief operating officer, launched Folger Hill in 2014. The firm lost about a third of its assets last year, Reuters reported. The firm managed about $US1 billion as of mid-2016, according to the Hedge Fund Intelligence Billion Dollar Club, and assets fell to about $US600 million just three months later, according to Reuters. Its current assets under management were not clear.
A spokesman for Folger Hill declined to comment.
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