Read The Letters That Whitney Tilson And Glenn Tongue Sent Investors About Breaking Up

whitney tilson

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T2 Partners co-founders Whitney Tilson and Glenn Tongue announced in a letter to investors that they’re parting ways.  According to the letter, the pair decided to separate last month.  

Tilson is remaining at T2 Partners and Tongue is launching his own fund. 

Here’s an excerpt from the 10-page letter dated July 13th that we received from an anonymous source about the two investors’ future plans. (Note: Emphasis ours) 

Dear Partner,

We are writing to let you know that, after careful consideration, we have decided to cease managing money together and will instead do so independently, in the firm belief that in doing so our investors will benefit over time.

The friendship and admiration we have for each other is unchanged, we will continue operating  our funds, and you do not need to do anything. We are, however, modifying our structure:  Whitney will become the sole principal of T2 Partners and its three primary hedge funds. Glenn  will be establishing a new investment firm, Deerhaven Capital Management, that will  independently manage the T2 SPAC Fund, which will be renamed the Deerhaven Fund and  become his hedge fund vehicle. We will each have meaningful economic interests in our respective funds, so our interests are very much aligned.

In terms of T2’s support team, Kelli Alires will remain the office manager and head of investor  relations, Damien Smith will continue as T2’s analyst, and the auditor, bookkeeper, legal  counsel, compliance firm, and prime broker will remain the same. Deerhaven will develop its  own infrastructure over time.

Please allow us to tell you about our future plans:

Whitney’s Plans

[This section is written by Whitney]

I couldn’t be more optimistic about T2’s future and am looking forward to going back to doing
what I did very successfully when I was managing the T2 Accredited Fund on my own for more
than five years beginning in January 1999.

In this extremely difficult, complex, and uncertain investing environment, I truly believe that less is more. Going forward, the funds I manage will be concentrated in my very best, carefully researched investment ideas, with approximately 15 meaningful positions on the long side and 25 (smaller) positions on the short side. My target portfolio exposure is 90-110% long and 40-60% short. In this increasingly short-term, trading-oriented environment, I aim to do as little trading as possible, and would be delighted if I am able to generate a handful great investment ideas each year. 

My objective is to beat the market by 5-10 percentage points per year (net) in the 1-3 year
horizon, in both strong and weak markets, with meaningfully less volatility than we have seen in
the past year, and to earn you a compound annual return of at least 15%, measured over a
minimum of a 3-5 year horizon.

To ensure that I can focus intensely on in-depth company and industry analysis, I will adopt a much lower public profile and let my investment returns speak for themselves. Specifically, I will dramatically reduce my television appearances, interviews with the media, blogging/writing, -5-and public speaking, both in the investment and philanthropic realms. I also plan to write letters to you quarterly rather than monthly (our bookkeeper will, course, continue to send you monthly statements).

I thought it would be useful to share the track record of the T2 Accredited Fund when I was running the fund by myself in the 5 1/3 years from January 1999 through April 2004. As you can see in the table and chart below, the fund substantially outperformed all of the indices, beating the S&P 500 by 12.5 percentage points per year on a compounded basis. Obviously the world has changed a great deal since then and I cannot promise high returns, but one thing I can say for sure is that I have massively more experience now than I did then. 

Finally, I want to say that it has truly been a pleasure being partners with Glenn for the past eight  years and I believe even more what I wrote when he joined T2: Glenn is “an experienced investor, outstanding stock picker and great person.” I’m confident that he will be enormously  successful going forward and couldn’t be more pleased to have a meaningful economic interest in his future.

Glenn’s Plans

[This section is written by Glenn]

I completely share Whitney’s feelings about our business partnership and personal friendship, and look forward to his future success. I am proud of our track record since I joined T2 Partners in 2004 (see Appendix A) and, like Whitney, believe that we will both be very successful as  independent portfolio managers.

I am delighted to be launching Deerhaven Capital Management and the Deerhaven Fund, which  will be managed in a traditional hedge fund structure similar to the funds we’ve been managing. The fund’s target exposures are approximately 120% long and 60% short, somewhat lower than what we have been running recently. The long positions will be familiar to you: deeply researched ideas based on fundamental analysis, which will generally fall into three categories:

1) High-quality businesses with strong cash flows, available at a discount;

2) Special situations (mergers, workouts, SPACs, etc.) (my investment banking background is a competitive advantage in this space); and

3) Mispriced options.

Long position sizes will vary depending on safety and opportunity, but generally the long book will be highly concentrated, with weightings skewed towards a few very high conviction investments.

The short book will be far more diversified than the long book, and will be focused on frauds,  promotions, and failed business models – the world is awash in such opportunities. The short  book is intended to both generate alpha and reduce portfolio volatility. In addition, when  available at reasonable cost, the portfolio will hold securities intended to protect assets from large downdrafts.

As background, we set up the T2 SPAC Fund in late 2008, as the world was coming apart, to  take advantage of the extreme mispricings I had identified in the niche market of Special Purpose  Acquisition Companies (SPACs) (for more on this fund, please read our August 2009 letter; user name: ******; password: *****). I have deep expertise in this market and am pleased that the fund was a great success: it returned more than 100% in two years. We’ve returned most of the SPAC

Fund’s capital to investors so it’s the perfect vehicle for me to launch my own hedge fund, saving me the time and expense of setting up a new fund.

I look forward to working with both existing investors and new limited partners in this very exciting time. If you have any questions or would like to discuss investing with me, you can contact me directly at [email protected] or (XXX) XXX-XXXX.



If you have any questions, please don’t hesitate to email or call us at (XXX-XXX-XXXX). Thank you for your continued confidence in us.

Sincerely yours,

Whitney Tilson and Glenn Tongue

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