As Lodge Hill Capital hedge fund investors look at first quarter returns averaging 5%, while the S&P 500 is up 1.4%, the letter to investors in the $750 million fund reveals the attitude of a hedge fund manager who believes in the title: they advocate a hedge strategy.
Also see a list of the top hedge fund letters
Ignore the consensus herd mentality, hedge funds were designed to hedge says Lodge Hill Capital
Celebrating its four-year anniversary, long / short relative value trader Clint Murray appears to take a step back and contemplate the macro view. Why has his fund, with just $200 million under management in May of 2014, less than five employees serving perhaps 10 institutional clients, grown by nearly 200%?
He wrote to investors that hedge fund hedge, importantly preserving capital in down markets. He said a nimble demeanor and ability to find niche opportunity should be the watch words. .
Lodge Hill Capital – Real hedge fund managers are nimble and adapt to changing market conditions
Murry advocated shorting individual name issues rather than using generic ETFs. Because hedge funds are not hedging, protecting assets in down markets, this is causation for the fund industry to be questioned and currently why its assets under management are falling.
Murray looks at a panoply of hedge fund excuses for the lack of performance and, while avoiding zingers about quantitative easing impacting fundamental research assumptions, he says the excuses for the lack of performance are just that, excuses.
Lodge Hill Capital – Hedge funds with assets from $100 million to $1.5 billion have real value, but most allocations go to the largest hedge funds
When looking at market liquidity that has dried up, he says niche hedge funds can move in and out of such environments with ease while larger hedge funds find difficulty.
Certain hedge funds have become best at creating an asset gathering machine rather than exploiting market opportunity, the letter said, as the fund’s return average of just above 50% returns in the A and B shares over four years of quantitative easing being injected directly into the market system. It is reasonably impressive they have done this with 39% net long exposure and an interesting downside deviation profile during negative stock market months. But test that fund during a crisis, which some say is on the horizon.
One thing is clear. Institutional hedge fund allocations overwhelmingly favoring the largest funds, Lodge Hill Capital is asking a logical question: why?. The real opportunities can also be found where the mainstream isn’t looking.
This article originally appeared in ValueWalk.
Photo: Charles LeBlanc