Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 5)

Longs Standing Tall F or many hedge fund managers, 2007 was a year they would just as soon forget. The collapse of the subprime mortgage market, the failure of algorithmic trading strategies, the drying up of credit markets and the surge in volatility made managing money a daily challenge — and also accounted for untold canceled vacations. Several top ﬁrms, including AQR Capital Management, Goldman Sachs Asset Management and Tudor Investment Corp., had their worst results in years. But for Stephen Mandel Jr., founder of $9 billion Greenwich, Connecticut–based Lone Pine Capital, 2007 produced another vintage performance. His ﬂagship longshort equity fund, Lone Cedar, returned 44.6 percent, trouncing the HFRI index, which was up 10.4 percent, and the Standard & Poor’s 500 index, up 3.5 percent. “They were ﬁring on all cylinders,” says one Lone Pine investor. Not only did Mandel have the conviction to short mortgage lenders as the subprime sector was imploding, he also made some strong picks in Europe and emerging markets. A large stake in América Móvil, Latin America’s largest mobile telecommunications operator, paid off handsomely. The shares were up about 35 percent in 2007, as the Mexico-based company continued to add subscribers, improve operating results and grow revenue. Mandel, a former equity analyst for renowned Tiger Management Corp. founder Julian Robertson Jr. in New York, has built a reputation as one of the hedge fund industry’s sharpest stock pickers. His strategy straddles growth and value investing. Mandel, who launched Lone Pine in 1997, looks for well-managed companies with strong growth prospects whose shares are trading below what he and his team of analysts deem to be their intrinsic value. That approach has led him to companies that most value investors avoid, including technology titans Apple and Google — two of his biggest winners in 2007. Of course, Mandel was not the only hedge fund manager to shine. John Paulson, founder of New York– based Paulson & Co., made a fortune for himself and investors through a brilliantly timed short of subprime mortgage lenders and the subprime index. His Paulson Credit Opportunities Fund was up 590 percent in 2007. But it is the strong results of managers like Mandel that give hedge fund investors reason for optimism — demonstrating that good stock pickers can produce high returns with low volatility. Several other former Tiger analysts also excelled in 2007. Blue Ridge Capital’s John Grifﬁn, Viking Global Investors’ Andreas Halvorsen and Shumway Capital Partners’ Chris Shumway were all up at least 40 percent. The “Tiger cubs,” as they are called, share a fundamentalsIllustration by Joshua Gorchov for Alpha & Shorts Lone Pine Capital’s Stephen Mandel Jr.: Rising above the fray during turbulent times. driven, research-intensive approach to investing. Like Mandel, they keep concentrated portfolios and stick by their long-term investments even when the prevailing market view says otherwise. Shorting subprime lenders was a common theme among many of the cubs in 2007, but it was their skill at stock picking that helped them rise above the fray during what for them was a memorable year. — Imogen Rose-Smith Under Fire M ichael Ward has much to fear. The chairman, president and CEO of U.S. railroad group CSX Corp. ﬁnds himself in the crosshairs of one of the hedge fund industry’s most implacable investors: Christopher Hohn, the 41-year-old founder and DECEMBER 2007/JANUARY 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 5

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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