Institutional Investor's Alpha Magazine - November 2007 - (Page 32)

Maverick Capital 30 percent, easily beating the S&P 500, which was up 4.9 percent. D.E. Shaw Group’s macro strategy was up 16.7 percent that year. Taking risk was a good thing. Even funds that stuck to long-short equity, including some managed by former Tiger employees, put up impressive numbers. Lone Pine Capital’s Lone Cypress fund, run by onetime Tiger consumer analyst Stephen Mandel Jr., was up 32.5 percent in 2005. Viking Global Equities, managed by the ex-Tiger triumvirate of Andreas Halvorsen, Brian Olson and David Ott, was up 21.2 percent; Blue Ridge Capital, managed by John Griffin, another proliﬁc stock picker from Tiger, returned 24.5 percent. Maverick, meanwhile, was up just 0.3 percent in 2005 — Ainslie’s worst year ever. At the end of 2005, Maverick had $11 billion in assets, good enough for No. 16 on the Hedge Fund 100 ranking. The next year Maverick experienced its ﬁrst major redemptions, losing more than 10 percent of its capital base, as its capital shrank to $9 billion. Some longtime Maverick institutional investors — including University of Texas Investment Management Co. — considered pulling their money. On this year’s list, Maverick had fallen to No. 40, with $9.6 billion in assets. No one was more devastated by the dip in performance than Ainslie, who had left New York in 1993 after three years at Tiger and moved to Dallas to help launch Maverick’s hedge fund. “Oddly, our disappointing results in 2003 did not concern me too much,” he says, because investors were bidding up the prices of unproﬁtable companies that didn’t ﬁt his approach, which relies on extensive fundamental research. “But in 2005 I was very concerned because it was clear that we should have generated much stronger returns in what was a more rational environment.” Maverick needed to make changes. In early 2006, Ainslie, Galbraith and the rest of the senior investment team concluded that Maverick’s stock-picking process was fine, but that the firm needed, among other things, to think more about its portfolio as a whole, rather than focus so much on its industry-sector investments, and to grow its international presence. Yet they never wavered in their core belief that Maverick’s long-short investment approach was the right one. In fact, they had already begun trying to grow the business by launching new funds that fed off the same idea pool as the existing strategies. “At Maverick they love what they do, and they want to do it well,” says Denise Hitchens, head of due diligence at the London-based family ofﬁce Kedge Capital, a Maverick investor. “They wanted to ﬁgure out what was going wrong.” INTROSPECTION AND SELF-ANALYSIS are key traits of Lee Ainslie — and, by extension, of Maverick. In his 2005 year-end investment letter, which begins with a “My guess is that we’ve seen the bottom and we’ve got the best ahead of us,” says Maverick partner Steven Galbraith. are the best. They are not betting on market momentum. Early Maverick investors were rewarded handsomely for their faith in Ainslie — who got his start as an analyst for legendary Tiger Management Corp. founder Julian Robertson Jr. — and his seemingly old-fashioned method of investing. With an average net annualized return of 21.4 percent from 1995 to 2002, Maverick Fund USA was one of the world’s best-performing hedge funds, beating the S&P 500 index by nearly 12 percentage points a year. Maverick’s long-short strategy really shone after the dot-com bubble burst. From 2000 to 2002, Maverick Fund USA beat the S&P 500 by an average of more than 26 percentage points a year. Institutions, new to hedge fund investing, flocked to Maverick. Its assets soared to $7.5 billion by the end of 2001. The firm was No. 3 in Institutional Investor’s inaugural Hedge Fund 100 ranking of the world’s biggest hedge fund ﬁrms in May 2002. But Ainslie’s strategy stopped working in 2003, when the world’s equity markets bounced back. Maverick missed many of the markets’ highest fliers on the long side. For Maverick, the availability of cheap credit made matters worse, as the best candidates to short — struggling companies with broken business models or bad management — often became buyout targets of private equity ﬁrms. As Maverick struggled, funds making macro calls were doing very well. In 2005, for example, Goldman Sachs Asset Management’s Global Alpha fund and Renaissance Technologies Corp.’s Medallion fund were both up about 32 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2007

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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