Valiant Capital Founder and Hopeful NBA Owner Christopher Hansen Posts Losing First Quarter

April 29, 2013   Stephen Taub

The fund manager, best known for teaming with Steve Ballmer in a bid to buy the Sacramento Kings and move them to Seattle, has now posted two back-to-back losing quarters.

The hedge fund manager who has teamed up with Microsoft Corp. CEO Steven Ballmer to buy the Sacramento Kings basketball team and move it to Seattle accomplished something most other stock pickers didn't in the first quarter: He lost money on his long positions during a booming bull market in stocks.

Christopher Hansen's Valiant Capital Management, which we earlier reported lost 10 percent on a gross basis and 8.70 percent net in the first quarter, lost 3.52 percent alone in its long portfolio in the first quarter, a period when the S&P 500 rose by 10.6 percent, according to Valiant's March performance report, obtained by Institutional Investor's Alpha. This means Valiant's longs lagged the broad market by more than 14 percentage points.

In its performance report, the firm warns that it is "inappropriate" to compare its results to the S&P 500, MSCI World Index or "any other market index," insisting that it is not aware of any index that would be directly comparable. However, it is safe to assume that even most custom-constructed stock indexes posted gains in the first quarter, and double-digit returns at that.

Hansen's horrible first-quarter performance comes on the heels of a 7.44 percent net loss in the fourth quarter, putting the firm down more than 16 percent in the past six months, having lost money five of the most recent six quarters. Neither Hansen nor a spokesperson from the National Basketball Association returned calls seeking comment.

There is considerable interest in Valiant's missteps. For one thing, Hansen's is one among several dozen hedge funds whose roots can be traced to Julian Robertson Jr.'s legendary hedge fund firm, Tiger Management. Hansen is unofficially called a Tiger Grandcub because he spent seven years working for Tiger Cub John Griffin of Blue Ridge Capital. In 2008, he started Valiant, a global long-short equity hedge fund that now manages $2.44 billion, down from $2.8 billion at year-end, according to the firm's internal documents. Despite its recent travails, Valiant, which has a four-year lockup, has compounded at better than 13 percent net since its August 2008 inception.

Hansen's investment troubles are playing out simultaneously with his bid to buy 65 percent of the basketball team. The NBA has held up its approval of the offer - which was recently raised to $357 million from $341 million - as it considers a competing bid that would keep the team in Sacramento. On Thursday the Sacramento Bee reported that the committee vetting Hansen's and the competing offer for the Kings will discuss the situation on a conference call on Monday, April 29, and a final decision will not be made until May 8 at the earliest.

In any case, according to Valiant's report in the first quarter, the fund's liquid portfolio lost about 10 percent, while the side pockets, which account for about 15 percent of the fund's total assets, lost a mere 0.10 percent. The liquid portfolio had a net exposure of 34.58 percent.

Valiant, no doubt, was hurt badly by its big stake in Apple, its largest position at more than 9 percent of the liquid portfolio. Apple's shares plunged about 17 percent in the quarter.

Otherwise, Valiant's top longs actually fared well. Its next three largest long positions - Tiger Cub favorites Google and Liberty Global as well as Anheuser-Busch InBev - posted gains of 12 percent, 16.6 percent and 13.8 percent, respectively, in the first quarter.

Facebook, Valiant's fifth-largest holding, lost about 3 percent. Altogether, the fund made money on its U.S. investments. But it lost money on its long exposure to India - which accounted for 29 percent of its long exposure - as well as on bets on the Middle East, Africa and China. Those bets accounted for another 12 percent of long exposure combined.

However, Valiant's short portfolio lost nearly 4 percent, and its macro portfolio lost 0.17 percent. As of the end of March, 32 percent of Valiant's long portfolio consisted of holdings in information technology stocks, with another 30 percent in financials. After accounting for short positions, Valiant had net exposure of 18 percent to tech and 21 percent to financials.

The performance report also provides insight into the firm's illiquid side pocket portfolio. It shows Valiant's biggest loss coming from Spandana Sphoorty Financial, an India-based microfinance institution. An initial investment of more than $14.8 million is now worth just $9,710.

However, seven of the 22 current holdings are now worth more than Valiant paid, including Mission Well Services, a Houston-based provider of hydraulic fracturing services that was formed in early 2010, which has nearly tripled in value. Altogether, Valiant has closed out five side pocket investments, including Facebook, which was converted into a public, liquid holding.

Now, the question is whether the Sacramento Kings will indeed become a personal illiquid investment for Hansen, or whether his fund's woes will make it harder for him to follow through with his deal.





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