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
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
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
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.