Tripp Smith’s Debut Fund Posted 57% Return Before Closing Out

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(Bloomberg) -- Last June, GSO Capital Partners co-founder Tripp Smith started his new WIC fund, named for the motto “winter is coming” from the television series “Game of Thrones.”

Winter did indeed come, with the coronavirus pandemic chilling markets, and Smith’s Iron Park Capital Partners LP delivered outsize returns for the WIC fund, in sharp contrast to double-digit losses posted elsewhere on Wall Street. The vehicle recorded a 57.1% return after fees from its launch through its shuttering in March, according to people with knowledge of the matter and a letter to investors seen by Bloomberg.

WIC was raised by Iron Park with the goal of betting on market dislocations in an economic downturn. It initially employed Smith’s favorite pair trade -- shorting junk bonds while betting on leveraged loans -- a tactic that had garnered attention among his colleagues for its uneven track record.

But the 54-year-old investor changed tack and exited his long positions, fearful of the excess in markets, pivoting WIC toward a levered short strategy in late January, according to the letter. “The pivot itself was driven by our conviction that the rally in both leveraged loans and high-yield bonds had driven the market to extreme valuations,” Smith wrote.

Iron Park acknowledged that some of its performance was due to luck. “While we do not take credit for the precision of the timing, the fundamental call was sound,” he wrote. Iron Park was able to capture “extreme asymmetry” through WIC, which executed over 1,000 trades across 120 securities and evaluated almost triple that number.

Hand-Picked

Iron Park took advantage of the low-margin requirements on short positions to press its gross short risk to about 600% of net asset value, the letter shows.

As the market tumult unfolded in March, the firm covered its short positions in roughly $650 million of U.S. and European high-yield bonds that it individually hand-picked instead of relying on an index, according to the letter and people familiar with the matter, who asked not to be identified because the performance information isn’t public. In March alone, it delivered gross returns of 70%, they said.

A representative for Iron Park declined to comment.

In conversations with investors, Smith has explained the rationale behind closing out WIC, saying that targeting distress and stress is “a moment in time” rather than a strategy on which a business should be based, according to a person familiar with the talks. Iron Park intends to stay nimble and pivot toward performing credit when the cycle turns, Smith has said.

Iron Park made its WIC bets by adding leverage to some $350 million raised from investors including the family office of Bennett Goodman, who has publicly discussed his support of his former colleague. Goodman, like Smith, is a co-founder of GSO, the firm that’s become Blackstone Group Inc.’s credit arm and which recorded a negative 30.3% net composite return on distressed assets during the first quarter.

‘Winter Is Now’

Iron Park -- which recently hired former York Capital Management partner Matt Bonanno -- has begun raising $1 billion for a second fund dubbed WIN, for “winter is now,” that will focus on distressed-credit opportunities the firm expects to emerge in another market rout, one of the people said.

The firm is separately in advanced discussions with potential anchor investors for a $5 billion fund being raised as a joint venture with growth-oriented private equity firm General Atlantic. The effort, known as Atlantic Park, is targeting annualized returns of 15% to 20% after fees, according to a person with knowledge of the matter.

Atlantic Park will seek to take a partnership approach to providing rescue financing to high-growth companies, largely in the U.S. and Europe, with track records of profitability and immediate funding needs. These include leveraged buyout targets saddled with debt by their private equity owners, junk-rated public companies and borrowers reliant on direct lenders such as business development companies, or BDCs, where liquidity may dry up, the person said. It won’t take positions in any companies already backed by General Atlantic.

A representative for General Atlantic declined to comment.

©2020 Bloomberg L.P.

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