Sundheim Is Said to Plan $4 Billion Cap as New Fund Lures Cash

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(Bloomberg) -- Daniel Sundheim is on track to raise about $4 billion for his new hedge fund, making it one of this year’s largest launches.

D1 Capital Partners, run by the former chief investment officer of Viking Global Investors, will probably cap assets at that level and turn away more money, according to people with knowledge of the matter.

Investors are flocking to the stock-focused fund despite strict terms. Clients must put up a minimum of $20 million, which includes a mandatory allocation to some of the firm’s private equity investments, said the people, who asked not to be identified because the information is private. In a rare move, there’s also a maximum amount they can invest -- $200 million. If clients later want all their money back, it will take two years to redeem stock holdings and potentially longer for the private assets.

At the same time, New York-based D1 Capital is offering flexibility on fees. Investors can pay a 1 percent management fee on assets plus 25 percent of profits, or opt for 1.75 percent and 20 percent, one of the people said. Or they can choose a sliding scale where fees rise as D1 performs better: If the fund returns less than 5 percent a year clients pay no incentive fee but if it gains more than 20 percent they are charged about 40 percent of profits.

More than half of D1’s clients won’t also be invested in Viking, the person said, as Sundheim’s firm has a non-solicitation agreement with Andreas Halvorsen’s hedge fund.

A spokesman for Sundheim declined to comment.

Viking Split

While some managers dream of overseeing tens of billions of dollars, others seek to limit the amount of money they take on, especially early. Running too much capital can narrow the scope of investment opportunities and drag down performance.

Sundheim joined Greenwich, Connecticut-based Viking -- one of the world’s biggest hedge funds -- in 2002 as an analyst, and over his 15-year tenure rose to co-CIO and ultimately gained sole responsibility overseeing about $30 billion in assets. He reported to founder Halvorsen, but left last June after the firm struggled to give him the flexible investment mandate he was seeking. Viking returned $8 billion to clients as he departed and now oversees about $24.5 billion.

Read more about Sundheim’s departure here

Since then, Sundheim has been managing his own money and prepping his new fund, including hiring former White House economic adviser Jeremy Katz as president and chief operating officer. In naming D1, Sundheim borrowed a page from billionaire Jeff Bezos whose motto at Amazon.com Inc. is “It’s always day one.”

D1, which may begin trading in the third or fourth quarter, recently brought on at least two investment partners. David Hobbs, formerly an analyst at Tiger Eye Capital, will focus on industrials, consumer and real estate wagers, one of the people said. Kelland Reilly, who worked at San Francisco-based Dragoneer Investment Group, will specialize in technology, media and telecommunications.

Read more about other hires Sundheim has made for his firm

D1 Capital will wager on and against stocks across sectors including consumer, financial services, health care, industrials and technology. Its private equity investments will mostly entail taking later-stage, non-controlling stakes in companies.

Sundheim’s firm is likely to be one of at least three hedge fund mega-launches this year. Michael Gelband, the former head of credit at Millennium Management, is expected to attract several billion dollars at ExodusPoint Capital Management. Steve Cohen made his industry comeback earlier this year with $3 billion.

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