Hedge Fund Caledonia Falls 9% This Year as Stock Picks Sour

Hedge Fund Caledonia Falls 9% This Year After Stock Picks Sour

13 Sep 2021, 02:31 AM IST

(Bloomberg) -- Australian hedge fund Caledonia has lost more than 9% since the start of January, according to people familiar with its performance, lagging stock-picking peers who have posted strong returns this year.

The $10 billion fund, known for its concentrated equity bets, has been weighed down by several of its core positions. Online real estate company Zillow Group Inc. lost almost 30% through August, while Flutter Entertainment Plc fell about 7% and Just Eat Takeaway.com NV declined 17%.

A representative for Caledonia, founded in Sydney in 1992, declined to comment.

The firm’s losses stand out given that long-short stock funds posted an average 13% advance this year through August, according to the Bloomberg Equity Hedge Fund Index. Tiger Global Management, which has a similar strategy to Caledonia, gained 8.3% in 2021 as of Aug. 31, according to people familiar with the matter.

Returns across all hedge-fund strategies “on an absolute basis are in line with some of the strongest years over the past decade,” analysts at Morgan Stanley’s prime brokerage wrote in a Sept. 9 report, which estimates the average gain through August at about 8%.

Caledonia is hoping for a big payday from the nearly 10% stake it bought in billionaire Ronald Perelman’s Scientific Games Corp. last year. Scientific Games is working on an initial public offering of its lotteries arm in Australia. At a valuation close to $9 billion, it’s set to be the biggest IPO in the country since health insurer Medibank Private Limited raised $4.2 billion in 2014.

In a letter to investors at the end of June, Caledonia said Scientific Games had been “an important contributor to our performance since we incepted the position in September 2020,” and cited improved governance and a new leadership team. The firm said that asset sales including the lotteries IPO would turn Scientific Games into a “pure-play global gaming content powerhouse,” forecasting a 50-100% upside in the share price over the next 12 months. The stock is up 77% in 2021.