Maverick's Short Bets Misfire, Eating Into Main Fund Gains

(Bloomberg) -- Maverick Capital’s short bets are crashing its performance this year.

The $10 billion firm, run by industry titan Lee Ainslie, is getting hit hard by wagers against three stocks, each of which has gained more than 60 percent since April, according to people familiar with the matter. The positions make up 11 percent of Maverick’s main fund -- a sizable exposure for the stock picker. The bets have dragged down the fund’s performance by 5 percentage points. The fund is now up just 2 percent this year through September.

Despite the losses, Maverick is holding strong to its conviction that the positions, which are bets against a consumer appliance company, a semiconductor company and a genetics testing firm, will ultimately make money for the fund, said the people, who asked not to be identified because the information is private.

Overall, Maverick’s short wagers have been a washout. In the 12 months through September, the main fund’s bearish bets sunk 13.5 percent, before fees, according to investor documents seen by Bloomberg. By comparison, the fund’s long positions gained 18.8 percent, before fees, in that period. Bets on Shire Plc, Universal Health Services Inc. and Constellation Brands Inc. contributed to gains on the long side, the people said.

Performance has been “inconsistent with our expectations,” according to the Maverick document. “We made too many mistakes” during a challenging investing environment. A spokesman for Maverick, which Ainslie founded 25 years ago, declined to comment. Since 1995, the firm’s main fund has returned an annualized 11.5 percent, according to the document.

Quant Funds

Hedge fund managers, who profit from their ability to bet both on and against stocks, have failed to live up to their high-flying reputation in recent years, and a string of veterans have closed shop despite expectations of a comeback. Further, many funds have been caught off-guard this year by the market’s sudden price swings amid a trade war with China and rising interest rates.

Maverick’s quant funds, which manage about $1.4 billion, are a bright spot for the firm. The Maverick Fundamental Quant fund gained 4 percent in the 12 months through September, according to one of the people. The market-neutral version of the fund rose about 13 percent in that time.

The average hedge fund gained 4 percent in that period, on an asset-weighted basis, according to Hedge Fund Research Inc., while the S&P 500 Index rose 18 percent, with dividends reinvested.

Private Wagers

One of Maverick’s biggest positions is a private investment in the so-called Amazon.com of South Korea: Coupang.

Maverick was an early backer of the e-commerce giant, investing about $19 million in March 2011, one of the people said. While the fund hasn’t added to its stake since then, the position has grown in value and is now among Maverick’s largest holdings.

In 2015, Coupang attracted a $1 billion investment from SoftBank Group Corp. that valued the company at $5 billion. The online retailer may go public by 2020.

Maverick started making private wagers more than two decades ago. In 2015, its venture unit began investing in early-stage businesses within the health-care and technology sectors through a dedicated fund. For these wagers, the fund is often an active investor, taking board seats, leading investment rounds and working with management teams, the firm said in the documents.

The venture unit has invested in about 84 private companies since 2004.

To contact the reporter on this story: Hema Parmar in New York at hparmar6@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Melissa Karsh, Alan Mirabella

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