Onetime T. Rowe Star Posts Big Gains Running His Own Fund

(Bloomberg) -- As a star fund manager at T. Rowe Price Group Inc., Henry Ellenbogen produced an annualized 19.2% return. He’s exceeding that mark at his own investment fund.

Durable Capital Partners, the firm he launched a year ago this month after exiting the fund giant, has gained more than 24% this year through October, according to people familiar with the matter.

Ellenbogen’s solo success comes in part from buying stakes in public companies directly from businesses rather than in the market, deals known as PIPEs. The firm, with $10 billion in assets, has also backed promising startups, especially in the tech industry, some of which have completed successful initial public offerings.

Tech firms from Snowflake Inc. to ZoomInfo Technologies Inc. have rushed to sell shares as the pandemic has fueled the appetite for companies that stand to gain from lockdowns and social distancing measures. More than 30 internet and software companies have sold shares via initial offerings this year, and their stocks are up 32% on average since their debut. That compares with a gain of 6.6% in the S&P 500.

Ellenbogen, 47, honed his startup-buying strategy as the manager of T. Rowe’s New Horizons Fund for nine years. When he exited the company after two decades, that fund had about $25 billion in assets and was one of the company’s top performers.

At T. Rowe, Ellenbogen was hemmed in by fund industry regulations that restrict investments in private companies. Freed of such limits at Durable, he’s pushing deeper into venture capital and private equity-like transactions.

Durable led a $254 million round of funding for the online auto retailer Vroom Inc. before it went public in June. The shares have surged 85% since then. It also had a stake in the cloud data platform company Snowflake ahead of its September IPO. That stock has more than doubled since then.

“Henry has always been about identifying durable growth,” finding companies that will disrupt and dominate their industries, said Glenn Kelman, chief executive officer of online real estate broker Redfin Corp.

Many of Durable’s bets stem from relationships Ellenbogen has developed with management. He first invested in Redfin at T. Rowe in 2013, when it was private. In May, Durable did a direct deal to buy 9.2% of Redfin. It was one of the fund’s biggest holdings as of June 30, according to U.S. Securities and Exchange Commission filings.

In April, Durable bought a stake in employer-sponsored child care company Bright Horizons Family Solutions Inc. As of June 30, it was the fund’s biggest U.S.-traded long equity holding and had a market value of almost $500 million, regulatory filings show.

Durable doesn’t short stocks and its fees decrease with the length of time client money is locked up. Investors with the longest holding period have seen returns of almost 30% in the first 10 months of this year, people familiar said.

The Chevy Chase, Maryland-based firm’s early success comes as no surprise to Linda Abu Mushrefova, an analyst at Morningstar Inc. who tracked Ellenbogen when he ran New Horizons at T. Rowe.

“Henry Ellenbogen did an outstanding job,” she said, adding that private investments contributed significantly to performance. “He was really impressive.”

©2020 Bloomberg L.P.