Investors are apparently losing patience with Hound Partners.
The firm’s total assets under management dropped to about $3 billion at the end of 2018, according to its latest ADV regulatory filing. That’s down 35 percent from the $4.6 billion Hound reported a year earlier in a letter to clients, for the second half of 2017, that was obtained at the time by Institutional Investor.
Investors who recently bailed on Hound did not have good timing.
As it turns out, the firm’s long-short fund posted an 11.2 percent gain in the first quarter after climbing 1.7 percent in March, according to an investor. This very strong performance nonetheless lagged the S&P 500 index, which surged 13.6 percent for the period.
Hound, headed by Jonathan Auerbach, did not return phone calls seeking comment. His firm, seeded by Tiger Management founder Julian Robertson Jr. in 2004, does not publish quarterly letters.
Part of the year-over-year decline in assets is apparently due to the poor performance of the firm’s long-only funds, which, according to Hound, accounted for roughly half of the firm’s assets at the end of 2017.
In fact, in Hound’s letter for the first half of 2018, Auerbach told clients it suffered net outflows from its long-only products and “fully replaced redemptions” in the long-short fund.
Last year its long-short fund Hound Partners Offshore Fund posted a 0.08 percent loss, net of fees and expenses. The firm’s two long-only funds suffered sharp losses in 2018: Hound Partners Concentrated Fund fell about 17 percent while Hound Partners Long Fund lost 16.07 percent, according to the letter for the second half of last year that Hound sent to clients.
“We did a good job preserving capital in the aggregate portfolio during the recent drawdown,” Auerbach told clients in the letter. “We felt we demonstrated some of the defensive qualities of the long/short model and Hound’s prowess on the short side.”
However, for several years before that, Hound’s long-short funds consistently did not perform well.
In 2017, Hound Partners Offshore Fund gained just 4.39 percent when the S&P 500 surged about 22 percent on a total return basis. That same year, Hound Partners Concentrated Fund gained 16.77 percent while Hound Partners Long Fund rose 17 percent.
“While we generated positive returns in all three of our funds, we feel we should have performed better in this environment,” Auerbach conceded to clients in its letter for the second half of that year.
Worse, the long-short fund lost 2.3 percent in 2016 and lost 1.3 percent in 2015.
Heading into this year, Hound was positioned “moderately cautiously,” according to the letter.
In the fourth quarter, Hound did not establish any new significant positions or liquidate any previously sizable holdings.
At year-end, its largest position continued to be Twenty-First Century Fox, even after significantly cutting the size of its stake. As we earlier reported, Hound said it also created a New Fox stub, which it called “a multi-security merger arb position,” after Walt Disney Co. agreed to buy most of 21st Century Fox.
Fox’s acquisition by Disney was completed in March. Fox Corp. was spun off and began trading. It is not yet known whether Hound has held on to New Fox or liquidated its entire bet.