Dan Sundheim’s D1 Capital Partners posted a 22.4 percent gain last year in its most popular share class, with performance held down by its investment in e-cigarette maker JUUL, according to a person familiar with the results.
Investors in D1’s class C shares, the most popular, allocate 35 percent of their assets to private bets, the person said. While D1’s public portfolio was up 36.34 percent for the year, the firm’s private investments were down 12.47 percent, heavily hurt by the markdown of its stake in JUUL, according to the person.
A major crackdown on vaping has wreaked havoc on the industry, leading to a drop in the valuation of JUUL and other e-cigarette makers. In December 2018, tobacco giant Altria bought 35 percent of JUUL at a $38 billion valuation, resulting in a big distribution to D1’s investors and other selling stakeholders at the time, according to the person.
Sundheim is the Tiger Grandcub who launched his hedge fund in July 2018, after working at Viking Global Investors from 2002 to 2017. Viking was co-founded by O. Andreas Halvorsen, who previously worked at Tiger Management as an analyst.
At the end of last year, D1 had $9 billion of assets under management, according to the person familiar with the firm’s performance. Since its July 16, 2018 inception, D1 has gained 28.5 percent, compared with 18.8 percent for the S&P 500 and 13.5 percent for the MSCI World Index — key benchmarks for D1. During the same period, the public portfolio was up 35.63 percent while its private investments rose 8.5 percent, the person said.
D1 declined to comment.
Last year, D1’s public portfolio made a lot of money shorting cannabis stocks, according to the person. The firm generally runs a fairly concentrated portfolio heavily skewed towards U.S. stocks. At the end of the third quarter, its U.S. long portfolio was valued at more than $7.2 billion spread over just 28 different stocks, according to its latest 13F filing.
Little surprise, D1’s portfolio is dominated by several of the most well-known technology, internet, and consumer companies widely held by hedge funds and many descendants of Julian Robertson, Jr.’s Tiger Management.
However, its largest positions did not heavily drive long gains.
Streaming pioneer Netflix was by far the largest holding, accounting for about 13 percent of U.S. long assets after D1 boosted its stake in the third quarter by nearly 50 percent, according to the filing. E-commerce giant Amazon.com was the second largest holding after D1 increased its position by more than five times in the third quarter.
Shares of Netflix gained 21 percent in 2019, while Amazon’s climbed 23 percent.
Tencent Music Entertainment Group became the third largest long in the third quarter, after D1 boosted its stake by nearly 1.5 times, the filing shows. Shares of the company fell about 11 percent last year, including about 8 percent in the fourth quarter.
Netflix, Amazon and Tencent three accounted for more than 30 percent of assets at the end of the third quarter, according to the filing. Three of the next four largest longs are also familiar internet names: Chinese e-commerce giants Alibaba Group Holding and JD.com, and social media pioneer Facebook.
In the first quarter of 2019, D1 had liquidated its stakes in Alibaba and Amazon, only to buy them again in the second quarter, when Alibaba immediately became the second largest long, regulatory filings show. The only non-tech-oriented company among the top-seven holdings at the end of the third quarter was hospitality giant Hilton Worldwide Holdings.
Sundheim joined Viking in 2002 as an analyst covering financial and business services companies. In January 2015, Halvorsen named him sole chief investment officer when then-co-CIO, Thomas Purcell, left the firm following a six-month sabbatical.
Sundheim qualified for Institutional Investor’s annual Rich List ranking of the world’s highest earning hedge fund managers in 2014 and 2015.