Hedge Funds that Value Invest

How many hedge funds are there that employ the Buffett style of investing? I know Lampert is one, but how many do this? I assume the main reason against this is because HFs need to show annual gains, and the Buffett style is more for longer term gains (but of the same or better quantity). I guess this is the reason Lampert has a 5 year lock up of money. So, who else does this?

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Comments (46)

Apr 7, 2008 - 8:25am

I've been reading Hedge Hunters, which profiles a bunch of funds (Ospraie, Canyon Capital, Avenue), and EVERY SINGLE ONE claims to be a value fund (and a contrarian, but that's beside the point). Ospraie seems to be the most serious about it though, with 5 year lock-ups. They're not a pure equity shop, though; they focus on commodities.
Bridger Management is also profiled. They're a pure long-short equity shop that takes 5 year positions.

Apr 7, 2008 - 9:25am

A lot of times value investing and activist investing go hand in hand, here is my list of value shops:
Barington Capital
Blum Capital
Breeden
Clark Estates
Fairholme
Icahn
Jana
Marathon Partners
New Mountain Vantage
Prides Capital
Sageview
Shamrock
Stadium
Third Ave.

  • 1
Apr 7, 2008 - 12:32pm

value and activist investing do not go hand-in-hand.

jana partners is more akin to a corporate raider than anything. take a look at their letter to CNET shareholders.

activist investing means that you shake up corporate boards to get the changes that you want to drive the stock price up. sure, activist investors buy into a company when the price is extremely depressed, but they don't have the same investing philosophy as Buffett. they will try to coerce stock buy-backs or sell-off parts of the company to generate a short-term price increase in the share price. once they get their double or triple digit returns, they sell and forget the company.

big difference.

Apr 7, 2008 - 2:45pm

What sort of qualifications does it take to break into an activist fund? I'm a first year IB analyst with a much bigger interest in hedge funds than in PE. I'd be interested to hear what it takes to be considered for a place like Jana (their website is pretty slim, as is often the case with HF sites).

Thanks in advance for any input.

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Apr 7, 2008 - 6:28pm

On a side note, is it better to do 2 year stint in investment banking vs. trading if you are interested in this type of Buffett value investing? It seems like the M&A and corporate valuation comes in handy, more so than short term trading. Thoughts?

 

May 28, 2008 - 5:32am

I only interviewed with one fundamental investing hedge fund (Lehman Equity Strategies), which was fundamental-based long/short. They were very big on valuation of stocks and that kind of thing. I know for all the other people I've met who also interviewed with them at Wharton, all of us had banking/PE type experience. Only one guy at Penn who i kno interviewed with them had S&T experience(and his GPA was 3.95+)

Apr 7, 2008 - 7:00pm

Aachimp: The days of fast money style activist investors is virtually gone. Green mailers lose credibility, and activist investing is very much a reputation game. The best activist investors are traditional deep value, graham and dodd style value investors who hold their portfolio companies for 1-5+ years. Reshuffling boards, selling off assets, pushing for share buybacks, selling entire companies, etc, is not financial engineering to generate a short term bump in share price: rather, it is an effort to unlock nascent value on a company's financial statements. The notion that activist investors are just glorified pump and dumpers is inexplicably misleading. The last activist HF I worked for had an average holding period of 5 years, former CEOs of major companies on the payroll to help portfolio companies implement operational and strategic improvements, and 25% annual returns over a decade and a half of investing. It's pure graham and dodd, of course, so when a share price hits intrinsic value, there is no incentive to continue to hold the investment.

JDmaybe: I am in occasional contact with kathy burton. her primary interest as a journalist and now a novelist is in value/activist HF managers, so that's why her book seems so replete with them. There are many different strategies in hedge fund land, most of which boil down to "value" by some definition or other, but certainly "value" isn't a catch-all label for every strategy. Neither is contrarian.

TheKing: 2 years IB is better, though realistically the best activist hedge fund analysts come out of private equity. This is because the strategy is predicated on the investor's willingness and desire (at least in theory) to own the entire company at a given purchase price, which is an experience more akin to PE.

Apr 7, 2008 - 9:17pm

aachimp: I disagree with your post. I didn't say that they always go hand in hand, but yes often times they do. Activist investing doesn't mean always mean they meat nasty letters, demand greenmail and threaten to bust up the company. The fund I work for is an activist/value shop and we work with many other funds that use similar investing strategies. Many times we take a position in a company and get a board seat in order to help speed up the time line on an investment. The original post also included Eddie Lampert, are you saying that he is not an activist investor?

Apr 22, 2008 - 5:13am
stevenbn:
aachimp: I disagree with your post. I didn't say that they always go hand in hand, but yes often times they do. Activist investing doesn't mean always mean they meat nasty letters, demand greenmail and threaten to bust up the company. The fund I work for is an activist/value shop and we work with many other funds that use similar investing strategies. Many times we take a position in a company and get a board seat in order to help speed up the time line on an investment. The original post also included Eddie Lampert, are you saying that he is not an activist investor?

I see what you're getting at. Most of the companies on the list would fall into value as well, but something like Jana Partners is by no means a value investor.
Apr 23, 2009 - 9:04pm

Value Hedge fund - Greenwich or NYC? (Originally Posted: 05/24/2007)

Can anyone provide a list of funds that have a value equity strategy (or larger funds that have something similar as one of their strategies?) in Greenwich or NYC? Looking to transition to research analyst in that strategy and want to know what firms to target. Thanks for your input.

Apr 23, 2009 - 9:07pm

Value Hedge funds (Originally Posted: 08/08/2007)

Name some value hedge funds, also is there any chance they would hire a recent college grad ?

I do have some investment experience and have been pretty successful.

Apr 23, 2009 - 9:11pm

you need a contact, they have 12 investment professionals on staff (they have 3 core investments, and then some random ones)--Lampert really just puts on his ideas and everyone else works on Sears mostly, a few on Autozone. They don't really hire, kind of run like an early version of Berkshire in some ways I guess.
Lone Pine does recruit, but not necessarily annually, and they are pretty lean. Recruiters or friends have to put you in touch (true for almost all major HF's)

A few others include: SPO, Sageview, TPG-Axon, any of the Tiger Cub funds, and many others (I guess some of these blur the lines of traditional long/short and value funds)

Apr 23, 2009 - 9:13pm

some come from prop groups in banks, others from B-school, many from other HF's and a few from random backgrounds. It really depends on the fund, but generally speaking the 2-3 people they hire a year can really come from anywhere. ESL and Lone Pine generally don't hire many people, they're just incredibly lean organizations. Some of the others will hire every year junior guys from banks and consulting firms, just depends

Apr 23, 2009 - 9:16pm

Most value driven funds/investors that arent event driven... are mutual funds. Just fyi.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
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Apr 23, 2009 - 9:21pm

I'm willing to bet that 50%+ of the long short equity funds that have been around for awhile and have a functioning amount of AUM claim to be "value-oriented" in their literature. Despite the recent high fliers in tech (Tiger Global comes to mind), institutional investors have been reluctant to allocate their equity sleeve to growth funds since the tech bubble burst. Pensions, family offices, etc see words like "margin of safety", "intrinsic value", and "fundamental analysis" and correlate them with safety. This is true to an extent, but has definitely been abused recently. There are hundreds of guys that claim to have portfolios full of 50 cent dollars but I don't know of any fund that is routinely putting up 50% returns consistently.

In the purest sense value investing is almost statistical. The fact that Walter Schloss passed away this weekend has made me think about how there are very few funds out there really just buying cheap stocks. It is so easy with CapIQ and Bloomberg to look for net-net's, stocks trading below tangible book value, etc the opportunity isn't there. The value funds today look for quality names trading at a reasonable multiple or mediocre names that are deeply discounted. The former leads to people stocking up on blue chips (AAPL, IBM, JNJ, PG, KO) and the latter leads to crowded special situations trades (Lyondell).

The value funds that I consider the very best are agnostic to which parts of the capital structure they invest in, understand their circle of competence, and have a bottoms up research process. In terms of the large funds that follow these strategies, I would put Baupost and Greenlight above all others in this category. In terms of being purely equity, I think Sequoia is top notch.

Its also worth mentioning that special situations has become strongly related to value investing. Spin-offs, post bankruptcy re-orgs, equity stubs, etc offered legitimate market inefficiencies throughout the 1980's and a lot of the 1990's. The secret is out now and every corporate action is watched like a hawk by these funds. There are still some of these opportunities in small caps because the big funds have way too much AUM to make them meaningful. Some of the most successful partnerships on Wall Street are small (think less than 1bn) and can still exploit special situations. A decent amount of the best "value investors" are probably people the majority of the finance community has never heard of.

Apr 23, 2009 - 9:24pm
Gray Fox:

Its also worth mentioning that special situations has become strongly related to value investing. Spin-offs, post bankruptcy re-orgs, equity stubs, etc offered legitimate market inefficiencies throughout the 1980's and a lot of the 1990's. The secret is out now and every corporate action is watched like a hawk by these funds. There are still some of these opportunities in small caps because the big funds have way too much AUM to make them meaningful. Some of the most successful partnerships on Wall Street are small (think less than 1bn) and can still exploit special situations. A decent amount of the best "value investors" are probably people the majority of the finance community has never heard of.

Slightly off topic, but what is roughly the minimum market cap/trading volume needed for a hedge fund to realistically invest in a small cap? Is there an AUM threshold where those small cap opportunities no longer make a big enough impact on the PnL to be looked at?

Apr 23, 2009 - 9:22pm

GF,

That was very insightful. Thank you.

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