Jason Karp’s Tourbillon Capital Partners may bear the dubious number of 666 in our hedge fund database, but the fund’s returns have been anything but since its inception. Launched early in 2013 by Karp, a former employee of disgraced firm SAC Capital Partners, he had no trouble lining up investment dollars for the launch of his own long/short equity fund, initially opening with $250 million in assets under management. The new fund returned 20.7% net of fees in 2013, and had returned 8.7% in 2014 through September. That success has continued into 2015, with the fund’s 34 long positions in $1 billion+ market cap companies achieving big weighted average returns of 10.8% in the first quarter (note that the fund’s actual returns may be quite different, as the performance of the fund’s numerous undisclosed short positions is unknown).
Professional investors like Karp, spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while Karp’s returns have been strong the past two years, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 137% and beaten the market by more than 82 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
Surprisingly, Karp achieved his big first quarter gains despite his largest long position in DISH Network Corp (NASDAQ:DISH) struggling during the quarter, to the tune of a 3.88% loss. The 1.85 million share position valued at $134.85 million at the start of the year, was increased by 33% during the fourth quarter and accounted for 3.63% of Karp’s equity portfolio. It’s possible Karp is banking on DISH Network Corp (NASDAQ:DISH) finding a big merger partner, which has yet to materialize despite persistent rumors connecting it to DirecTV (eventually purchased last year by AT&T Inc. (NYSE:T)), and Verizon Communications Inc. (NYSE:VZ). That didn’t stop DISH shares from rising by 25% during 2014 however, leaving Karp a happy investor regardless. DISH Network Corp (NASDAQ:DISH) is also a top long-term pick of billionaire James Dinan.
Karp’s position in Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) was a big winner for him in the first quarter, and also helped several other funds to big quarters including Hound Partners, Hillhouse Capital Management, and JAT Capital Management. Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) was able to propel so many funds to big returns thanks to 28.84% returns during the first quarter. In Karp’s case, the position was his third-largest long position, and consisted of 2.25 million shares valued at $102.38 million. It’s also a stock he expressed very bullish sentiment on in the middle of last year, declaring it “[…]one of the best, highest probability growth names on the planet over the next decade.”
