Hedge Fund - Highfields Capital Management

Jonathon Jacobson and Richard Grubman founded Highfields Capital Management in 1998. Jon Jacobson previously worked at Harvard Management Co which provided $500 million of the $1.5 billion Highfields raised in 1998. Highfields Capital returned around 12.6% between 1998 and 2010, vs. 3.6% return for the S&P 500 index during the same time period.

Jonathon Jacobson has admitted that the holy grail of value investing- a good company trading at a cheap price- is very elusive in the modern financial markets, even with the resources of a hedge fund research team. As a result he claims that Highfields end up looking at unattractive businesses which carry low valuations because the market expects that poor performance to continue. If the price is low enough, or if the company’s struggles have been due to problems which are getting weaker, then it might be a buy.

Considering that the hedge fund tends to manage a moderately concentrated portfolio- in its most recent 13F filing, the six largest positions were responsible for about 40% of the reported investments- it seems to us that the fund doesn’t need to find too many “close enough” picks to match its large size as long as it can invest high amounts of capital. The smallest of these six largest positions was over $350 million. In turn, the large size of the positions and the concentration of the portfolio generally results in fairly long holding periods for Highfields; Jonathon Jacobson has claimed that a holding period can be two to three years. Between September 2011 and September 2012 the same three stocks have held the top three slots in the fund’s 13F portfolio according to our database of filings, and two more of the most recent top six had Highfields report a position of at least $200 million a year earlier.