* Some smaller funds post double-digit gains as some bigger
* Academic research shows smaller funds often perform better
* Managers of these funds gained experience at big-name
By Svea Herbst-Bayliss
BOSTON, Aug 3 A number of hedge fund industry
spin-outs are showing up their bigger and better-known brethren
by delivering eye-popping returns in a year marked mainly by
After a horrible 2011, this year is not shaping up to be
much better in the $2 trillion hedge fund industry, with the
average fund up only 2.10 percent through June.
But a handful of new funds, run by managers who had worked
at some of the most prominent names on Wall Street and in the
hedge fund industry in recent years, is doing very well with
Mick McGuire is the founder of Marcato Capital Management in
San Francisco, which specializes in selecting stocks. Only a
short time after leaving William Ackman's $10 billion Pershing
Capital Square Management, McGuire is posting the kind of
returns that would make any parent proud. Ackman has invested as
has the Blackstone Group, one of the world's most
powerful hedge fund investors.
Since January, Marcato Capital Management has gained 17.6
percent, ranking it among the industry's very best performing
hedge funds this year, according to a person familiar with his
numbers through the end of July. McGuire could not be reached
For years, academic research has shown that smaller funds,
often with younger and hungrier managers at the helm, have
outperformed their bigger peers because they can be more nimble.
Numbers from Marcato Capital Management and others seem to
be underscoring those findings.
Some of McGuire's fuel has surely come from the firm's
biggest position: Corrections Corp of America, whose
stock price has climbed 53 percent since January.
By comparison, McGuire's former employer, Pershing Square
Capital Management, is looking less dynamic with only a 3.3
percent gain for the first six months of the year.
Pershing Square's numbers through July are not yet known.
McGuire, whose assets under management hit $675 million on
Aug. 1, also handily outpaced David Einhorn's Greenlight
Capital, another closely followed and prominent fund with about
$8 billion under management. Greenlight gained 2.7 percent in
July and is up 6.4 percent for the year.
In July, when the S&P 500 Index gained 1.3
percent, McGuire's fund rose 4.4 percent. That puts him in lofty
territory for a month in which the risk on/risk off environment
likely hurt many managers, industry investors said.
Performance numbers are often highly guarded secrets in the
hedge fund industry, and tracking groups that put together
industry benchmarks are not expected to release their numbers
until early next week.
"Part of the reason these smaller managers can do well is
because of size," said Charles Gradante, who co-founded the
Hennessee Group, which invests with hedge funds. "You can make
more concentrated bets while staying on the radar when you are
small and you can unravel them better when you need to."
McGuire is not the only newcomer hitting home runs.
Murdock Capital, run by Jason Murdock, who spun out of
Contrarian Capital and oversees some $250 million in assets, is
up 12.99 percent for the first seven months of the year, said a
person familiar with the numbers.
In July, Murdock Capital gained 2.85 percent, making it the
strongest month this year, since a 4.14 percent rise in January.
Murdock, who earned a law degree from Harvard and spends some
evenings as a competitive poker player, makes long and short
investments in distressed leveraged loans, distressed bonds and
post-bankruptcy securities. He launched his fund with a few
million dollars in July 2009.
Murdock could not be reached for comment.
Similarly, some five years after the so-called quant quake
when many quantitative funds stumbled badly, Mark Carhart is
back with a fund of his own and strong numbers. Carhart formerly
co-managed Goldman Sachs' vaunted $10 billion Global Alpha fund,
which ran into big trouble during the August 2007 turmoil.
Carhart's Kepos Capital, which relies on computer-driven
trading models to make macroeconomic bets on currencies and
other instruments, climbed 5.2 percent in July. The fund, which
now has some $750 million in assets under management, is up 11.2
percent for the year, said a person who has seen his numbers.