* Viking added Bank of America preferred in 4th quarter
* Also added WellPoint, dumped CBS
* Viking leaders worked for star manager Julian Robertson (For other stories in this series on hedge fund activity in the fourth quarter, click on [ID:nN01253038])
By Aaron Pressman
BOSTON, March 1 Andreas Halvorsen's $12 billion hedge fund firm, Viking Global Investors, is off to a better start than last year, when it suffered one of its worst quarters since the fund opened.
In a rare bout of underperformance, Viking's main global equity fund trailed the Standard & Poor's 500 Index by more than 15 percentage points in the second quarter of 2009, among its worst quarterly records since the fund opened in 1999, according to industry sources.
Ultimately, Halvorsen, a former Norwegian Navy Seal, did better in the second half. The fund finished 2009 with a 19 percent gain, just 6 points behind the S&P, a person who saw the results said.
But a peek at the secretive Greenwich, Connecticut-based firm's stock holdings from a recent filing with the Securities and Exchange Commission indicates Halvorsen entered 2010 having trimmed some of this year's losers and added to a few gainers.
Among its largest fourth-quarter moves, Viking bought into preferred stock of Bank of America (BAC.N), up 7 percent over the past two months, and WellPoint Inc WLP.N, up 8 percent, versus the 1 percent decline in the S&P 500. Viking also dumped holdings of CBS Corp (CBS.N) and Terex Corp (TEX.N), which have underperformed, according to a Thomson Reuters analysis.
This year's moves are more typical for the publicity-shy Halvorsen, who learned the investing craft in the 1990s under hedge fund legend Julian Robertson at Tiger Management. Viking declined to comment.
Few investors could complain about the weak 2009 quarter since the fund had outperformed the S&P by a whopping 37 percentage points in 2008, completing almost a decade-long string of good results, according to Viking documents obtained by Reuters.
Halvorsen, one of the most successful of the so-called Tiger cubs, set out on his own in 1999, less than a year before Robertson closed up shop. He quickly reunited with two other Tiger alumni, David Ott, a consumer sector specialist with a Harvard MBA, and Brian Olson, a technology and media expert.
Initially headquartered in the same midtown Manhattan Park Avenue neighborhood as Tiger, Viking started hot, rocketing to an 89 percent gain in 2000 as the market dropped 9 percent. That attracted plenty of investors and the fund grew to over $2 billion by 2001.
For a list all the major sector shifts among the "smart money" 30 group, go to here
The impressive outperformance has continued over the past decade as assets under management more than quadrupled.
While expanding in New York, the firm moved its headquarters to Greenwich in 2003. The firm lies among many of its peers in a modern glass-and-steel office building across the street from the train station.
Viking's success is no surprise to Jack McDonald, professor of finance at Stanford University's Graduate School of Business, where Halvorsen got an MBA in 1990 after graduating from Williams College in 1986.
"He was one of our brightest students ever," said McDonald, who joined Stanford's faculty in 1968.
A military background helped Halvorsen develop an unusually strong sense of personal integrity which has been critical for gaining credibility with top executives and major investors, said McDonald, himself a former army platoon commander.
To fulfill Norway's mandatory military service requirement, Halvorsen served in the country's MJK, a special forces branch similar to the U.S. Navy Seals.
Off-duty, Halvorsen lives with his wife in Darien, Connecticut. A competitive skier in college, Halvorsen enrolled his three children at a prestigious New England ski racing academy for high school.
In many ways, Viking resembles Tiger by focusing on fundamental business factors to find companies to short or buy. And like Tiger, even young analysts are encouraged to become industry specialists so they can be intimately involved in picking stocks, not relegated to writing reports.
As a starting point or "base case," the fund typically tilts its portfolio 40 percent more to the long side than to the short side, according to letters Halvorsen has sent to his investors. But the size of the long-side tilt ebbs and flows based on Viking's individual stock picks, not based on an overarching view of the market.
"Given our strong belief in the integrity of our investment selection process, we do not second-guess the resulting net exposure based on top-down analysis," Halvorsen wrote in a January 9, 2009 letter to investors.
In 2008, when the market dropped sharply, Viking averaged only 30 percent long for the year and just 19 percent by the treacherous fourth quarter, aiding its relative performance, according to the letter.
CREDIT INVESTING MISS
There have been some bumps along the road. Co-founder Olson left in 2005 and later filed a wrongful termination lawsuit, complaining he was underpaid. The Delaware Supreme Court upheld a ruling in favor of Viking in December 2009.
And Viking shut down a credit team that invested in bank loans and corporate bonds in early 2009 after lackluster returns, others in the industry said. Although it made up a small fraction of the firm's positions, it dragged down the entire fund's results by over 3 percentage points in 2008, according to one of Halvorsen's investor letters.
Credit analysts were reassigned back to the equities group, but portfolio manager Josh Abramowitz left the firm.
Viking's tilt toward the long side grew in the first half of 2009 and the firm's fourth quarter SEC filing included 28 new stocks. Short positions are not disclosed.
As usual, Halvorsen warned his investors not to read in any kind of call on the market based on the fund's moves.
"The increase in net exposure is the natural outcome of our bottom-up stock-picking process and should not be interpreted as a bet on continued rising markets," he wrote in a July investor letter. (Reporting by Aaron Pressman and Svea Herbst. Editing by Robert MacMillan)