After announcing the closure of his flagship Glenview fund in the first quarter, manager Larry Robbins suffered sizable losses due to his chunky exposure to the health-care industry. In response, Glenview is giving existing investors the opportunity to invest, free of fees, in a new long-only fund.
Robbins' Glenview fund is closing to new investors at the end of the year; his Glenview Opportunity Fund stopped taking new capital at the end of last year.
Glenview Opportunity has been the top-performing hedge fund over the last three years, with annualized returns of more than 57 percent. He’s done this by relying on concentrated exposure to health care shares, which he believed would soar on the back of Obamacare and an aging baby boomer population.
But many big pharma, insurance and hospital shares have been buffeted by concerns of fraud, potential regulatory controls on pricing and waning earnings growth and optimism.
Year-to-date through September, Robbins’ Glenview Opportunity was down more than 13 percent and in the midst of a 26 percent drawdown. In contrast, the average diversified global equity long-short fund is up 6 percent for the year, according to HSBC. Total firm assets have fallen from $11.8 billion earlier in the year to $8.8 billion as of September 30.
In response, Robbins recently issued a mea culpa to investors, announcing his funds are closing. He's inviting existing clients to pour new money into a new long-only, fee-free health-care-focused fund that will be around until 2019, or until Robbins earns back the current losses. Investors can allocate up to the same amount they have in Glenview, with total fund capacity limited to $2 billion.
“Robbins is giving investors a chance to make some money back in a shareholder-friendly way. That’s a pretty rare thing,” said Jeffrey Willardson, managing director of PAAMCO, an institutional hedge fund investor with $9 billion in assets.
But Willardson feels Glenview is effectively just waiving management fees and not performance fees “since he wouldn’t be collecting performance fees anyway until his funds make back the entire drawdown.”
Glenview’s portfolio has taken a hit this year, observes Willardson, and not just because of falling sector multiples. Questionable business strategies and instances of fraud in the health-care industry and regulatory changes are also factors, he said. “These risks don’t go away just because an investment has no fee,” he said.
Robbins has not said whether he's putting any of his own money into the new fund.
Mark Melin, a hedge fund consultant, acknowledged Glenview has been an extraordinary performer over the years. But Melin said he has been concerned about the manager’s insufficient hedging. “Now we’re seeing the cost of an inadequate short book,” Melin said.
The sudden, sharp health-care sector decline, according to Robbins, has largely been driven by short-term sentiment, not fundamentals. "Our history has shown that swift drawdowns have proven to be significant buying opportunities over time,” said Robbins, who believes that the health-care cycle has a lot more room to run. If he’s right, fee-free performance could be a boon for investors.
However, managing the new fund without short protection exposes investors to industry and market uncertainties, which in no time could cost investors far more than the fees they are saving.
