When larry robbins was a boy in the Chicago suburbs, his father, Sheldon, worked two jobs and wasn’t around much. If the young Robbins wanted to see him on weekends, he had to travel to Arlington Park, a nearby horse racing track that his dad ran. During those Saturday visits, his father taught him how to handicap horses. One lesson: Know the horse and the race. Was the track dry or muddy? Did the horse win because he was fast or because the competition was lousy?
The lesson stuck with him. His corporate handicapping helped his $1.8 billion Glenview Capital Opportunity Fund to an 84.2% gain through October 31, which made it No. 1 in the annual Bloomberg Markets ranking of the best-performing large hedge funds. Robbins, 44, chief executive officer of Glenview Capital Management LLC, trounced his rivals by betting on U.S. stocks as they rose to record levels. He’s predicting at least another year of gains, while other managers fret and hold cash.
“The current environment is opportunity heavy, and it’s return heavy,” Robbins says in an interview at his offices in the General Motors Building on New York’s Fifth Avenue. “We’ve been taking advantage of it rather than having our bats on our shoulders while they’re throwing underhanded softballs.”
Robbins, who has played ice hockey since he was 5 and has a weakness for sports metaphors, swung hardest at health-care companies—hospitals in particular. One of his biggest holdings, Tenet Healthcare Corp., which runs medical facilities in 14 states, jumped 45% in the first 10 months of 2013.
Robbins has been heavily invested in health-care stocks since 2004. He loaded up on hospital shares in 2012 after the Supreme Court let stand President Barack Obama’s Affordable Care Act, eventually pushing the hospital portion of his entire portfolio—which also includes his less-concentrated Glenview Capital fund—to 33%.
Obamacare means there will be more insured people showing up at hospitals and, unlike the uninsured, hospitals can make money on them, Robbins says.
Many of the managers who did well in 2013 shared Robbins’s all-in swagger. That’s what it took to beat the Standard & Poor’s 500 Index, which had soared 25.3%, with dividends reinvested, as of October 31. Only 16 large funds—those with more than $1 billion of assets—surpassed the index.
Unfortunately for the industry, this underperformance is becoming routine. The last time hedge funds as a group bested U.S. stocks was in 2008, when they lost 19% while the S&P 500 declined 37%, according to data compiled by Bloomberg.
Performance Tragedy
“It’s kind of a tragedy,” Stan Druckenmiller, the former chief strategist at Soros Fund Management LLC, said in a November interview. “We were expected to make 20% a year in any market.”
Druckenmiller, 60, achieved an annualized return of 30% before retiring to manage only his own money in 2010.
Bill Berg, founder of Sigma Investment Management Co., a firm in Portland, Ore., that picks managers for $600 million held by individuals and institutions, says 2013, like all bull markets, was a bad year for alternative asset managers who hedge their bets on stocks.
“Why do you need an alternative?” he asks. “You need one if normal isn’t working. Normal is working just fine.”
Some of the biggest managers were the biggest disappointments in 2013. Ray Dalio, who runs Bridgewater Associates LP, returned just 6% through October in his $63 billion Pure Alpha II fund, according to data compiled by Bloomberg. That meant it didn’t make it into the Bloomberg Markets 100.
Alan Howard, who invests $40 billion at Jersey, Channel Islands–based Brevan Howard Capital Management LP, saw his Master Fund rise less than 1%. Both Dalio and Howard are macro managers who try to profit from broad trends in bonds, stocks, commodities and currencies.
Dalio’s sheer size—Bridgewater manages $88.6 billion in hedge fund assets—made Pure Alpha II the most profitable fund in the first 10 months of 2013, generating incentive fees of $897.4 million even though returns were subpar. His Pure Alpha I earned the firm another $294.4 million.
Dalio charges investors a management fee of either 2% or 3% of assets in his Pure Alpha funds plus 20% of any returns. The performance fees were enough to help Dalio—who has a net worth of $13.8 billion—get even richer.
The most-profitable fund in 2012 was Steve Cohen’s SAC Capital International, which paid $789.5 million to Cohen and his managers. Cohen isn’t on the most-profitable list this year because he is returning investors’ money as his firm settles criminal charges from the U.S. government.
One big name made a comeback in 2013. John Paulson, 58, earned a record $15 billion betting on mortgage Armageddon in 2007 before stumbling for two years. In 2013, his Recovery Fund placed third in the Bloomberg Markets ranking by buying companies that are prospering in a healing U.S. economy. He bought financial firms like Leon Black’s Apollo Global Management LLC and Stephen Schwarzman’s Blackstone Group LP. He also invested in hotel companies that suffered chronic vacancies during the recession, including MGM Resorts International and Extended Stay America Inc. He purchased a stake in the 139-room St. Regis Bahia Beach Resort in Puerto Rico.
“We wanted something that would do very well on the long side in the recovery,” Paulson says in an interview in the library at his firm on 50th Street in Midtown Manhattan.
Many of the big winners, like Robbins, loaded up on a few high-flying stocks. They included David Goel’s Matrix Capital Management Co., at No. 2; Jeffrey Altman’s Owl Creek Overseas Fund Ltd., at No. 6; and the top large European funds, Lansdowne Developed Market Strategic Investment Fund, at No. 4, and The Children’s Investment Fund, run by Christopher Hohn, at No. 5.
The world’s best-performing midsize fund, with assets from $250 million to $1 billion, was Senvest Partners, managed by Richard Mashaal for New York-based Rima Senvest Management. The fund scored a 58.8% return for the first 10 months of 2013.
Goel’s $1.6 billion Matrix fund returned 56%, with big bets, long and short, on technology, according to documents obtained by Bloomberg Markets. He declined to comment for this article.
Many of the top-performing funds follow an event-driven strategy. (See related story, page 30.) They make money betting on takeovers, spinoffs and restructurings. The time for those was right, Robbins says, because corporate boards had finally crawled out of the bunkers they had hidden in since the 2008 financial crisis. Starting late in 2012, many saw that the world wasn’t going to end and started behaving like companies again, he says.
“Cash holdings were near all-time highs,” Robbins says, working his way into another sports metaphor. “That’s like having LeBron James on your team and benching him,” a reference to the four-time winner of the National Basketball Association’s Most Valuable Player award.
Nudging Companies
Companies that continued to hold cash or underperform in 2013 got prodded by activist managers, who take a big stake in companies and harangue their directors to make changes that will improve profits.
Daniel Loeb at Third Point LLC, whose Third Point Ultra fund was No. 12 in the ranking, bought a 9% stake in Sotheby’s and then, in a public letter, compared the auction house to “an old master painting in desperate need of restoration.” He called on the CEO to resign, saying the company had fallen behind in sales of modern and contemporary art.
In October, Tobias Meyer, the auction house’s longtime head of contemporary art, did step down. The company’s shares climbed 13.5% from August, when Loeb first disclosed his holding, to October 31. Third Point Ultra returned 28.8% through October.
Glenview’s Robbins calls his own brand of investing “suggestivism”—a kinder, gentler version of activism. He’s led only one proxy fight in his career, against Naples, Fla.–based hospital chain Health Management Associates Inc., which he won in 2013 when shareholders voted in his slate of directors. He owned 14% of the company as of mid-December.
Oftentimes, companies need only a nudge, Robbins says. Take Tenet, in which Glenview owned a 12% stake as of mid-December. For a hospital company with steady revenue, it had modest debt, Robbins says. Robbins suggested to Chief Executive Officer Trevor Fetter that he borrow money to repurchase stock and consider making acquisitions. In June, Fetter announced the purchase of fellow hospital operator Vanguard Health Systems Inc. for $1.8 billion in cash.
“Tenet did the logical thing,” Robbins says. Tenet shares rose after the June 24 announcement and were up 13% from that date through October 31.
Robbins says he never expected to become a hedge fund manager. He grew up middle class in Arlington Heights, Ill. He played hockey one town over, in Glenview, and loved it so much that he named his firm after the team.
Robbins went east for school, getting simultaneous bachelor’s degrees from the University of Pennsylvania in systems engineering and from Penn’s Wharton School in marketing, finance and accounting.
“I didn’t want anyone to be able to talk over my head,” he says.
Robbins always figured he’d return to Chicago. Instead, he went to work in New York for investment bank Gleacher & Co. After two and a half years there, he interviewed with hedge-fund firm Omega Advisors Inc., founded by Leon Cooperman. He didn’t really know what a hedge fund was, he says, but he knew he’d get to learn a lot about companies and industries. He also liked the meritocracy of the markets.
“You don’t need a Rolodex, and you don’t have to belong to the right country club,” he says.
Robbins stayed at Omega for five years, learning at the right hand of Cooperman, a top stock picker. In August of 2000, he left Omega, took the weekend off, then began building Glenview. On January 1, 2001, he started trading. Since then, the firm has grown to 72 people. Robbins is the only money manager, but he works closely with his 32 analysts. All of them stay in close contact with their portfolio companies, suggesting to them ways to spur growth.
“We try to think and act like owners,” Robbins says.
