Global stock markets may have surged in the first quarter,
generating their second straight double-digit quarterly gains,
but Richard Perry barely participated.
The founder of Perry Capital did post a net composite return
of 4.83 percent for the three-month period. But it greatly
lagged the widely following indexes such as the MSCI World
index, which climbed 10.94 percent and the S&P 500, up
12.58 percent. The reason: Perry is pretty cautious these
In his quarterly letter to clients, the hedge fund manager
noted that while the global equity markets benefitted from the
European Central Banks easing, he continued to run a
low-beta, well-hedged portfolio invested in stressed,
distressed and event-driven situations with catalysts that
should unlock value.
The one-time merger arbitrage specialist has morphed into an
event-driven specialist, mining restructurings, mergers,
acquisitions, reorganizations, spinoffs and legal outcomes
among other events which, he stresses,
typically resolve on their own time frame and are less
dependent on market movements.
And his first quarter portfolio and gains shed an
interesting light on how these event-driven managers
Perry founded Perry Capital in 1988 after toiling in a
number of capacities at Goldman, Sachs & Co., including in
equity trading. While working on Robert Rubins risk
arbitrage desk he is credited with helping to hire a number of
hedge fund luminaries ESL Partners Edward Lampert,
Och-Ziff Capital Managements Daniel Och, Eton Park
Capital Managements Eric Mindich and Farallon Capital
Managements Thomas Steyer.
In his first full 19 years running Perry Capital, he never
suffered a losing year. He also has racked up double-digit
returns in 16 of the 23 full years he has been running his New
York Citybased hedge fund. However, he has been in the
red in two of the past four years, including in 2011 when Perry
Partners lost 4.4 percent and Perry Partners International fell
more than 7 percent.
He points out in his first-quarter letter that his
funds largest individual risk exposure was tier-1
preferred positions in U.K., which he adds performed well
during the first quarter. Tier 1 is a banks core capital
while tier-1 preferreds are frequently called hybrid
instruments because they contain both debt and equity
Perry tells clients The Royal Bank of Scotland (RBS) tier-1
bonds rose about 40 percent during the period, noting the bank
continued to make progress de-risking its balance sheet.
As RBS exits the European Commission restructuring period
at the end of April, we expect more flexibility regarding
dividend payments and further liability management, Perry