John Burbank IIIs Passport Capital, one of a handful
of hedge fund firms that minted their fortunes during the
financial crisis by correctly calling the housing market
collapse, has lately seen its assets shrink to less than $1
billion after investors pulled hundreds of millions of assets
from the firm in the second quarter.
The San Francisco-based multistrategy firm suffered $565
million in net outflows in the second quarter, including $480
million in its Passport Global Fund, according to the
firms latest letter to Passport Global investors, dated
July 31. This is after the firm endured $387 million in
outflows firm-wide in the first quarter. As a result, the firm
now has just $900 million in assets under management, while
Passport Global has a mere $275 million. The news was first
reported by Business Insider. Passport declined to comment.
[II Deep Dive: Assets Fall at Passport as Performance
The second-quarter outflows do not account for the
liquidation of the firms Long Short hedge fund strategy,
which was effective April 30. It had $636 million when the
planned closure was announced earlier in the year. Altogether,
the firm had $2.3 billion as of the end of the first
The recent round of redemptions took place even as Passport
Global posted a 1.6 percent gain in the second quarter. That
still left the fund down 6.8 percent for the first half of the
year, however, after it lost 17.4 percent in 2016.
Passport Special Opportunities was off nearly 10 percent
through May after losing more than 26 percent last year,
according to an HSBC document that tracks hedge fund
performance. Passport Global has posted a 5 percent annualized
loss over the past three years and a 1.6 percent annualized
gain over 5 years, according to the firm.
Burbank and Passport rose to prominence in
2007 after the firms bet against the housing market paid
off in a big way. Burbank had felt as early as 2005 that the
subprime mortgage market was a bubble that would inevitably
burst and began to heavily short subprime mortgage pools and
riskier, heavily leveraged collateralized debt obligations. In
2007, the firms Passport Global Strategy fund surged
As a result, he was one of three people to make their debut
on Institutional Investors Alphas annual Rich List of the highest-earning hedge
fund managers that year. Burbank made at least $370 million in
2007, tying for number 23 on the list.
Not surprisingly, the firms assets soared from $1.2
billion to $4 billion at the time. The firm also raised its
management fee at the time to 2 percent from 1.5 percent, but
kept the performance fee at 20 percent.
In any case, in the second quarter of 2017 Passport Global
made all of its money on its short bets, after losing more than
12 percent on its shorts in the previous quarter. Burbank tells
clients that in the most recent quarter he lowered the
funds gross exposure to between 160 percent and 170
percent, reduced portfolio turnover, and halved the number of
holdings since the first quarter.
Despite higher concentration, with risk
diversification of the long book, lower gross exposure and
maintenance of risk limits, we have maintained realized
volatility at the low end of recent historic averages, he
emphasizes in the letter.
Passport reduced its directional macro bets, especially
related to the U.S., noting that the dollar has fallen sharply
this year while the bond market and certain sentiment
indicators suggest growth in the U.S. will not be as great as
previously anticipated. On the other hand, Burbank thinks a
weak dollar could be good for commodities.
Meanwhile, Passport continues to have a strong bet on Saudi
Arabian equities, anticipating a surge in inflows to that
market over the next year or two as several global indexes move
toward including its markets. Passports largest Saudi
holding is National Commercial Bank, which is planning its
first-ever international road show for investors, Burbank
points out in the letter. Passport also has a strong position
in technology and Chinese internet stocks, including Alibaba,
Alphabet, Facebook and Amazon.com.
On the other hand, Passport is bearish on oil. While the
market is currently slightly undersupplied, Burbank expects the
market to flip into an oversupply during the first
half of 2018. The big question, of course, is how many of
Passports investors will still be hanging around by