Hedge Fund Firm Minimizes Losses Despite Big Position in Troubled Avis

SRS Investment Management owned nearly 32 percent of Avis Budget Group’s shares at year-end.


Illustration by II

Avis Budget Group has cratered this year, but SRS Investment Management, which has bet big on the car rental company has so far mitigated the losses.

The stock is down more than 42 percent after swelling by 27 times over two years, from March 2020 to April 2022. One hedge fund firm’s funds — which benefited during the good times — seemingly should have been wrecked by the huge decline this year.

SRS Investment Management, headed by Karthik Sarma, owned nearly 32 percent of Avis Budget’s shares at year-end. The position accounted for nearly 37 percent of SRS’s U.S. common stock portfolio, according to the most recent 13F filing.

Yet in the first quarter of this year, SRS’s long-short fund was down just 6.95 percent after gaining 1.6 percent in March, per an investor. The long-only fund declined by 4.7 percent for the quarter after rising 2.12 percent in March. And with a few days remaining in the month, SRS’s long-short fund is down in the very low single digits, an investor says. SRS did not comment.

So if Avis plays such a sizable role in the hedge fund firm’s U.S. stock portfolio, why are the losses at the two funds so muted?

Several reasons. For one, the performance disparity between the long-short and long-only funds suggests the hedge fund is making money on its shorts this year. For another, it turns out that Avis represents only a middle-single-digit percentage share of the two funds’ overall portfolio, says an investor. Rather, the bulk of the Avis shares the firm owns sit in a special purpose vehicle that is limited to internal SRS capital, the investor explains.

SRS also has investments in non–U.S.-listed companies not reflected in its quarterly 13F stock disclosures. In fact, other top SRS holdings have done very well so far this year.

For example, streaming giant Netflix, the third-largest U.S.-listed long, accounting for more than 13 percent of U.S.-listed assets, surged nearly 25 percent over the first quarter of 2024. Facebook parent Meta Platforms, SRS’s fifth-largest U.S. long, accounting for more than 7 percent of U.S. assets, jumped 37 percent in the same time frame.

Then there is No. 2 long Snap, a social media company that plunged by 32 percent in first-quarter 2024. However, last Thursday and Friday, the stock climbed about 30 percent after the company reported much better quarterly results than expected and is up about 40 percent since midmonth, partly explaining the hedge fund’s rebound in April. On the other hand, No. 4 long Pinduoduo, a Chinese online retailer, lost about 20 percent in the first quarter.

The long-short flagship fund has compounded at 12.1 percent since inception, compared with 10.2 percent for the S&P 500. The long-only fund has compounded at 18.1 percent since its October 2015 launch, against 11.5 percent for the MSCI over the same time period.

And in 2022, when many high-profile tech and consumer-driven firms took a huge beating, SRS gained an impressive 8.5 percent. It climbed 35.7 percent in 2021 and 25.4 percent in 2023.

The Indian-born Sarma founded SRS in 2007. He ranked 16th on this year’s Rich List, with $600 million, and in 2021 made $2 billion. He was previously a managing director at Tiger Global, which he joined within a few months of the 2001 launch, and before that worked as a consultant at McKinsey & Co. He earned a bachelor’s degree from the Indian Institute of Technology Madras and a master’s from Princeton.