- Reuters/Eduardo Munoz
Hedge fund billionaire Larry Robbins, founder of Glenview Capital Management, has written one of the most humbling investor letters we’ve ever encountered.
“The last 90 days have been exceedingly disappointing and frustrating,” Robbins wrote in the opening of his fund’s third-quarter investor letter obtained by Business Insider. “I’ve failed to protect your capital, and mine, from a significant drawdown, despite a flat market.”
Glenview Capital fell about 13.53% through the first nine months of the year, according to data from HSBC.
The fund’s letter, dated October 26, didn’t provide an updated performance number. Based on the letter’s language though, it doesn’t sound as if this month is going well either.
The 46-year-old hedge fund manager went on to say he would “accept responsibility to repair the damage.”
What went wrong?
Robbins explained that he thought his hedge fund’s investments, which focus mostly on US healthcare, would be a “rock-bed of strength” in this market environment. He said he was wrong.
“That judgment, as measured over the past 60 days, was 100% incorrect,” he wrote. “In hindsight, our self-perception of humility looks shockingly similar to hubris.”
Robbins has been a big investor in managed care, hospital, pharma, and veterinarian stocks. While he was not and has not been an investor in Valeant Pharmaceuticals, the fears around that stock have spread to others in the space, he noted.
Robbins was a big investor in the drugmaker AbbVie, which saw its stock plummet after the Food and Drug Administration warned last week about two of the company’s new treatments for hepatitis C.
In an effort to make it up to his investors, Robbins said he would be opening up a new fund without any management or performance fees.
“My goal is your capital, not my income,” he wrote, “and I believe I have a responsibility to work for free to recover the losses I created for you.”
The new fund will be a long-only vehicle focused on healthcare.
Fees under scrutiny
Hedge fund fees have become a hot-button issue lately, especially since hedge funds as a whole have not done well in 2015.
The average hedge fund is up only 0.18% year-to-date, putting hedge funds on track for the lowest returns since 2011, the research firm Preqin said.
The less-than-stellar returns have renewed questions about hedge fund compensation. Generally speaking, hedge funds aim to control risk and generate profits, no matter what the market is doing. For many, that performance just isn’t there.
Hedge fund managers are usually paid through a compensation structure commonly known as the “2 and 20,” which stands for a 2% management fee and a 20% performance fee. That means a hedge fund manager would charge investors 2% of total assets under management and 20% of any profits. Of course, the numbers vary from fund to fund.
Earlier this month, Warren Buffett slammed hedge funds for their compensation structure. Buffett noted that fund managers who amass billions in assets don’t have to focus as much on the performance. For example, when you have $20 billion in assets, you’re getting $400 million just from management fees, Buffett calculated, adding that “20% becomes less important.”
‘I will rightfully earn nothing’
Robbins, who has an estimated net worth of $2.3 billion, said he would “rightfully earn nothing this year.”
Robbins said those at his fund who were below the partner level would be “fairly compensated.”
He concluded: “We will accomplish our objectives the only way we ever have known – through honesty and hard work – and we will endeavor to support our clients through both our traditional products and in this enhanced offering. Unfortunately, opportunity often feels like a punch in the face. Our portfolio has a strong chin, and our team and I never stop fighting for you.”