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Thaler’s JAT Reduces This Year’s Loss With 4.7% July Gain

John A. Thaler’s JAT Capital Management LP rose 4.7 percent in July, paring this year’s loss from wrong-way bets on consumer stocks as the firm reduced holdings in those companies, according to a letter to clients.

The gain cut the hedge fund’s 2012 decline to 17 percent, according to a person familiar with the matter, who asked not to be identified because the information is private.

Catherine Jones, a spokeswoman for New York-based JAT, declined to comment on the letter.

JAT, which uses a long-short strategy that seeks to profit by betting on rising and falling stocks, is focusing more on technology, media, telecommunications, travel, leisure and gaming companies. Consumer investments lost almost 15 percent year-to-date, the biggest contributor to the fund’s decline, the firm said in the letter sent to clients today.

“The past nine months have been a challenging stretch for me personally and the entire JAT team,” Thaler wrote. “The strategic decision to expand beyond our core area of focus was costly. The good news, from my perspective, is that when you look at the data, our issues were largely isolated to one thing, which has now been removed.”

Clients have redeemed about $250 million from JAT this year, the person said. JAT managed $1.92 billion in assets as of July 1, the firm said in the letter. The firm oversaw $2.3 billion in June, two people familiar with the matter said at the time. A new investor agreed to allocate at least $250 million to JAT’s new series of shares, the firm said in the letter, without naming the client.

Consumer Companies

Consumer companies comprised 2.2 percent of JAT’s portfolio as of July 1, the firm said. Tempur-Pedic International Inc. (TPX), the largest long position as of March 31, according to regulatory filings, contributed the “vast majority” to the firm’s 9.2 percent second-quarter loss, JAT said. The firm has pared its shares of the Lexington, Kentucky-based mattress maker since the first quarter, the two people said in June. The stock plunged 72 percent last quarter.

Hedge funds climbed 1.1 percent in the first half of the year, trailing a 6 percent gain for equities worldwide, including reinvested dividends, according to data compiled by Bloomberg, as investors speculated on whether Europe would contain its sovereign-debt crisis. Global hedge fund assets pulled back from a record as managers incurred losses in the second quarter, resulting in a decline to $2.1 trillion from $2.13 trillion at the end of the first quarter, according to Chicago-based Hedge Fund Research Inc.

‘Trained’ Investors

“We are somewhere in the middle innings of the deleveraging process in the euro zone,” Thaler wrote. “Investors have now been trained on the notion that weak fundamentals will be met with action from policy makers, and when poor market sentiment is met with the appropriate policy response, a vicious market rally will ensue. It is reasonable to think that this cycle will continue for the foreseeable future.”

Thaler, 37, founded JAT in 2007 after leaving Shumway Capital Partners LLC, where he most recently managed a portfolio of telecommunications, media and technology equities. Shorting is when investors sell stock they have borrowed with the intention of buying it back at a lower price.

JAT rose 17 percent last year to rank among the top 20 hedge funds in a Bloomberg Markets survey. It gained 11 percent in 2010 and 20 percent in 2009. The firm lost 5.9 percent in 2008 and 0.7 percent in November and December 2007.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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