Viking Shifts Capital Away From CIO After Stock Fund Has Biggest Loss

  • Viking Global Equities fell 4 percent in 2016, letter says
  • Long bet on Teva, shorts on industrials, materials hurt fund

Andreas Halvorsen’s Viking Global Investors shifted its allocation of capital among top managers, trimming the amount directly overseen by Chief Investment Officer Dan Sundheim, amid the worst performance on record for its equities hedge fund.

Viking Global Equities fell 4 percent in 2016, the biggest annual loss since the flagship fund’s inception in 1999, according to a letter obtained by Bloomberg. Losses were driven by long positions -- particularly on Teva Pharmaceutical Industries Ltd., whose shares plunged 45 percent last year -- as well as bets against industrial and materials companies that surged in 2016. Rose Shabet, Viking’s chief operating officer, declined to comment on the results.

“We are very disappointed by these results, which fall well short of our aspirations on both an absolute and relative basis,” the firm said in the Jan. 17 letter. “Our stock picking, consisting of company research and analysis, remains sound. However, portfolio management was problematic as our sector weightings and sizing detracted from performance.”

Hedge funds on average returned 3.1 percent last year, on an asset-weighted basis, while the average long-short equity fund rose 2.3 percent, according to Hedge Fund Research Inc. The Viking Long Fund rose 3.9 percent in 2016, falling short of its benchmark, the MSCI World Index, for the first year since inception, the letter said. Reuters reported the returns earlier.

Shifting Responsibilities

Viking, which manages about $30 billion, exited its Teva position, as well as bets against companies that will significantly benefit from lower corporate tax rates under President Donald Trump, the letter said.

While Viking believes that the ideal organizational structure consists of a CIO employing a maximum of 40 percent of capital, Sundheim’s responsibility grew to over half the capital after there were departures from the investment team, the letter said. Because the “direct responsibility for such high portions of capital and staff was an unsustainable load to carry,” Viking is shifting responsibilities to other money managers, who now manage 60 percent of capital, the letter said. The reorganization also reduced the number of investing team members reporting to the CIO from six to three, the letter said.

“We plan to shift more capital towards this group throughout 2017,” the letter said.

Equity-Hedge Funds

Viking has also worked on building out its sector-focused teams, including financial and consumer, to expand its coverage of equities, the letter said. The firm currently covers about 60 percent of global stocks that trade in excess of $50 million a day.

Equity-hedge funds had the worst performing strategy last year after macro funds, according to HFR, and accounted for some of the steepest losses among marquee firms in 2016. Horseman Capital Management’s global fund lost 24.1 percent as bets that stocks would drop failed to pay off, while Crispin Odey’s main hedge fund slumped 49.5 percent.

Last month, Blackstone Group LP said it’s closing its two-year-old Senfina Advisors after it lost 24 percent. "The market environment in 2016 for long/short hedge funds was unprecedented," Paula Chirhart, a spokeswoman for Blackstone, said at the time.

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