market folly

Big news out of hedge fund land as manager Timothy Barakett has decided to close his Atticus Capital funds. To be honest, this didn't surprise us too much. After all, we have been covering Atticus' portfolio for some time now and it has been a ridiculous rollercoaster of a ride. We'd been postulating that Atticus' ship was never truly stabilized after they survived a scare in 2008. Barakett says in his farewell letter that he wants to spend more time with family and on philanthropic efforts but it's hard not to wonder if the hellish 2008 for them made his decision that much easier. While redemption issues are not to blame here, it's almost as if they've had trouble recuperating and adjusting to the volatility and wild swings of a bear market.

Let's quickly walk through the timeline of Atticus' portfolio we've covered here on Market Folly. Back in September of 2008 we saw that their European fund was -42.5% for the year and their Global fund was -27.2%, thus subjecting them to liquidation rumors. While those rumors proved to be untrue, the poor performance and mass of investors heading for the exits was certainly the first (and largest) warning sign that things were not necessarily well at the firm. As such, Atticus found themselves ranked #2 on a list of the Top 10 Asset Losers in hedge fund land.

The massive deleveraging that went on at their hedge fund was evident in their SEC filings as they went from reporting a portfolio worth billions of dollars down to reporting only $500 million. This was the first drastic turn on the rollercoaster known as Atticus' portfolio. Then from Q3 of 2008 to Q4 of 2008, Atticus' reported assets rose from $500 million back up to $1.9 billion. It was evident that they liquidated positions the quarter prior in an effort to stop the bleeding and to meet any redemptions. The following quarter, they then ramped their portfolio back up. However, the vast majority of their positions were bought via Call options, something we hadn't seen from them before. (We detailed the portfolio changes in their entirety here). What's even more intriguing is that for the most part, they bought the exact same positions they held previously. Except, instead of buying common stock like last time, they were now almost exclusively using Call options. This was the second major peculiar act we took note of.

Then, when we examined their first quarter 2009 portfolio, we saw that they held a mere five long equity positions. While Atticus typically ran a concentrated portfolio, they by no means ran a book as small as this prior to that particular filing. Yet again, we wondered what exactly they were doing over there. In early August they started to sell shares of Sotheby's and Transatlantic Holdings. Then just last week we covered the fact that Atticus was selling shares of their only holding in UK markets. And below, we learn that Barakett has been selling the rest of his portfolio as he winds down his funds.

Here is the letter Barakett sent out to investors announcing the closure, posted up by FT Alphaville:

"
August 11, 2009

Dear Investor in Atticus Global, Ltd. and Atticus Global, LP:

I am writing to inform you of my decision to close the funds I manage, including Atticus Global, Ltd. and Atticus Global, LP (together, the “Atticus Global Fund”). This decision will come as a surprise to most of you, especially given that we have received redemptions of less than 5% of capital and your loyal support over the past 15 years.

I have used the market’s recent strength to begin liquidating a significant amount of our holdings. We currently expect that the portfolio will be fully liquidated by September 30th and that we will be in a position to return approximately 95% of your capital in early October. The balance of investor capital will be returned after the final audit is completed, which should be later this year.

My decision is solely a personal one. After fifteen years of being singularly focused on building and managing Atticus, I believe it is time to reassess my future. I intend to spend more time with my family, pursue my philanthropic interests and establish a family office to manage my own capital and charitable foundation.

Atticus (the management company) will continue to operate, and the Atticus partnership will remain intact. In addition, it is my partner David Slager’s intention to continue to manage the Atticus European Fund.

I founded Atticus in 1995 and launched our first fund in January 1996 with less than $6 million under management. The Atticus Global strategy was launched in December 1996 and has compounded investor’s capital at over 19% net annually since inception.1 I am very proud of the Atticus Global track record and our net returns through July 2009 are shown below:

Atticus Global S&P 500
1 year -13.3% -20.0%
3 year 0.8% -6.2%
5 year 9.3% -0.1%
10 year 13.6% -1.2%
Inception 19.3% 3.9%
Cumulative 835.3% 62.3%

I am also very proud of Atticus’ overall investment results: from the inception of our first fund in January 1996 through July 2009, funds managed by Atticus have generated
almost $7 billion of profits for our investors.

I have been blessed with great investors, partners, employees, and a lot of good luck. I am thankful and sincerely appreciative of the trust and confidence you have placed in me and our organization.

Sincerely,

/s/ Timothy R. Barakett

Timothy R. Barakett
Founder, Chairman & CEO
"

It's sad to see Barakett go because he truly did have a solid track record minus the bump encountered over the past year or so. But that just goes to show you how hard bear markets can be to adapt to. We now add Atticus to an ever-growing list of hedge fund closures throughout this crisis. And while Atticus did not truly implode like many other funds on the list, they have still closed nonetheless. This is another major fund closing that we've covered on the blog, as we've previously detailed the closure of James Pallotta's Raptor Capital, William von Mueffling's Cantillon Capital, and Art Samberg's Pequot Capital among many other major names.

We'll end this piece re-emphasizing this interesting statistic that Barakett noted: "from the inception of our first fund in January 1996 through July 2009, funds managed by Atticus have generated almost $7 billion in profits for our investors." Now that is simply astonishing. To see the positions they hold/held/are liquidating, head to their hot-off-the-press 13F filing for Q2 2009 which was just released. Ironically, they finally now disclose a healthy & normal $4.5 billion worth of long positions. Imagine that.

R.I.P. Atticus, we'll miss tracking your rollercoaster of a portfolio.