market folly

Ken Heebner, manager of the renowned CGM Focus Fund (CGMFX) and other mutual funds, is set to start a hedge fund. In a regulatory filing made in August, it was revealed that Heebner is starting a new firm, Wayfarer Capital LP. So far, the fund has raised around $73 million, with Heebner targeting $5 billion for his new fund. Heebner employs a macro investment strategy, trying to capitalize on economic trends. In his mutual funds, Heebner runs a smaller, more concentrated portfolio than most managers. He even short-sells a few names, a tactic normally reserved for hedge funds and the like. But, since he runs mutual funds, he is limited in what he can do on the short side. And, it seems as if Heebner wants more freedom to be able to short and employ some leverage.

Seeing as how mutual funds are typically long-only, you can't blame him. In this type of market, one definitely needs to be hedged as much as possible. His CGM Focus fund returned 80% last year, due to smart bets on energy and resource plays. One of his other funds was up 34%. But, this year, Heebner is faced with tougher times, as his fund sits down around 17% year to date. It has been a wild year for him, to say the least. Earlier in the year, he was up around 16%. Then, he lost nearly 30% over a few months time to land him at his current returns.

Fortune magazine has called him "America's hottest investor," and rightly so. He has returned nearly 27% a year over the past decade with his Focus Fund. I am curious, though, if Heebner's mutual fund will take a back seat to his newly formed hedge fund. Apparently, it has always been his dream to run a hedge fund, and you can bet he'll want to make sure it succeeds. The hedge fund structure will allow him to short much more than his mutual fund ever would, which should allow him to hedge and pursue his macro investment strategy more effectively. Either way, the guy knows what he's doing. And, it's interesting to note that Heebner is set to start his hedge fund during a time when many funds are closing up shop due to poor returns and investor redemptions. Contrarian, to say the least. I'll definitely be keeping my eye on this here at Market Folly.

Source: Bloomberg