market folly

Well, it certainly didn't take long for James Pallotta of Raptor Capital to get back in the hedge fund game. While he's back, it's not quite in the role we thought it would be. Pallotta has decided to invest $10 million in new hedge fund Northern Pines Capital as a limited partner. When he wound hedge fund Raptor down, he noted that he would be taking time away to formulate a new investment strategy. While we expected him to be back in the industry after a brief hiatus, this is a little bit different. Instead of hedge fund manager, Pallotta is now an investor.

While he himself is not going to be managing this money, he certainly knows those who will well, as they used to report to him at Raptor. Former Raptor Capital and Tudor Investment Corp traders Patrick Dunn and Dan Schiff will be opening Northern Pines Capital and will be trading a long/short strategy in public equities, typically holding between 30 and 60 positions. Dunn will focus on the consumer sector while Schiff will focus on basic materials and energy. Hedge fund Tudor Investment Corp was out calling the recent market action a bear market rally and so it will be interesting to see how Northern Pines allocates their initial portfolio given the managers' history at both Tudor and Raptor.

They will be charging a 1.5% management fee and a 15% performance fee, a slight discount from the industry norm of 2% and 20%. But, Northern Pines' performance fee will hit 20% should their fund generate a gross annual return of 10%. And, unlike their former employer Tudor, Northern Pines is avoiding illiquid investments and won't 'gate' investors from making redemptions. You'll remember that Tudor made waves earlier in the crisis for suspending redemptions so they could separate their illiquid investments. The ties between Raptor and Tudor (and now Northern Pines) run deep as Pallotta used to run equities for Tudor then spun-off Raptor for his own hedge fund. Raptor ran $9 billion at its peak and returned over 13.8% a year from October 1st, 1993 until May 2009, net of fees.

Since we like to track hedge funds that spin-off of successful existing firms, we'll follow Northern Pines for a bit and see what we might be able to glean if we get a glimpse of their portfolio. As always, we'll post our findings up in our hedge fund portfolio tracking series. And while Pallotta isn't back in the hedge fund manager seat quite yet, we'll watch the developments there as well.