Bloomberg News

JAT Capital Said to Jump 31% This Year on Market-Neutral Bets

October 12, 2011

Oct. 12 (Bloomberg) -- John A. Thaler’s $3 billion global long-short hedge fund, JAT Capital Management LP, jumped 31 percent this year through September as the manager’s market- neutral stance and short positions drove returns, according to four people familiar with the matter.

Thaler’s short holdings, or bets that stock prices will fall, more than offset declines in his long positions as markets slumped, said three of the people, who asked not to be identified because the information is private.

The New York-based fund, whose assets have tripled since Dec. 31, stopped accepting new capital from investors on Oct. 1 and may reopen next year, the people said. Hedge funds on average dropped 0.9 percent in the year’s first nine months and long-short managers posted losses of 2.6 percent, according to data compiled by Bloomberg.

Steve Bruce, an outside spokesman for the firm, declined to comment on JAT’s returns.

The fund has typically swung between about 10 percent net long or short in the past 18 months, the people said. It currently has gross exposure of about 200 percent, using leverage to magnify its long and short wagers, and a market- neutral position with zero net exposure, they said.

JAT has a “philosophy of making money on both sides of the book,” according to a marketing document dated Aug. 31 that was obtained by Bloomberg News.

Baidu Inc., the Beijing-based Internet search-engine operator whose American depositary receipts were one of JAT’s biggest stakes at midyear according to a regulatory filing, plunged 27 percent last month, the people said.

Short Bets

The loss was mitigated by short bets Thaler placed on other Chinese Internet stocks, which tumbled amid a dimming global economic outlook and growing regulatory scrutiny. The U.S. Department of Justice is reviewing allegations of accounting fraud at firms operating from the Asian nation, Securities and Exchange Commission Enforcement Director Robert Khuzami said in a Reuters interview published Sept. 29.

JAT declined 3.2 percent in September, matching the average fund’s loss during the worst month for the $2 trillion hedge fund industry in more than a year. Long-short funds dropped 4.4 percent last month as the worsening European debt crisis exacerbated market declines, Bloomberg data show.

Thaler, 36, grew up on Long Island. He received his bachelor’s degree in economics at the University of Chicago and became a banking analyst at Merrill Lynch & Co. and an associate at private-equity firm Spectrum Equity Investors LP.

Shumway Capital

Thaler joined Chris Shumway’s Shumway Capital Partners LLC at its inception in 2002 as an analyst covering telecommunications, media and technology. He eventually managed the SCP Omni Fund, which traded stocks in those industries, before leaving in 2007 to open his own hedge fund with start-up capital from Shumway. He began JAT that November with more than $220 million in assets, the people said.

JAT started with 90 percent of its investments in telecom, media and technology and now has half in those industries and half in consumer, industrial and gaming companies, which have driven the majority of profits this year. The firm employs 31 people, three of whom also worked at Greenwich, Connecticut- based Shumway: Ken Palumbo, 40, Shumway’s former chief operating officer and now JAT’s president; Eduardo Costa, 35, an analyst in Thaler’s fund at Shumway and now JAT’s director of research; and Kristy Kennedy, a marketing director at Shumway and now head of marketing at JAT.

Thaler generally aims to hold long positions for two years and short positions for three to 12 months, the people said.

‘Find a Thesis’

Baidu has been one of JAT’s five largest long holdings for almost two years, regulatory filings show. JAT currently has about 100 long and short positions, according to the people. About half of the fund’s investments are currently in companies with less than $10 billion in market value, they said. The majority of its stakes can be liquidated within five business days.

Thaler and his investment team of seven industry heads and three analysts spend the majority of their time on research, the people said. JAT’s risk-management process is designed to insulate the fund from market volatility, they said.

“Find a thesis, not a stock idea,” the firm said in the marketing document. “JAT Capital conducts a bottom-up ‘kick- the-tires’ approach to research that forms the foundation of ideas.”

JAT gained 11 percent last year and 20 percent in 2009, according to the document. The firm lost 5.9 percent in 2008 and 0.7 percent in November and December 2007.

--With assistance from Katherine Burton and Saijel Kishan in New York. Editors: Josh Friedman, Steven Crabill

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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