Key Takeaways
- • Rhizome Partners generated a 3.5% net return in Q1 2018, outperforming the S&P 500's -0.8% loss over the same period, rebounding from a weaker 2017 performance of 5.6%.
- • Since inception in April 2013, the real estate-focused hedge fund managed by Bill Chen has delivered a 10.4% annualized net return and 63.7% cumulative net return over five years while maintaining a substantial 40% cash allocation.
- • The fund's ability to outperform despite significant dry powder indicates strong stock-picking execution and disciplined capital deployment in a real estate investment landscape the manager views as offering deep-value opportunities.
Summary
Rhizome Partners, the real estate-focused hedge fund managed by Bill Chen, demonstrated a sharp performance recovery in the first quarter of 2018 following an uninspiring 2017. The fund posted a 3.5% net return for the three months ending March 31, 2018, meaningfully outpacing the S&P 500's -0.8% decline during the identical period. This marks a notable turnaround from the fund's 2017 performance, which delivered a 5.6% net gain for investors—a result the manager characterizes as underwhelming.
The fund's Q1 2018 outperformance becomes more significant when evaluated against its capital structure. According to Rhizome's first quarter letter, the fund maintained a 40% cash allocation throughout the period, indicating that the 3.5% return was generated from a substantially invested 60% of assets. This large cash position typically constrains returns but also reflects the manager's disciplined approach to deploying capital in what he perceives as an inefficiently priced real estate market.
Over the five years since Rhizome Partners' inception on April 10, 2013, the fund has compiled a 10.4% annualized net return with a 63.7% cumulative net return. These longer-term metrics underscore consistent outperformance despite the operational challenges that characterized 2017 and the ongoing cash drag from the fund's substantial dry powder position. The sustained focus on real estate and deep-value investment principles has enabled Chen to navigate varying market conditions while maintaining a margin-of-safety approach to capital allocation.
The fund's positioning reflects confidence in identifying mispriced real estate assets trading at discounts to both private market equivalents and replacement costs—a thesis the manager has articulated in his public commentary on the sector. With Q1 results now backing this strategic conviction, Rhizome Partners presents a case study in how disciplined hedging strategies and selective real estate positioning can generate alpha in market environments where broader equity indices struggle.
The fund's Q1 2018 outperformance becomes more significant when evaluated against its capital structure. According to Rhizome's first quarter letter, the fund maintained a 40% cash allocation throughout the period, indicating that the 3.5% return was generated from a substantially invested 60% of assets. This large cash position typically constrains returns but also reflects the manager's disciplined approach to deploying capital in what he perceives as an inefficiently priced real estate market.
Over the five years since Rhizome Partners' inception on April 10, 2013, the fund has compiled a 10.4% annualized net return with a 63.7% cumulative net return. These longer-term metrics underscore consistent outperformance despite the operational challenges that characterized 2017 and the ongoing cash drag from the fund's substantial dry powder position. The sustained focus on real estate and deep-value investment principles has enabled Chen to navigate varying market conditions while maintaining a margin-of-safety approach to capital allocation.
The fund's positioning reflects confidence in identifying mispriced real estate assets trading at discounts to both private market equivalents and replacement costs—a thesis the manager has articulated in his public commentary on the sector. With Q1 results now backing this strategic conviction, Rhizome Partners presents a case study in how disciplined hedging strategies and selective real estate positioning can generate alpha in market environments where broader equity indices struggle.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.