Key Takeaways
- • Passport Capital, founded by John Burbank III, is shutting down its long-short equity fund, which managed approximately $833 million—nearly one-third of the firm's total assets under management.
- • The closed fund declined 2.09% through February 2017 and posted a loss of 11.77% in 2016, reflecting broader underperformance that has driven investor redemptions across the firm.
- • Passport's total assets have contracted significantly, falling from $3.3 billion in mid-2016 (down 7% year-over-year) to approximately $2.6 billion as of January 31, 2017, according to SEC filings.
- • The firm's flagship Passport Global Strategy fund—which famously delivered a 219% return in 2007 during the subprime mortgage crisis short—remains open and is not affected by the closure.
- • Staff turnover has accelerated at Passport Capital, with analysts seeking new positions for several months prior to the fund shutdown announcement, signaling institutional stress beyond investment performance.
Summary
San Francisco-based Passport Capital is winding down its long-short equity fund, marking a significant strategic retreat for the multi-billion dollar hedge fund firm founded by John Burbank III in 2000. The shuttered fund managed $833 million, representing approximately one-third of Passport's assets under management. The decision reflects sustained underperformance and ongoing investor redemptions that have compressed the firm's asset base considerably over the past 18 months.
Performance headwinds have been pronounced. The long-short equity fund posted returns of negative 2.09% through February 2017 and declined 11.77% over the full 2016 calendar year, according to investors briefed on the results. This underperformance has occurred against a backdrop of contracting firm-wide assets, which fell from $3.3 billion in mid-2016 to $2.6 billion as of January 31, 2017—a decline of approximately 21% in less than nine months. SEC filings confirm the asset contraction, which reflects both market performance and investor capital withdrawals.
The closure carries particular significance given Passport Capital's historical distinction. Burbank is renowned for successfully shorting the subprime mortgage crisis; investors in the firm's flagship Passport Global Strategy fund received a 219% payout in 2007 at the height of that trade. That flagship fund remains operational and is unaffected by the current shutdown. While Passport is predominantly characterized as a long-short equity business in regulatory filings, it operates across multiple strategies.
Industry observers were not surprised by the announcement. Sources attributed the fund shutdown to a combination of extended underperformance and sustained redemption pressure. Additionally, the firm has experienced significant staff attrition, with analysts reportedly seeking employment elsewhere for several months prior to the announcement, as reported by Institutional Investor's Alpha in April. A company spokesperson declined to comment on the closure timeline or redemption mechanics.
Performance headwinds have been pronounced. The long-short equity fund posted returns of negative 2.09% through February 2017 and declined 11.77% over the full 2016 calendar year, according to investors briefed on the results. This underperformance has occurred against a backdrop of contracting firm-wide assets, which fell from $3.3 billion in mid-2016 to $2.6 billion as of January 31, 2017—a decline of approximately 21% in less than nine months. SEC filings confirm the asset contraction, which reflects both market performance and investor capital withdrawals.
The closure carries particular significance given Passport Capital's historical distinction. Burbank is renowned for successfully shorting the subprime mortgage crisis; investors in the firm's flagship Passport Global Strategy fund received a 219% payout in 2007 at the height of that trade. That flagship fund remains operational and is unaffected by the current shutdown. While Passport is predominantly characterized as a long-short equity business in regulatory filings, it operates across multiple strategies.
Industry observers were not surprised by the announcement. Sources attributed the fund shutdown to a combination of extended underperformance and sustained redemption pressure. Additionally, the firm has experienced significant staff attrition, with analysts reportedly seeking employment elsewhere for several months prior to the announcement, as reported by Institutional Investor's Alpha in April. A company spokesperson declined to comment on the closure timeline or redemption mechanics.
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