The $2.8 trillion industry is strewed with tales of managers
who, after shutting down large funds, relaunched only to limp along or close
again. Undaunted, veteran stock pickers Michael Karsch and Adam Weiss plan to
launch new funds less than two years after closing their old firms. Mr. Karsch,
who wound down his $1.8 billion Karsch Capital Management LP in 2013 following
a streak of disappointing returns, says his time away—during which he consulted
on investments for mentor Stanley Druckenmiller and helped develop a
cold-pressed juice business—honed his skills.
The bar is set high for managers seeking a second chance,
investors say. They must convince would-be clients they are serious about their
return and offer a compelling explanation of how they plan to profit given the
industry’s underwhelming performance over the past few years, investors say. Some
investors are backing away from hedge funds because of concerns about high fees
and performance. Hedge funds returned 3.3% on average last year, according to
research firm HFR, compared with 13.7% from the S&P 500.
Some second acts have flourished despite the hurdles. William
Ackman’s Pershing Square Capital Management LP is a prime example, according to
Mr. Karsch and a person familiar with Mr. Weiss. Mr. Ackman in 2003 unwound
Gotham Partners Management Co., a $300 million firm he co-founded, after a
court ruling hurt one of its largest investments.
The 47-year-old Mr. Weiss decided to return because he
missed investing with a team and a year spent teaching and writing got him
excited about managing money again, the person said. During his year away, Mr.
Weiss worked on an investment book he has since scrapped and lectured at
Stanford University. He expects to launch Stillwater Investment Management LP,
a Palo Alto, Calif.-based stock hedge fund, later this year.
Mr. Karsch launched his first hedge fund in 2000 after
working at Soros Fund Management. His flagship fund earned double-digit returns
for five consecutive years and lost just 0.6% in 2008, far outperforming other
stock hedge funds and the S&P 500, which dropped 37%. His firm grew to more
than $3 billion by 2010. But he sharply underperformed the S&P 500 toward
the end and told clients in an August 2013 letter he wanted to “take a step
back and begin to think about the next chapter of my career.”
Mr. Karsch’s fund returned an average of 7.5% annually over
its 13-year run, compared with 3% total for the S&P 500. He has since
focused on Juice Press, a Manhattan-based seller of cold-pressed juices. He is
the majority owner of the five-year-old company and has promoted it on CNBC and
to friends, doling out samples and discount cards. His wife is an innovation
consultant and his sister heads marketing.
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