3 June 2020

Former Hedge-Fund Managers Hit the Comeback Trail

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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.

Click here to access the full article on The Wall Street Journal. 

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