This hedge fund is cashing in big time despite coronavirus outbreak

Valiant Capital Management is a San Francisco-based hedge fund and is among the few who not only accurately predicted the coronavirus’ impact on global markets, but did something about it, The Wall Street Journal reported.

Sources close to the hedge fund told WSJ its boss Chris Hansen started to take short positions in stock indexes in late January. A few weeks later, the fund started shorting companies it identified as over-levered from a financial standpoint along with those who were poorly positioned to navigate through a potential pandemic.

Some of the more obvious industries the fund shorted include cruise stocks, international airlines, and travel companies. All of these sectors experienced sharp declines but the fund also had exposure to less-obvious industries and targeted those with weak balance sheets.

Once the dust settled and U.S. stocks posted one of its worst quarters in history, Valiant Capital was sitting on a 36% gain (before fees) through the end of March, according to WSJ. By contrast, the S&P 500 index was down 19.6% and the MSCI All World Index which fell 21.3%.

Should have listened to Hansen

Hansen informed investors in a March 12 letter that they are sitting on a 25% gain (before fees), according to WSJ. However, the letter didn’t include any commentary on how it was up double-digits at a time when few if any other funds were in the green year-to-date.

Hansen did write that protecting capital from down markets “has always been a core part of our strategy, and once again it is nice to see it pay off when it matters the most.” 

He said at a conference on March 5 that private investors and wealthy families in attendance need to convert as much of their assets to cash and stock up on medication. Beyond that, they need to expect a radical shift in life from the coming pandemic, WSJ noted.

Statistically, among the 80 to 90 people in attendance, some will become sick with the coronavirus and among those, a few will die, he also said.

Hansen, far from a household name in the financial universe like Bill Ackman or Carl Icahn, has a very solid track record of performance, especially in turbulent market times. His fund made money in more than seven out of ten months the S&P was down. His fund also ended in the green in 2008 and 2011 with an 8.2% and 13.1% return, respectively, according to data compiled by WSJ.