(Bloomberg) — D1 Capital Companions’ large bets on enterprise capital and personal fairness weighed on its hedge fund returns for a second consecutive yr because the agency marked down the worth of 49 firms in 2023.
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Earlier than accounting for charges and adjusting for share lessons with various exposures to non-public investments, the hedge fund ended the yr up simply 0.8%, D1 founder Dan Sundheim wrote in an investor letter seen by Bloomberg. Markdowns of about 10% within the non-public ebook ate into the inventory portfolio’s 21% acquire.
Like many crossover funds, D1 is searching for to make a comeback after a troublesome 2022, when its hedge fund misplaced 30.5% amid a rout in tech shares and plunging VC valuations. Now, executives on the agency are beginning to see a “thawing” in non-public markets and anticipate extra liquidity alternatives this yr, Sundheim informed buyers in his letter.
“Absent a considerable change within the financial surroundings, we’re optimistic that over time valuations can proceed to compound once more,” he wrote. The agency is working intently with administration groups to guage their funds and prospects, he mentioned. “A number of of our portfolio firms are contemplating strategic choices, together with recapitalization, gross sales, or public choices.”
A share class that invests 35% in privates gained 3.6% final yr, internet of charges, because the enterprise ebook tumbled 13%, in keeping with individuals acquainted with the matter. That crimped good points from public shares, which climbed 19%.
Non-public wagers at New York-based D1 comprise 60% of its $19 billion of property, in keeping with the letter. The agency, which debuted in 2018, has pushed closely into startups in recent times. Its greatest bets embody Elon Musk’s SpaceX, Collectors Universe and Lineage Logistics. It additionally owns a stake in Instacart, which has tumbled 25% since its September preliminary public providing.
Since inception, the agency’s non-public ebook has produced a internet inside fee of return of 15.5%, the letter reveals.
Its different inventory bets fared much better. D1’s finest performers embody Meta Platforms Inc., which just about tripled final yr, in addition to Microsoft Corp., Airbus SE, Amazon.com Inc. and Rolls-Royce Holdings Plc.
Regardless of the good points in equities, D1 is “extra enthusiastic about our brief portfolio,” Sundheim mentioned within the letter. “Loads of excellent news is priced into valuations, and now we have been capable of finding many low-quality firms with poor basic outlooks which are buying and selling considerably above intrinsic worth even in rosy eventualities.”
The agency’s brief ebook has important publicity to cyclicals throughout varied sectors, the letter mentioned.
A spokesperson for D1 declined to remark.
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