Whitney Tilson Closes Hedge Fund Kase Capital

Prominent hedge fund manager Whitney Tilson (Trades, Portfolio) informed shareholders Thursday that he would close his fund, KASE Capital, citing lagging returns and a lack of attractively priced stocks in the market, CNBC reported.

Tilson, a frequent stock market commentator, handed in a 25.1% cumulative return since “hitting the reset button” on his firm in 2012, compared to a 75.5% gain in the S&P 500. Tilson moved the fund to cash in 2012 after splitting with his investing partner, Glenn Tongue, so he could “rebuild it from scratch,” he said in his letter from that year.

In his 2016 letter, Tilson said he “hit the resent button again” primarily due to poor performance, difficulty finding mispriced investments and market caution. After exiting many of his positions in September, Tilson bought only three new stocks: Mondelez (MDLZ, Financial), CSX Corp. (CSX, Financial) and Pershing Square Holdings (LSE:PSH, Financial). Year to date, Mondelez declined 8.3%, CSX Corp. rose 49.7% and Pershing Square slid 21.3%.

Tilson’s highly concentrated portfolio listed only 10 long positions and 10 short positions as of Feb. 4.

“I see many investors today owning stocks that they would admit are, at best, 10% undervalued – or even fully valued – because cash is yielding nothing and bonds are still mostly offering, to quote James Grant, ‘return-free risk,” Tilson said in the fourth-quarter letter. “I refuse to invest that way. If I can’t find a highly attractive stock, then I’ll just hold cash.”

The value investor had sent a previous email in April addressing poor performance and noting the trend of closing hedge funds, as he bemoaned the rise of passively managed ETFs, according to Business Insider.

As of March, Kase Capital had declined 4% against the 6.1% rise in the S&P 500, he said in a letter, with 43% already in cash awaiting opportunities at the end of the bull market. At the time, he said he was “increasingly optimistic” that the market would offer more volatility going forward.

Kase Capital follows the demise of several other high-profile hedge funds since 2015, including Eric Mindich (Trades, Portfolio)’s Eton Park and Richard Perry (Trades, Portfolio)’s Perry Capital. The trend showed signs of the beginning of a reversal in the second quarter, with capital flowing into hedge funds outweighing redemptions for the first time since third quarter 2015.