Glenview Capital & How we manage our portfolio of Legends

March 20, 2017

Glenview Capital was founded by Larry Robbins in 2002. The fund has since compounded at an 11% annual rate versus 6.9% for the MSCI World. Larry Robbins is known to be a fantastic stock picker who is also active, largely behind the scenes as a ‘suggestivist’, helping companies to make accretive capital deployment decisions.

Glenview Capital is also a fairly volatile fund with monthly performance swings of a similar magnitude as world equity markets. Critical to us, Larry Robbins has proven over time to always act in the best interest of his investors. Not only is he by far the largest investor in the fund, but he also has a track record of capital discipline, i.e. closing his fund to new capital when opportunities are scarce and allowing investors to add when the outlook is strong. It has helped him to build a loyal investor base.

Glenview had a rough time from the summer of 2015 into early 2016. The drawdown was mostly caused by its healthcare portfolio when pharma stocks got decimated. While Robbins had little direct pharma exposure the collateral damage to his portfolio of holdings was significant. He had closed the fund to new subscriptions before the drawdown and as losses built he started to contemplate a re-opening of the fund allowing investors to add money at what were highly attractive valuations in his view.

The re-opening took place in July of 2016 and Glenview offered existing investors the opportunity to add to their position under their existing High Watermark. We took advantage of the opportunity by bringing our position back to its target weighting at these attractive terms. With losses of 35% it meant that we wouldn’t pay any performance fee until these losses were recouped, i.e. also on our new money we are not paying performance fees on the first 54% of performance, a meaningful advantage considering the 20% performance fee. The fund has gained 21% from its lows.

One of the main problems investors face when investing in hedge funds is that they tend to buy and sell at the wrong times, often realizing losses and not profiting from the ‘free’ ride back. Sometimes this happens forcefully, when a manager decides to liquidate his portfolio after steep losses. But most of the time it happens because investors do not have a strong enough understanding of the underlying strategy. When a drawdown occurs and an investor has limited insight, the first reaction is often to sell. It’s actually such drawdowns that often present some of the best opportunities to add to a fund.

We consider it a crucial aspect of our job to select managers of high integrity who are well aligned and have staying power. Staying power comes from the right risk management, internal capital, suitable investor terms and a high-quality investor base. Glenview scores strongly on all these points. As a result, we don’t have to be afraid that the manager will be forced to realize losses in his positions at the worst possible terms. Moreover, given our deep understanding of Glenview’s strategy and portfolio, we are in a strong position to judge the attractiveness of a reopening when it occurs. This has served us well over time, as it did in this case.


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