GS Goldman Sachs Group Inc

By Juliet Chung 

Raising money for a new hedge fund long was contingent on a host of in-person meetings. But a slate of managers are launching sizable startup funds despite complications wrought by the new coronavirus.

Hedge-fund manager Gaurav Kapadia has raised one of the biggest, with more than $1 billion in committed capital for his new firm, XN LP, according to people familiar with the firm. XN invests in stock markets as well as in private companies and is up 7.4% after fees since its July 1 start, according to a person familiar with the fund. In a Monday letter to clients viewed by The Wall Street Journal, Mr. Kapadia wrote he had started fundraising in February -- "what now seems a lifetime ago."

"We know that it would have been easier for you to defer a decision or default to working with your existing investees. Instead, many of you made exceptions to your investment and operational due diligence processes to accommodate the new remote world," wrote Mr. Kapadia, 39 years old. He previously co-founded stockpicking hedge fund Soroban Capital Partners.

"XN" references the mathematical notation for exponential growth.

Just a few months ago, Covid-19 and the ensuing lockdowns appeared to wreak havoc on fund startups, dashing opportunities for investors to vet managers and their teams and sites in-person. Research-firm HFR said launches in the first quarter fell to an estimated 84, the lowest quarterly figure it had tracked since the fourth quarter of 2008.

But executives for both Goldman Sachs Group Inc. and Morgan Stanley currently expect to launch about 20% more hedge funds this year than last year if plans hold.

"We thought back in March and April that people planning on launching would delay, but they've gone forward" looking at the investment environment, said Darren Levy, Morgan Stanley's co-head of prime brokerage in the Americas.

He said the managers were more focused on starting up and posting strong returns than on the size of their firms on day one.

Fundraisers say relatively strong March performance by hedge funds is driving some of the interest from investors, even if new firms this year are smaller than they might otherwise have been. Hedge funds lost roughly a third of the stock market's peak-to-trough loss in the first quarter, better than in the financial crisis and some more recent selloffs, according to a Goldman Sachs report.

The Goldman report surveyed more than 250 institutional investors and found hedge funds had become the most popular area in which investors wanted to increase their exposure, with 37% of the investors looking to add to the space. Private debt and private equity were the next most popular choices, at 25% and 19%.

Other notable launches in recent months include New York-based Hein Park Capital Management, started by former Soros Fund Management portfolio manager Courtney Carson, and stockpicking fund Washington Harbour Partners LP.

Mr. Carson, 40, launched credit fund Hein Park in February and has raised roughly $1.2 billion in committed capital, including money committed in recent months, said people familiar with the firm. Mr. Carson sat on the management committee at George Soros's personal investment firm before he left in 2019 and counts Jonathan Soros and Robert Soros as investors, one of the people said.

Mina Faltas, 42, started Washington Harbour in May and now manages more than $500 million. He has commitments to take in more money this fall. Mr. Faltas previously co-founded hedge-fund Nokota Management LLP. His new fund has gained 27% since May investing in small- to midcap stocks, said a person familiar with the fund.

Additionally, Neeraj Chandra started Untitled Investments LP in April. Untitled invests in public and private companies and had about $260 million in assets under management as of early July, according to a regulatory filing. It has several hundred million more in additional commitments expected this year, people familiar with the fund said, and was up more than 20% since April.

Mr. Chandra, 38, was one of Tiger Global Management's earliest employees.

One of the most anticipated potential launches is Alua Capital Management, from former Viking Global Investors co-chief investment officer Tom Purcell and former Lone Pine Capital managing director Marco Tablada. The firm could start trading with client money as early as the fourth quarter, said people familiar with the matter. Mr. Purcell and Mr. Tablada, who have invested their personal wealth together for several years, have spoken with possible investors, the people said.

Mr. Purcell has discussed putting several hundred million dollars of his own money into the fund, one of the people said.

The virus has impacted fundraising beyond restricting in-person meetings. With endowments and hospital systems grappling with uncertainty about the pandemic's impact on their business models, some managers are allowing them to commit to a certain size investment but fund it over time instead of all at once, said Morgan Stanley's Mr. Levy.

In his letter, Mr. Kapadia wrote that XN had a 22-person team and that nearly all clients had opted into a share class allowing for up to 35% of their money to be invested in private companies. XN will have a concentrated portfolio and hold positions for the long term, he wrote. As of July 1, it had about $655 million in assets under management, according to a regulatory filing.

He also said Carl Bass and Rob Marcus, former chief executives of Autodesk Inc. and Time Warner Cable, would be joining as executive partners to help source and vet investments. The investment environment is "among the most compelling of our careers," Mr. Kapadia wrote. He said significant dispersion across the market and among "COVID winners" was likely to occur.

Write to Juliet Chung at juliet.chung@wsj.com

(END) Dow Jones Newswires

August 03, 2020 13:23 ET (17:23 GMT)

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