Investors interested in the strategy pay a 1.8% expense ratio for institutional class shares, which have a $50,000 investment minimum. While that’s high for a mutual fund, it’s much lower than the management and performance fees associated with a hedge fund. RiverPark Long/Short is also more transparent, with long and short positions posted quarterly at the website. And unlike traditional hedge funds, which only allow quarterly purchases and redemptions, RiverPark’s fund provides daily liquidity.
Playing Both Sides
“We have a dual mandate with this fund,” says Rubin. “The first is to produce equity-like returns by capturing a good portion of the market’s upside through investing in stocks. The second is to protect capital in down markets.”
Even in a generally upward market that’s lasted over a decade the fund has managed to achieve the first of those goals. Over the last 10 years, the institutional class shares have delivered an 8.64% annualized return, while the S&P 500 has returned 10.53%. In 2019, when the S&P 500 rose 30%, the fund was up 19.9%.
As its strong first-quarter performance shows, the fund’s strength emerges best in down markets. Well before the pandemic, Rubin had short positions in fading consumer brands, grocery and general merchandise retailers and fully valued industrials—things that he thought were on a long-term downward path. But once the pandemic hit in February, he closed out of many of these short positions to move to more direct pandemic plays—companies directly in the crosshairs of the pandemic, including those in the travel, leisure and consumer discretionary categories. He also shorted businesses that were highly levered and vulnerable to short-term setback. Finally, the fund expanded its use of index products and equity options to manage exposure and protect capital.
Normally the fund has gross exposure (long positions plus short positions) of 150%, consisting of 100% long and 50% short. This makes its normal net exposure to the stock market (long positions minus short positions) 50%. These ranges often vary, however, depending on market conditions and the manager’s outlook.
At the beginning of the drawdown, the fund quickly reduced its net exposure from nearly 60% to 20%. It did so by maintaining most long positions, but increasing the short side of the book.
Toward the trough of the selloff, the fund shifted focus from protecting capital to buying as its manager took advantage of extraordinarily low valuations. At the same time it covered many of its profitable short positions, such as Halliburton, Expedia Group, and MGM Resorts International. “Over the first three months of the year, the shorts covered the losses from the long side, and then some,” he observes.
Despite an untraditional approach, the fund also has a more conservative side. The typical holding period for a stock is three to five years, and the fund’s goal is to double the security’s price over that period. Rubin also likes companies with lots of excess cash, with the ability to at least double their earnings organically over the holding period and with leadership roles in growing industries.