(Bloomberg News) Richard Maraviglia spent January flying to Zurich, New York, Chicago and Miami to raise $250 million for his hedge fund.
Maraviglia, who now oversees about $610 million for Carlson Capital LP from London, raised the money because the almost 40 percent gain he posted last year made him a rarity: a hedge-fund manager who made money trading stocks. Hedge funds were down an average 5 percent in 2011 and those focused on equities fared even worse, losing 8.3 percent, Hedge Fund Research Inc. says.
Though the largest hedge funds continue to attract the bulk of the industry's incoming money given their perceived lower risk, Maraviglia has outperformed better-known rivals including Paulson & Co., which manages $23 billion, and Lansdowne Partners Ltd., with $12.5 billion, which made big bets on stocks in 2011 and had their worst years ever. The 42-year-old veteran of Steve Cohen's SAC Capital Advisors LLC says small size made him nimble as stocks gyrated and enabled his individual bets to make more difference to the fund's total returns.
"Larger hedge funds have been victims of their size and the volatile markets in general," said Andrew Lee, a New York- based adviser at JPMorgan Chase & Co.'s wealth-management unit, which helps clients find emerging managers. "Smaller funds are able to react quickly and so are better positioned."
A January report published by Barclays found that about two-thirds of hedge fund clients plan to increase investments this year in firms managing less than $1 billion.
Overcrowded Trades
"It makes a lot of sense to invest in the speedboats over the oil tankers," said Ben Funk, head of research at London- based Liongate Capital Management LLP, which has more than $3 billion allocated to various hedge funds.
Maraviglia, who manages Dallas-based Carlson Capital's Black Diamond Thematic Fund, told investors during his travels last month that he started reducing bullish stock wagers in the first half of 2011, correctly betting that policy makers in China would take steps to curb inflation and the U.S. Federal Reserve would end its program of buying $600 billion of Treasuries. After a flat second quarter, the MSCI World Index lost 17 percent in the third quarter.
He then bought equities when other investors sold positions en masse in September, which made it easier for him to find stocks whose performance was no longer correlated to broader markets due to overcrowded trading. Black Diamond Thematic, which Maraviglia founded with former SAC Capital senior analyst Matthew Barkoff, gained about 4 percent in January.
"If you want strong outperformance, a smaller fund has a better chance of producing that," said Maraviglia, who plans to close his hedge fund to new money after receiving commitments from investors for the $250 million. "How big an allocation can a big fund make to a great trading idea for it to make much of a difference in their total portfolio?"