Karthik Sarma outearned Steve Cohen last year.
The little-known hedge fund manager made an estimated $2 billion in 2021, mostly thanks to an 11-year-old wager on Avis Budget Group Inc., a bet that paid off handsomely as the stock soared 456%.
Sarma, it’s safe to say, isn’t your stereotypical, fleece-vested Manhattan hedge fund manager. When the pandemic struck, he didn’t flee to the Hamptons, Palm Beach or Aspen like many other Wall Street elites. Instead, he moved in with his sister and her family, living in their modest home in a middle-class New Jersey suburb, where the houses sit side by side -- and there’s only room for two cars in the driveway.
Sarma, 47, runs his firm differently, too. At SRS Investment Management, he avoids the hefty leverage many other funds embrace, and runs a much more robust short book. Moreover, he isn’t afraid to go big on a single investment — and hang on for as long as it takes.
That helps explain how Sarma appeared near the very top of Bloomberg’s 2021 ranking of hedge fund earners, only slightly outdone by Citadel’s Ken Griffin and TCI Fund Management’s Chris Hohn. SRS owns about 50% of Avis through common stock and swaps, helping to roughly triple Sarma’s net worth to $3 billion, according to an analysis by the Bloomberg Billionaires Index, and rewarding investors in his flagship fund with a 35% gain.
It’s an impressive feat, given that those firms each run more than $40 billion, compared with $8 billion for SRS.
Representatives for the managers declined to comment.
Sarma’s former boss, Tiger Global Management founder Chase Coleman, fell from the ranking as his hedge fund was rocked by turbulent equity markets in the final two months of the year. Still, the firm’s private equity arm performed well, softening the blow.
Other managers absent from the latest ranking include Viking Global Investor’s Andreas Halvorsen and Melvin Capital Management’s Gabe Plotkin. Both of those hedge funds posted their biggest annual losses ever last year. Melvin was crushed by a short squeeze on GameStop Corp., which soared during January’s meme-stock mania, while Halvorsen told investors that Viking made “bad bets” after underestimating the impact of the pandemic.
Last year was difficult for many managers as concerns over inflation and monetary policy roiled equities and bonds, confounding stock-pickers as well as macro funds such as Element Capital, whose founder, Jeff Talpins, also vanished from Bloomberg’s ranking. It’s a stark about-face from 2020, when soaring markets propelled hedge fund titans to record gains, with the top 15 managers taking home a combined $23 billion. It was a more modest $15.8 billion this time.
Because of the shakeup, several money managers are appearing on the list for the first time, including Steven Schonfeld, Richard Mashaal and Third Point’s Dan Loeb.
Mashaal’s Senvest Capital made $123 million in January 2021 alone with a long wager on GameStop, which skyrocketed 1,625% that month. Senvest, which had been one of the video-game retailer’s biggest shareholders, exited before the shares plunged last February.
Schonfeld Strategic Advisors, meanwhile, has been growing rapidly and now has roughly $11 billion of investor money at its disposal, narrowing the gap with other multistrategy heavyweights such as Citadel and Izzy Englander’s Millennium Management. All of them posted double-digit gains last year, and Schonfeld’s sizable stake in his own firm helped him earn about $300 million.