There are few investment funds out there that can claim to have achieved an annualized return of more than 30% with gold securities. Hirschmann Capital is one fund that falls into this elite club with an annualized return of 30.7% since inception during the fourth quarter of 2014 to the end of 2016. Over this period the fund has produced a cumulative return 82.7% compared to just 19.7% for the S&P 500 Index and 8.5% for the MSCI World Index. The manager, Brian Burke Hirschmann, is a Goldman Sachs Principal Strategies alum a la Bob Rubin, Dan Och, and Eric Mindich.
According to the fund’s full year 2016 letter to investors, a copy of which has been reviewed, most of Hirschmann’s assets are invested in gold-linked securities which resulted in significant volatility during the second half of 2016. According to the letter, the fund’s class A shares declined 14.6% during the second half of 2016 but appreciated 15.4% during the first two weeks of 2017. At the beginning of the year, 87% of assets under management were invested in gold-linked securities.
Like an increasing number of other hedge funds and investment management partnerships out there Hirschmann, doesn’t charge a management fee, in the spirit of Warren Buffett’s early partnership, according to a source familiar with the matter. Instead, the firm has a hefty 33% profit share above the S&P 500 return for its class B shares and 25% of profits above a 6% hurdle rate for the class A stock. The LA based hedge fund has around $15M AUM and only writes a letter to investors twice a year, according to the source.
Hirschmann Capital: 30% Per Annum With Gold Stocks
It seems Hirschmann Capital is one of the most bearish funds out there with its hefty gold allocation and short China bet. According to a person with knowledge of the fund’s investment outlook, the portfolio manager believes inflation is set to spike and resulting higher gold prices will benefit the fund. Indeed, within the full-year letter, Hirschmann’s portfolio manager writes that he believes the gold linked securities basket could rise by as much as 500%. With 28% of the basket allocated to just one security this high-risk, high reward strategy is unconventional, but the fund’s
“concentration seems more than justified” by the
“extreme potential upside and…very low probability of long-term loss.”
Specifically, the fund’s 2016 letter to investors notes:
“I continue to expect gold to rise over the long-term because: (i) it remains below its long-term average valuation, using the Fund’s proprietary method, and (ii) it tends to benefit from greater concern about default, inflation and equity risk. If gold rises, the GLS should appreciate much more. Further, if any of the bubbles in bonds, China or US stocks burst, the GLS seem likely to appreciate more than 500%. (Since the GLS seem extremely undervalued, they also seem likely to appreciate over the long-term even if gold falls substantially.)
The Fund’s high GLS concentration, which includes a 28% allocation to a single security, is unconventional — just as Scion Capitals concentrated housing bubble shorts were unconventional. Nevertheless, the Fund’s concentration seems more than justified by the GLS’ extreme potential upside and their very low probability of long-term loss. When conventional assets (e.g. bonds, US stocks) seem very overvalued, an unconventional portfolio seems wise.”
Alongside the large gold allocation, 7% of Hirschmann’s assets are also invested in countercyclical China-related companies, which will pay-off if China’s economy runs into a brick wall and 6% of assets are invested in an unnamed UK company.
The source tells that although the fund is value oriented, Hirschmann Capital seems to be taking a nontraditional approach to value investing by investing in gold-linked securities that will surge if inflation spikes and China-related companies that will appreciate if China implodes.