New hedge fund Honest Capital gains 88% with bets on cannabis, others

Chatham Lodging Trust

15/01/2021 19:50

By Svea Herbst-Bayliss
    BOSTON, Jan 15 (Reuters) - Honest Capital LLC launched last
year amid one of the most chaotic times in financial history,
but its 88.4% returns far outpaced hedge fund peers and broad
market indexes by focusing on smaller, less recognized stocks,
according to a letter sent to investors this week.
    Founder Shawn Badlani launched the San Francisco-based firm
in May not long after stocks entered a brief free fall due to
the coronavirus pandemic. He took in investor capital after
Federal Reserve interventions and economic stimulus programs
propped financial markets.
   Honest Capital fund remains small – under $100 million, a
person familiar with the firm said – but 2020 returns, after
fees, compare with 11.6% average gains for hedge funds,
according to Hedge Fund Research, and a 16.2% rise in the S&P
500 Index.
    It is a success story as only 346 new funds, the smallest
number in two decades, launched and 619 shut down during the
first three quarters of 2020, HFR data shows.
    The stellar results were thanks to the firm's focus on a
handful of stocks that have potential, as opposed to a strategy
of jumping on popular trends, Badlani said in the letter, which
was seen by Reuters.
    "We are pleased with this performance," Badlani, 38, wrote.
"We believe it demonstrates that a concentrated portfolio of
high quality, less followed small and mid-cap equities can drive
differentiated performance."
    The firm owns just nine stocks, including advertising
platform Cardlytics Inc  CDLX.O , digital media company
IAC/Interactive Corp  IAC.O  and cannabis retailer Green Thumb
Industries Inc  GTBIF.PK .
    Green Thumb benefited from more U.S. states legalizing
marijuana for recreational use and Cardlytics continues to add
new users and improve its customer interface.
    Badlani had been a partner at Marcato Capital Management for
nearly a decade, until that firm shut in 2019. His former boss,
Mick McGuire, learned about activist investing at William
Ackman's Pershing Square Capital Management, and investors
expect Badlani to follow in their mold.
    At some point, he may start activist campaigns to push for
operational improvements at companies and his firm name is
supposed to represent the advice he will give CEOs, whether they
like it or not, a person familiar with his thinking said. 
    For now, he is running Honest Capital from home with a third
party handling back-office and compliance functions, since the
pandemic made it difficult to meet potential employees and
investors or scout office space in person.

 (Reporting by Svea Herbst-Bayliss in Boston
Editing by Matthew Lewis)
 ((svea.herbst@thomsonreuters.com
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