Maverick Capital: Clone vs. Actual Fund Returns

by: M F

by Maz Jadallah

Maverick Capital was formed in 1993 with $38MM when Sam Wyly hired Lee Ainslie away from Julian Robertson’s Tiger Management. By 1995 Ainslie was running the entire portfolio and in January 1997 he bought out the majority interest in the firm. As in the style of Tiger, Maverick is a long/short stock-picking equity fund based strictly on fundamental analysis. Ainslie’s goal is to “know more about every one of the companies in which we invest than any non-insider does.” As he learned from Robertson, one of his favorite metrics is comparing enterprise value to sustainable free cash flow. While Ainslie is the leader and face of the firm, he views his management team as peers and values the team culture at Maverick.

Ainslie graduated from the University of Virginia with a degree in systems engineering. After working at KPMG as a consultant, he attended the University of North Carolina business school, where he met Robertson. While working at Tiger, Ainslie was in the technology group. From Robertson he learned several things that have shaped his investment style and strategy. Just like Robertson, when he reviews his game plan and stocks, he tests his conviction by gauging whether the name is a buy or a sell; there is no hold. Ainslie says, "Either this security deserves incremental capital at the current price point or it doesn't - in which case, let's sell it and put the money to work in a security that deserves that incremental capital."

Additionally, Julian always stressed the importance of integrity in your personal conduct, in how you represented the firm and in evaluating management teams (of companies you were considering investing in).

While Maverick picks both long and short, Ainslie has been clear they do not pair trade. The fund is a true hedge fund and they have an equal allocation of longs and shorts in every region and industry. The allocation across sector and region is a large part of their risk management. Even though they are a worldwide fund, the US is always the largest portion due to familiarity by the managers, liquidity, and ease of shorting stocks. They typically hold less than five positions per analyst but also keep each position under 5-8% of the fund. The stocks they invest in have daily volume greater than $10M and due to this they can liquidate more than 70% of the portfolio within one week.

There are six sectors covered at Maverick: consumer, health care, cyclical, retail, financial, and technology. Each team typically has around 7 analysts. Within the firm there are six main funds: Maverick Fund, Maverick Levered, Maverick Neutral, Maverick Neutral Levered, Maverick Long, and Maverick Long Enhanced. For 2008 the Maverick Fund finished -26.2% for the year and 14.3% since 1995.

We thought we would take a look at Maverick’s returns vs. the returns of the clone.

Below is a strategy of taking Mavericks top 10 holdings, equal-weighted and rebalanced quarterly back to 7/2002. While obviously Maverick has existed prior to this, this is as far back as we have monthly return data.

As you can see, the returns are in-line with the returns of the fund. That is some nice alpha relative to the S&P500!

Maverick table

Maverick graph