While the real estate market is still smarting from its bubble burst, one opportunistic hedge fund is taking advantage of the market at a double digit clip.
Dallas-based KeyPoint Capital Management’s Real Estate Opportunity Hedge Fund, a long/short US equity offering, was up 5.4% net last month, bringing its year-to-date performance to 10.5%. Last year, the fund made a solid debut returning 16.5%.
Last month, the fund scored on its long running long position in a prison owner/operator, which was acquired at a 35% premium, according to Rod Hinze, portfolio manager. Hinze said:
We have been long this company since the fund launched and were pleased to see the purchase price very close to our internal valuation.
Other core long positions that performed well for the fund include student housing, hotels and office REITs.
In addition, the fund’s performance in April was driven by its short position in a commercial window manufacturer that badly missed earnings and reported a smaller backlog than most analysts had estimated. According to Hinze:
We have been following this company since early 2009 and executed a full short position (6%) the night before this company reported their quarterly results, which paid off well the following three days when we covered.
Currently, Hinze is bullish on the healthcare sector because of its reasonable valuations coupled with its high yields. On the other hand, he is bearish on office REITs in the south and southeast regions of the US because of their high vacancy rates. Hinze said:
I’m not seeing any major turnaround in that space. I’ve partnered with a large commercial lending group and they’re also having a tough time getting deals done in that market.
The fund is currently managing some $10 million in assets, and Hinze said the firm may launch an offshore version of the fund within the next six months. Hinze previously worked as an investment banker at Bear Stearns’ and in Goldman Sachs’ (GS) real estate private equity group before founding KeyPoint Capital.
Disclosure: No positions