08/14/2013

Lagging Returns Lead Estekene to Shut Down

Estekene Capital is throwing in the towel after underperforming the U.S. stock market for most of its three-and-a-half-year run.

Estekene told investors in an Aug. 7 letter that it would shut down its sole fund. The New York firm, which was seeded by Protege Partners, expects to fully liquidate its holdings by the end of next month.

What did it in? Not losses, but unexceptional returns resulting from the conservative capital-preservation strategy of its founders, Peter Carlin and Charles Carr. Its Estekene Master Fund produced an average annual gain of 7.1% from its inception on March 1, 2010, though July 31, 2013. The firm had $141.2 million under management at the end of the first quarter, according to regulatory documents.

The long/short equity vehicle was crafted to shine in periods marked by fear and uncertainty, Carlin and Carr said in their letter. “However, since the equity markets stabilized and began a steady ascent, we just didn’t get enough bites at the volatility apple to distinguish ourselves. In retrospect, accepting somewhat more risk would have been the wiser choice for all of us,” the managers wrote.

Estekene’s hedge fund gained 1.9% in the first half of 2013, far below the 13.8% total return of the S&P 500 stock index during the same period. That followed an 8% gain in 2012, compared to 16% for the S&P. The fund did outperform the market in 2011, rising 6% when the S&P gained 2.1%. In its maiden year, it notched a 6.5% return for the March-December period, while the S&P gained 15.8%.

Before setting up Estekene, Carlin was a deputy portfolio manager and Carr was an analyst at Alson Capital, which shut down in 2009.

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