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August 17, 2016  

Redemptions Rising at Burbank's Passport

Recent losses at Passport Capital appear to have spooked some investors.

The San Francisco firm’s three main hedge funds were hit by net outflows of nearly $170 million in the second quarter, according to an Aug. 1 investor letter signed by founder John Burbank 3d and marketing chief Tony Fenner-Leitao. That marked a sharp increase from $70 million of net withdrawals in the first quarter.

Net outflows during the first half amounted to about 5% of the firm’s assets at the start of the year. The withdrawals, combined with investment losses, have dropped Passport’s assets to about $4 billion, from $4.4 billion at yearend 2015.

Since launching Passport in 2000, Burbank has delivered enviable returns through a signature combination of top-down macro analysis and bottom-up fundamental analysis, typically expressing his views via long/short equity plays. The flagship Passport Global Strategies fund, for example, gained 10% last year, even as most equity hedge funds were flat to negative. The Passport vehicle boasts a 15.7% annualized return. Its last down year was 2011.

But this year Passport has stumbled as Burbank’s outspokenly bearish view has collided with a surprisingly bullish market. The $1.9 billion Global Strategy fund was down 7.2% year-to-date at the end of July, while the $1 billion Passport Long Short Fund had lost 2.5% and the smaller Passport Special Opportunities Fund was down 12.4%.

“Over the course of the past 18 months, we have been consistently and correctly skeptical about growth and cognizant of broad deflationary pressures,” Burbank and Fenner-Leitao wrote. But “equity market indices seem to reflect benign attitudes toward risk and faith that central banks will be ready and willing with an effective round of easing for all and any macroeconomic headwinds.”

Passport’s flagship fund fell 6.6% in March amid a sharp rebound in stock prices. That left the fund down 7.5% at the end of the first quarter. Since then, its performance has been essentially flat.

Meanwhile, Passport has been beefing up its marketing and investor-relations department. In July, Emily Sheridan joined the firm as a director of investor relations. She previously worked in marketing at Silverback Asset Management. Sheridan’s arrival followed the hiring last September of marketer Courtney Stone, who joined from Renaissance Technologies.

Fenner-Leitao himself joined in November, having previously worked at Winton Capital. The marketing team also has lost two members: Greg Leograndis, who left last month, destination unknown; and Bill Nolan, who split in December to take a job at Light Street Capital.

On the investment side, Passport recently hired trader Peter Reese-Scott and added analysts Steve In and Max Serebryanny to its research team. Reese-Scott joined from Susquehanna International, while In last worked at HGGC and Serebryanny was at BMO Capital. David Tillman, Passport’s long-time head of trading, left in March for unknown reasons.