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September 19, 2018  

Deep Basin Assets Swell Amid Strong Demand

A year after launching an energy-stock fund, Deep Basin Capital is putting investors on notice that its subscription window could close before yearend.

The Stamford, Conn., firm was managing $530 million on Sept. 1, after generating a one-year return of 6.1%. Founder Matt Smith, in a Sept. 4 letter to his limited partners, said he believes the Deep Basin Long/Short Master Fund has a capacity of about $1 billion, “given the leverage we employ and our desire to remain highly liquid.”

But with “substantial new investor commitments in the queue” and capacity promised to several early backers, the fund is fast approaching the $1 billion mark, Smith added. “We envision closing the fund around the end of the year to new investors.”

Smith, who previously ran an energy-stock portfolio for Citadel’s Surveyor Capital unit, expressed disappointment in Deep Basin’s second-quarter result — a 0.9% loss. But for the year, the fund achieved a solid Sharpe ratio of 1.1.

“Our portfolio was purposely built to isolate idiosyncratic, asset-driven operational and financial residual returns, and be agnostic to commodity/commodity-driven equity returns,” Smith told investors. “This is how we define ‘alpha.’ ”

The letter also disclosed that Ian Singer, a member of Deep Basin’s investment team, has been awarded a partnership interest in the firm. Singer previously spent four years at Surveyor, preceded by stints at Zimmer Lucas Partners and hedge fund technology firm Eze Software.