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October 03, 2018  

Pagoda Co-Founder Goes Back to Highbridge

Adam Bernstein has returned to Highbridge Capital to launch a new strategy based on a novel approach to sector research.

Bernstein previously spent nine years at Highbridge, leaving in 2014 to launch Pagoda Asset Management with two colleagues. Largely because of the Highbridge pedigree, Pagoda attracted strong investor demand, and was managing more than $500 million at yearend 2017. But after two years of middling returns, Bernstein abruptly shuttered the operation in May.

Now, he’s reassembling part of the Pagoda team at Highbridge, a J.P. Morgan hedge fund unit that runs about $4.5 billion. Last week, in an email advising former Pagoda investors of the move, Bernstein said his experience at Pagoda persuaded him of the need to rethink the traditional approach to sector investing.

“I believe the ‘silofication’ of research with sector verticals will be disadvantaged in the years to come,” he wrote. “I believe that alpha-generative stock theses will generate superior returns when they are multi-sector and -dimensional.”

He’s calling the new approach “convergence” long/short equity. Citing the example of self-driving electric cars, Bernstein notes that such investments require research and analysis across multiple sectors including consumer, cyclical, industrial and technology.

“Who should cover transportation — the auto analyst, the tech analyst or the consumer analyst? We plan to tackle it from multiple angles, as the implications will transcend the [individual] industries.”

It’s unclear which Highbridge funds will invest in Bernstein’s strategy, or how much money his team will start out with. During his first stint at the firm, Bernstein stood out as one of its most profitable long/short equity portfolio managers.

His performance at Pagoda was strong at first, with a 28.6% return in the first 12 months of trading. But that was followed by paltry gains of 1.4% in 2016 and 3.3% in 2017 — drastically underperforming the S&P 500 Index’s gains of 12% and 21.8% for those two years.

Bernstein’s team at Highbridge includes managing director Jeffrey Holycross and analyst Joseph Ciment, both veterans of Pagoda. Holycross, who earlier worked with Bernstein at Highbridge, also did a stint as an analyst at Merchants’ Gate Capital. Ciment, who joined Pagoda in October 2017, previously was an analyst at Millennium Management and RBC.

Also on board is managing director Billy Hagstrom, who worked as an analyst at Highbridge from 2010 to 2013.