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August 21, 2019  

Airline Entrepreneur Plans Equity Vehicle

An airline-industry executive who has founded and run two regional carriers is starting an aviation-stock hedge fund.

Julian Cook, who most recently launched an Argentine airline that quickly picked up 10% of the domestic market, has formed a fund-management company in London called Atka Capital. He aims to begin trading early next year via a commingled vehicle dubbed Global Jet Fund.

Cook expects to start out with $30 million to $50 million. He’s telling investors that his strategy — encompassing a universe of about 100 airline stocks and another 100 or so related equity securities — has the capacity for perhaps $300 million of investor capital.

Cook plans to leverage his vast knowledge of the airline business and network of industry contacts to assemble a concentrated, long-biased portfolio. In some cases, he would work with management to improve operations.

For now, Cook is focused on meeting with prospective anchor investors, including family offices and asset managers that already have exposure to the airline industry. He’s also talking to hedge fund managers about possibly co-investing with Atka on individual deals.

Cook is telling investors he’s generally bullish on the airline sector following a period of underperformance. For the five years ended Aug. 14, the Bloomberg World Airlines Index rose 27.5%, compared to a 61.5% increase for the S&P 500 Index.

Cook is pointing to several positive developments, including the fact that many legacy carriers are now prospering after difficult restructurings. What’s more, the public-equity market has embraced new entrants, with 35 discount airlines issuing initial public offerings in the past decade. It’s also notable that Warren Buffett’s Berkshire Hathaway, which shunned the sector for years, has built substantial positions in American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

Via his Global Jet Fund, Cook plans to hold positions for 1-3 years. Accordingly, the fund would have two share classes — one that locks up investor capital for 12 months and another with a three-year lockup.

While a handful of private equity and private-debt managers target the airline business, Atka appears to be the only hedge fund manager exclusively focused on the sector. Cook’s background should appeal to investors who favor niche strategies. On the other hand, his lack of asset-management experience will raise a red flag for some allocators.

“All I can say is that airline stocks have been the bane of many an investor going back decades,” one hedge fund manager said, citing Tiger Management’s investment in US Airways in the 1990s.

Tiger held a 25% stake in US Airways when founder Julian Robertson liquidated his hedge fund and returned investor capital in 2000. Rather than sell its already-devalued position in the airline, Tiger distributed shares directly to limited partners.

Cook’s most recent project was starting Argentina’s first discount airline, Flybondi, for which he raised $75 million from private equity investors — mostly from emerging-market-focused Cartesian Capital of New York. Flybondi has grown rapidly since making its maiden flight in January 2018. Cook stepped down as chief executive in December and now serves as vice chairman.

Cook also founded a small Swiss carrier called Fly Baboo in 2003. He ran the company until 2008, when it was purchased by an investor group.

Cook’s resume also includes work as a consultant at GE Capital’s airline-leasing business and an earlier stint at J.P. Morgan in London, where he handled aviation-financing deals.