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February 19, 2020  

Evanston Redeploys After Exiting Element

By pulling its money from Element Capital, fund-of-funds operator Evanston Capital removed the largest position in its portfolio — and a significant contributor to its returns in recent years.

Evanston was among several investors to submit redemption notices after Element founder Jeffrey Talpins said in July that he planned to increase the performance fees for accounts representing most of the firm’s assets under management, to 40%. Evanston’s fee was previously 20%, while most Element clients had paid 25%. At the same time, Element lowered its management fee to 2% from 2.5%. Talpins’ goal: To reduce his New York global-macro shop’s $18 billion asset base by 20%.

Now comes word that the Element Capital Master Fund accounted for 9.2% of the assets held by Evanston’s flagship Weatherlow Fund 1 in July, or some $300 million. That position was fully redeemed at yearend.

Evanston since has redeployed most of the capital among its existing positions, including Rokos Capital’s Rokos Global Macro Fund. That investment was the largest in the $3.1 billion Weatherlow vehicle in January, representing 7.7% of its assets, or about $240 million.

Also receiving additional contributions were Anchorage Capital’s Anchorage Capital Partners, Ancient Art’s Teton Capital Partners, Pelham Global Financials’ Pelham Global Financials Fund, Whale Rock Capital’s Whale Rock Flagship Fund and Zebedee Capital’s Zebedee Core Fund.

In a Jan. 17 letter to investors, Evanston said “we would be remiss if we did not also express our disappointment in the transactional nature of Element’s decision, which seems at odds with the spirit of loyalty and partnership that we hope to engender with all of the fund’s managers.”

Evanston kept its money with Element for seven years, during which time the position produced an annualized return of 13.8% and Element increased its assets fourfold.

That was substantially stronger than the overall returns of the Weatherlow fund. While the vehicle was up 13.5% in 2019, it was down 3.3% in 2018 and hadn’t posted any other double-digit gains since 2013. Indeed, its annualized gain is a more modest 5.1% over three years and 4.9% over 10 years.

Still, the multi-manager fund has fared better than the HFRI Fund of Funds Composite Index, which was up 3% in 2019 with annualized returns of 3.9% over three years and 2.8% over 10 years.

Element was up 11.9% last year. That ranked 12th among the 21 funds represented in the Weatherlow portfolio in December, behind:

12 West Capital’s 12 West Capital Fund, up 57.9%.

Wellington Management’s Salthill Partners, up 39.2%.

Long Pond Capital’s Long Pond Capital Fund, up 35.7%.

Pelham Global Financials Fund, up 33.5%.

Oxbow Capital’s Oxbow Fund, up 31.4%.

Matrix Capital’s Matrix Capital Management Fund, up 30.8%.

Zebedee Core Fund, up 25.1%.

Sachem Head Capital’s Sachem Head, up 23.6%.

Two Creeks Capital’s Two Creeks Capital Partners, up 21.7%.

Whale Rock Flagship Fund, up 14.5%.

Teton Capital Partners, up 14.1%.

Rokos’ fund was up 9.3%. The others posted single-digit gains, except Anchorage’s vehicle, which was down 1.5%. At $175 million on Jan. 1, that position was the Weatherlow fund’s fourth largest.

Earlier in 2019, Evanston withdrew from Ionic Capital’s Ionic Volatility Arbitrage Fund. The vehicle was posting a year-to-date loss of 31.9% on June 30, at which point it represented 1.2% of the Weatherlow portfolio.

Evanston is led by chief investment officer Adam Blitz. The Evanston, Ill., firm had $3.4 billion under management on July 1.

CORRECTION (2/26/20): This article has been revised. The original version misstated aspects of Element Capital’s performance fees. While Element increased the performance fee charged to Evanston Capital’s flagship fund of funds and to some other investors to 40% from 20%, the performance fee on most of the firm’s assets under management moved to 40% from 25%. At the same time, Element lowered its management fee to 2% from 2.5%.