Jeremy Weisstub, founder of Aryeh Capital Management comes with considerable pedigree:
-He is the grandson of Louis Rasminsky, who was the Governor of the Bank of Canada from 1961 to 1973
-His previous job was as an analyst for David Einhorn’s Greenlight Capital, where for 6 years he “contributed meaningful profit in both equities and credit and was the senior most professional responsible for distressed debt” and where he claims to have contributed more than $1b in gains
-He also had stints at other prestigious firms like Perry Capital, Blackstone and Oak Hill Capital (the vehicle of the billionaire investor Robert Bass)
-He graduated in the top 10% of his MBA class at Stanford and in the top 5% of his class at Yale
-He has managed to secure the backing of an Ultra High Net Worth who committed not 1, not 2, but $75m for 7 years.
-He also has the backing of many other prominent business people.
-His office is just down the road from Scaramouche, a hotspot for celebrities and regarded by many as the best French restaurant in Toronto.
Astute as you are, you are probably wondering: So, how much is he underperforming the S&P by? That’s a bit unfair, we’re still broadly in a bull market to this day. Aryeh started in 2018 and has some shorts.
The backer
More importantly, we must identify the wealthy person who is so resolutely backing Aryeh. His name is Andrew Dunin. He is a businessman who made about a $260m score in 2000 selling his half of an auto parts company. The buyer was private equity firm Oak Hill Capital Partners, where Jeremy Weisstub was an associate at the time. Andrew Dunin’s partner on the auto parts business was Myron Garron, who has gifted many tens of millions to various hospitals. Andrew Dunin himself has $36m in his foundation alone, so investing $75m to anchor Aryeh’s fund is within his wherewithal. Overall, the fund has about about $300m in AUM. Or maybe $400m - in that range.
The mentors
Andrew Dunin is on the advisory board of Aryeh. Another advisor is Nelson Heumann, an early Greenlight Capital partner. After spending 6 years there, Jeremy Weisstub had good timing in leaving Greenlight Capital in 2015. Greenlight founder David Einhorn is the poster boy for the wide performance chasm between growth-y stocks and value stocks. Thanks mostly to his ill-timed notion of shorting glamour growth stocks, his fund still needs about a 25% gain just to get back to its 2015 level. Greenlight doesn't let their people run their own books, so Jeremy Weisstub managed to raise a lot of money without a formal P/L track record.
The strategy:
-concentrated portfolio of mostly US securities
-fundamental, value-driven approach, investing across the capital structure, with a focus on misunderstood or dislocated securities.
-portfolio consists of 15 core longs and up to 20 shorts
-”vigilant about preserving capital through rigorous research, portfolio stress testing and a robust sizing framework”
In practice, Aryeh plays with names like Dollar Tree, Valvoline, Progressive Corp., Liberty Broadband, Comcast, etc. - mid-caps and up.
The purported “edge”
Among their advantages, they cite their location, “time arbitrage” and “judgement and experience”. If Toronto is an advantage because New York is too noisy, where does that logic ultimately lead you? That’s right, Bhutan is the next great hedge fund center. Anyways, the PowerPoint devolves from there into various statements that I would call the state of the art of conventional thinking. The conventional thinking varies by generation and depends on what the hot corner of finance was when you came on the scene and what traumatic events you have experienced. As a 40-something, Jeremy Weisstub has seen two major crisis, stocks that went nowhere in his formative decade and the golden age of hedgies. So he reflects that with such platitudes as "factor hedges", “a private equity approach to the public markets” and “time arbitrage”. A younger generation would be all about long-only quality compounders. And a younger yet generation might say that the correct approach to investing is to make yolo-bets - a venture approach to public markets.
Despite claiming time arbitrage, their investment horizon is still only 2-3 years. I also don't see the type of focus and specialization I like to see. It's more of a mish mash of purported market inefficiencies like "fallen angels", spin-offs or "inflection opportunities". Aryeh claims expertise in distressed credit and so that may yet be his redemption when the cycle turns. We must keep an open-mind. And a closed wallet.
The setup
By the way, many people don’t know this, but “aryeh” is a Hebrew word that means “performance fee without a hurdle rate”. Aryeh’s underperformance is largely explained by the fee structure. If you lock up your money for 3 years, the performance fee is only 15%. But as I explained before, a startup manager charging performance fees is myopic.
Jeremy owns the entire firm and is the sole portfolio manager. About 7% of the firm's money is his. Aryeh has a Cadillac hedge fund structure, able to accommodate Canadian, American and offshore investors. They also use big-name service providers like Morgan Stanley, JP Morgan and SS&C as administrator. I see, so Sharon Grosman is not good enough? Their minimum investment is nominally $5m, but I doubt that’s a hard rule. They already have 8 employees which is a lot for a small fund. I’m sorry Mr. Fancy Pants, but around these parts, this is not how we do hedge funds. In the US, you’ll sometimes see a hotshot manager raising a billion-dollar fund, give it 3 years and decide to close because they’re sub-scale. That’s mainly because they can join some bigger mega-platform and get better economics even if they don’t own the shop. But in Canada, some of our biggest stars have been managing around $80m for the past 20 years with two guys, a Bloomberg terminal and a dog. If you want an example, I give you Jemekk.
Pedigree is a brand of dog food, invest in results
Occasionally, snazzy PowerPoint charts and high pedigree must be tested against the brutal reality of ever-increasing competition among active managers. So far, there’s no evidence of any skill in the investment results of Aryeh. While underperforming the S&P 500 is expected for a hedge fund in a bull market, I don’t know if the hedges are working. The fund was down 16.5% in March 2020 (vs 12.5% for the S&P), so it’s difficult to say that its underperformance can be explained by taking less risk. I am being slightly unfair, because even if he did beat the index, I’d say that’s statistically meaningless.
My favorite manager is the son of a truck driver and studied history at the third oldest university in Wales. So I am not biased either way about credentials, but it’s always useful to consider the caliber of the competition. Ask yourself: if someone like Jeremy Weisstub struggles to beat the market, what faith can you have in some of the palookas you find in Canada? I still believe in active management, but I grow more skeptical every day.