Magellan's Ex-Chief
Finds New Success
With His Hedge Fund
By GREGORY ZUCKERMAN
Staff Reporter of THE WALL STREET JOURNAL
July 25, 2005; Page C1
Jeffrey Vinik is out of the limelight. But that doesn't mean he is out of money-making ideas.
Mr. Vinik, former chief of Fidelity Investment's Magellan mutual fund, has been running a hedge fund since leaving Fidelity in 1996. But in 2000 he decided to hand back almost all of the money outside investors held in the hedge fund, which handled about $4 billion at the time, preferring to invest for himself, his family, friends and employees while vowing to adopt a more relaxed lifestyle.
Despite all that, the 46-year-old Mr. Vinik still manages about $1 billion at his Boston-based firm, Vinik Asset Management LP, and some rivals continue to scrutinize his picks. Lately he has been on one of the better streaks of his career, even in a year in which most mutual funds and hedge funds are finding it difficult to scratch out gains.
His fund is up about 20% this year, according to someone familiar with the situation. That compares with a gain of 1.8% for the Standard & Poor's 500-stock index and gains of about 2% for the overall hedge-fund business, making Mr. Vinik's fund one of the best-performing hedge funds.
The gains come after some impressive runs for some of his biggest holdings. Legg Mason Inc., Mr. Vinik's largest stockholding as of the end of the first quarter, according to Securities and Exchange Commission filings, is up about 60% since mid-April, spurred in part by a deal reached last month to acquire Citigroup Inc.'s asset-management business and exit the brokerage business. Mr. Vinik's second-biggest holding at the end of the quarter, Internet-search giant Google Inc., is up 68% since April, despite falling 3.7% on Friday following its earnings report. During the first quarter, Mr. Vinik added more than a million shares to his third-largest position, Nordstrom Inc., just ahead of the retailer's 40% rise since mid-April, while Urban Outfitters Inc., another holding, is up more than 40% in the same period. Other big holdings, including Coach Inc. and Patterson-UTI Energy Inc., also are on a tear.
But Mr. Vinik turns his portfolio over rapidly, and his picks often are more volatile than those of others in the hedge-fund world, and sometimes are riskier. One example: Tempur-Pedic International Inc., a major holding of Mr. Vinik in the past year, had been a winner until Friday, when the mattress maker tumbled more than 24% after a disappointing earnings report.
Despite the head-turning volatility, Mr. Vinik's returns generally have been good in recent years, according to the person familiar with the results, and he continues to run the firm on a daily basis, though people close to the hedge fund say he sometimes leaves early to coach his children's sports teams.
While Mr. Vinik continues to refuse to accept money from outside investors, people close to the firm say he has allowed some Vinik analysts to accept some new investments from longtime investors.
Mr. Vinik declined to comment.
Unlike some other hedge-fund managers who have done well lately, Mr. Vinik has done it with old-fashioned stock picking, rather than through complicated quantitative models or sophisticated credit bets.
"I don't know of anyone [in the hedge-fund world] up that much this year," says James A. Torrey, chairman of Torrey Funds, a New York firm that invests in hedge funds.
Mr. Vinik's returns come from a series of savvy picks rather than one gusher. None of Mr. Vinik's biggest stock picks accounted for more than 5% or so of his fund at the end of the first quarter, according to filings; most account for about 3% or 4% of the hedge fund. As such, his performance is more impressive than that of a manager who bets the house on a certain stock and hits the jackpot, Mr. Torrey noted.
At the same time, few of Mr. Vinik's holdings are in the health-care or energy sectors, among the best performers so far in 2005. Many of Mr. Vinik's recent picks have been in the retail business.
When Mr. Vinik left Fidelity for his own shop, many in the hedge-fund world doubted he would be able to turn in top-notch performance, and some investors say they passed on the opportunity of investing with him. Many mutual-fund managers are unable to excel as hedge-fund managers because they have no experience in short selling, or betting against stocks. And Mr. Vinik left Fidelity in 1996 on a sour note after some untimely bets on bonds weighed on Magellan's performance, marring an otherwise successful tenure.
But when Mr. Vinik took a step back from the business in 2000 it came as his returns remained stellar, unlike some other hedge-fund honchos, like George Soros and Julian Robertson, who scaled back their firms in that period. In fact, some have predicted that Mr. Vinik would again begin accepting outside investor money, something he isn't yet ready to do, according to someone close to the firm.
"He's very much under the radar screen now," says Mark Kenyon, president and chief executive of Union Bancaire Privee Asset Management, a unit of Union Bancaire Privee of Switzerland. "If he opened again to outside money we'd do it in a heartbeat; he's one of the better value guys."
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com4
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