Castle Point just released the following letter about Todd Combs departure. It contains some interesting new insights which I have not heard about in the news. Below is the press release:
Castle Point Capital, a long-short hedge fund sponsored by Trident III to focus on the financial services sector, announced earlier today that its portfolio manager, Todd Combs, has agreed to join Berkshire Hathaway as an investment manager responsible for a significant portion of Berkshire’s investment portfolio.
As a result, we will be winding down the Castle Point hedge fund. A copy of the Berkshire Hathaway press release is attached for your information.
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This is disappointing news for Trident III given the success that Castle Point has had in building its platform during the past five years. The fund has grown its asset base from $35 million at inception to more than $400 million at the end of last month.
The fund has also had strong relative performance during extremely challenging times in the financial services sector, outperforming its benchmark by roughly 80 percentage points since inception in November 2005 (positive 34% cumulative net return for Castle Point since launch vs. negative 46% for the XLF).
Nevertheless, we are happy for Todd, who has an incredible opportunity to work for Warren Buffett at Berkshire Hathaway. Todd is an extremely talented investor and we wish him much success in his new position.
In November 2005, Trident III seeded the Castle Point fund with $35 million and committed an additional $1.8 million to the management company. Since then, Trident III’s fund investment has grown to more than $48 million. Trident III has also received $5.4 million in distributions from the management company. Accordingly, after winding up the business, we expect the total investment return of Trident III to be approximately $54 million, or 1.5x cost.
The Castle Point fund is up 1.0% net for the current month through the close of business today, and it has already liquidated approximately 90% of its positions. We expect Castle Point to close out the balance of its holdings in an orderly manner over the next few weeks, although certain positions may take longer. We should receive 90% of our capital account balance from the Castle Point fund by or before the end of November and the balance upon completion of the year end audit.
We also note that Castle Point has sufficient cash on hand to wind up the operations of the management company and the firm has informed its investors that it is suspending the accrual of management fees as underlying positions transition to cash.
Trident III remains extremely well positioned. In total, the fund has invested $1.1 billion in fourteen portfolio companies. As of September 30, 2010, Trident III had generated realized proceeds of $1.1 billion and, based on preliminary valuations, total realized proceeds and unrealized value of approximately $2.3 billion, representing 2.0x cost and a gross IRR in excess of 26%.