Some might consider Platinum Partners’ 2013 performance, estimated at 10.32% according to an investor letter reviewed by ValueWalk, to be subpar when compared to nearly 30% index returns found in the equity markets.  But that misses the point.

Platinum Partners is a diversified fund with many niche strategies with a significant focus on risk management.  Since its founding in 2003 it has never had a losing year.  But perhaps most significant to hedge fund allocators might be the fact that while the annualized standard deviation is 4.96%, the vast majority of that volatility came from the upside.  Downside deviation was just 0.88%.

“For us controlling drawdowns and downside volatility is as important as the overall return. We always look at returns on a risk-adjusted basis,” Uri Landesman, president of the firm, said in a 2011 interview.  “The performance of the fund really has to be seen in the context of how little directional risk we have in the portfolio.”

Platinum Partners: Strong downside volatility management

While detractors may point to the fund’s 2013 performance, which significantly lagged the fund’s annualized annual return of 18.71%, it should be noted this occurred in a year when many spread arbitrage programs were lucky to get into positive performance, much less double digit performance.  In other words, with a Sharpe Ratio of 3.20, Platinum Partners is significantly outperforming its peer group.

Platinum Partners allocation strategy

With $1.28 billion in firm assets, the fund operates a true multi-strategy diversification system.  The largest allocations are to the fund’s self titled asset based finance and energy category, followed by event driven, which drives nearly half the allocation.  In terms of strategy style, the fund mixes fundamental strategies with quantitative analysis in certain categories.  In December the largest contributor to returns was the event driven category.

Platinum partners

What is the secret to Platinum’s long term success?

“Our goal is to deliver attractive returns on a risk-adjusted basis. We believe the best way to achieve that is by investing in completely uncorrelated strategies and distributing our bets evenly across a number of risk factors. That is why we do a lot of different things,” Landesman said in the 2011 report.

Platinum Partners: Founder’s history

Both Landesman and partner Mark Nordlicht have experience working in a team environment.

According to the investor note, Mr. Landesman spent 4 years at ING Investment Management, where he was Head of Global Growth and Chief Equity Strategist and managed and oversaw $3.5 billion in assets. From 2000 to 2002, Mr. Landesman was Director of Global Research and Head of International Equities at Federated Investments. Prior to working at Federated Investments, Mr. Landesman spent 2 years as a Partner at Arlington Capital, a Long/Short Equity hedge fund. From 1993 to 1999, Mr. Landesman worked at JP Morgan Investment Management.  Mr. Nordlicht launched Platinum Energy Resources (2005), a publicly traded oil & natural gas company and Platinum Diversified Mining (2007), a publicly traded mining company.

Mr. Nordlicht, the firm’s chief investment officer, was also the founder and served as non-executive Chairman of Optionable, Inc. (OTCBB:OPBL), a brokerage firm for energy options, until May 1, 2007. From 1997 to 2002, Mr. Nordlicht was a founder and the managing partner of West End Capital, a New York-based money management firm that specialized in privately negotiated structured debt financing for small and mid-cap publicly traded companies. In 1991, Mr. Nordlicht founded and was the general partner of Northern Lights Trading, a proprietary options firm based in New York which employed traders in the cotton, coffee, natural gas, crude oil, gold, and silver option trading pits.