York Capital Management ended December with near a 2% return on each of its three strategies, ending 2013 with performance near 16%, according to an investors letter reviewed by ValueWalk. York Capital’s Total Return L.P. ended the year up 16.33%; the YTR Investors L.P. returned 16.27% and the York Total Return Unit Trust returned 15.98%.  York Capital specializes in merger and acquisition transactions, distressed and restructuring opportunities and special situations equity investing.  However, the fund is significantly diversified across strategies, sectors and geographic regions, the investor letter shows.

York Capital

York Capital Management, founded by James Dinan, who is listed at #342 on the Forbes 400 list and #931 on the list of billionaires, almost doubled the 7.55% compounded annual return performance of the fund since its founding in 2006.

York Capital’s sector exposure

To generate the returns, York Capital Management, with $19.1 billion in firm assets under management, was most heavily allocated towards equities in the financial sector by 37.3%, with more long exposure credit than equities.  What is interesting is the fund’s relative value strategy.  While the fund was exposed to a long corporate credit position they also kept a short 10.4% allocation towards credit exposure as well as a significant percentage of short exposure to sovereigns, commodities and interest rates.

The fund’s second largest long exposure was towards the consumer discretionary sector, with 17.7% exposure, mostly in the equity markets.  The industrials made up the third largest exposure in the portfolio, with the vast exposure to equities.

In terms of credit exposure, financial stocks were the largest sector where the fund engaged in a long credit exposure strategy, followed by energy, consumer discretionary and materials.

Market Cap / Geographic Exposure

Dinan, who got his start at Lufkin & Jenrette, lost his life savings in 1987 on Black Monday in what was said to be a leveraged portfolio, has since sworn off using debt to finance his investing, according to reports.

In 2013 the fund was primarily exposed to a long position in large cap stocks, making up 39.1% of the portfolio with the fund had a 4% short exposure to large cap.  Medium caps represented 19% of the long exposure, followed by a 5% exposure to short cap.

In regards to geographic exposure, the fund was almost equally exposed on the long side to US (44.8%) as it was to Western Europe (42.2%).  But the subtext revealed interesting insight.  On a relative value strategy basis, the fund held its largest short position in Western Europe, with short credit being a larger percentage than short EU equities.

In regards to top holdings, the top three shorts were in the credit default swaps (CDS) markets, with financials, sovereign debt and industrials being the top sectors.  In regards to longs, Lehman Brothers was the largest long position at 5.4% (Consists of LBHI 2.7%, LBIE 1.7%, LBI 0.5%, TSY BV 0.2%, LBSF 0.2%, LCPI 0.1%) while Edison Mission energy at 3.1% and Kaupthing Bank at 2.4%, which made up the top three long positions.

In a rare public interview, James Dinan spoke with Charlie Rose about his middle class upbringing, the challenges he faced and reflected on changes in investment banking and asset management where he recaps his world outlook.