Third Friday Total Return Fund, One Of The Best Performing Hedge Funds
For 20 years, Michael Lewitt has managed billions of dollars for institutions like Texas Teachers, LA County Employee Retirement, and large hedge funds like Omega Advisers. He also wrote “The Death Of Capital: How Creative Policy Can Restore Stability” (John Wiley & Sons) and is the Editor & Publisher of The Credit Strategist, a monthly newsletter that has focused on the global economy and financial market since 2001. It was one of the few publications to predict the 2001 and 2008 credit crises.
Since Sept. 2012 Michael is the general partner of The Third Friday Total Return Fund, one of the best performing hedge funds in 2015 on a risk-adjusted basis:
- While the fund started in 2007, the strategy started 10 years before that, meaning that the fund’s underlying options strategy has been developed and perfected over 20 years through many difficult markets
- Since fund inception in May 2007, net annualized return +7.86 % compares favorably against +2.75% for the HFRI Composite Hedge Fund Index and annualized total return of +6.05% for the S&P 500.
- In 2015, The Third Friday Total Return Fund earned a net return of +8.26 % versus -0.85% for the HFRI Fund Weighted Composite Hedge Fund Index and +1.38% total return for the S&P 500. The fund had only only two negative months (one by only -0.02%) while the S&P 500 was negative in 6 of the 12 months of the year.
- In Jan. 2016, the fund was up +0.23%.
- Fund uses no leverage and invests its collateral in Treasuries, cash, and a diversified short-to-intermediate portfolio of municipal and corporate bonds. In 2015, cash positions were well over 50% throughout the year.
Third Friday Total Return Fund, One Of The Best Performing Hedge Funds On A Risk-Adjusted Basis, Gets Institutional Traction
In this Opalesque.TV BACKSTAGE video, Michael Lewitt explains what attracted him – a veteran with almost 30 years in the industry having managed billions in credit funds – to take over the general partnership of Third Friday.
By selling at the money straddles of S&P index and hedging them by buying out of the money puts and calls, the fund is truly market-neutral and protects capital with several “rings of defence” against normal and outsized market moves.
What’s interesting about the strategy is that it extracts returns from volatility and time value in options – characteristics that are always present in markets. The fund also benefits from a loss mitigation mechanism: Its recovery from the one seriously negative month in 2015 (-3.14% in August) demonstrates how the strategy is designed to recover from losses by taking advantage of the rising options premiums that naturally follow bad months to generate higher returns in the subsequent months. Straddles on the S&P 500 index are among the most liquid instruments in the world. Accordingly, the fund can accommodate significant growth without any diminution in liquidity or return.
Hear Michael also speak about:
- How will the strategy do if markets plunge 1000 points in one day?
- The role of discipline
- Liquidity profile and capacity.
- Current investor base and available fund vehicles
Michael Lewitt started his career 1987 at Drexel Burnham Lambert. He was recognized in the Financial Times as having been one of the few investors and strategists to forecast the financial crisis of 2008, and also predicted the credit crisis of 2001-2002.
In 1991 Michael co-founded and served as President of Harch Capital Management (HCM). From 1991-2001 he was co-lead portfolio manager and from 2001-2011 lead portfolio manager for billions of dollars of below investment grade corporate credit strategies (including hedge funds, CDOs and separate accounts) for institutional and individual clients. Michael successfully invested on both the long and short sides of the debt markets during this period. He also functioned as chief legal and compliance officer of the firm. Over his 20 years at HCM, Michael led an investment team that generated consistent market-beating returns.
Third Friday relies on execution of a strategy that has been developed and perfected over the last 20 years through many difficult markets. The initial strategy was created in the 1990s by Phil Stoller. With the joining of Michael Shatzky, the Third Friday fund was started as a family partnership and operated as such for several years until Michael Lewitt joined the fund in November 2012 to grow it into an institutional hedge fund.