Hayden Capital 1Q20 commentary: A call for capital

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Hayden Capital commentary for the month of March 2020, discussing the need for additional capital to invest opportunistically.

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Dear Partners and Friends,

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First and foremost, I hope you are all keeping safe and healthy these last few months.

Given the market volatility in the past few weeks, I thought it would be suitable to give you an update on our portfolio a couple weeks early, before our usual Q1 2020 investor letter is sent out.

Hayden Capital Performance

During the first quarter of 2020, our portfolio gained +4.1% vs. the S&P 500’s -20.0% loss and the MSCI World’s -21.1% decline.  Since inception, we have compounded at +12.04% annualized, vs. +6.57% and +3.22% for the S&P 500 and MSCI World indices, respectively.

Hayden Capital additional capital

Unfortunately, somber news keeps coming out daily in the West, especially in my home of New York City.  I was lucky to have early warnings of the potential impact the Coronavirus could have in the West, given our focus and network in Asia, where the virus first took hold.  Many family, friends, and partners in Asia were in self-isolation and didn’t leave their apartments from January – March.  I saw first-hand what the outcome could be if the virus spread Stateside.

A month ago, it became clear that this scenario was inevitable, when there were reports of community spread.  As a result, we began hedging the portfolio more aggressively in late February and early March.

These hedges added ~7% to our portfolio and gave us fresh cash to reinvest as the markets fell.  Without these hedges, our portfolio would have lost ~-3% during the quarter – worse off, but still a significant improvement versus the broader market.  It’s during times like these, we witness the separation of “quality” businesses vs. everything else.

Invest Opportunistically With Additional Capital

As of today, we have monetized most of our hedges and reinvested the proceeds into our portfolio.  We are running at low levels of cash.  I anticipate volatility to continue over the next few weeks and more bargains to pop up.   As a result, I am seeking additional capital to invest opportunistically.

If you have capital available, I can’t think of a better period to invest.  There’s no way we can call the bottom, but my best guess is it will likely be within the next month or two.  If you have been thinking of partnering with us, but haven’t pulled the trigger yet, I encourage you to reach out.

I’ve spoken to many of our partners already in the past month – thank you for your contributions & support.  I believe great track-records are made during volatile times like these, and it’s my goal to ensure we can take full advantage when the markets recover.  I'm confident looking back in a few years, we'll be glad we did.

There’s a pathway to containing this virus – and despite the slow start in many countries, I’m confident we’ll have it under control shortly.  China’s economy is already starting to get back to normal, and the US is conducting 100,000 tests per day – an impressive figure.

Roadmap To Normalcy

We have a roadmap to normalcy, but it will just take some time and economic pain before we get there.

In the meantime, I look forward to later in the year when we can travel again, and I can thank our partners face-to-face.  The quality and stability of our partner-base is truly an asset, if the substantial inflows over the past few weeks are any indication.

In the meantime, please give me a call if there are any questions.  I’ll be working remotely from our house in Ohio for the next few weeks.  Stay safe and healthy out there.

Best,

Fred Liu, CFA

Managing Partner

Hayden Capital