Daniel Sundheim Photographer: Alex Flynn/Bloomberg
WASHINGTON: D1 Capital Partners’ big bets on venture capital (VC) and private equity weighed on its hedge fund returns for a second consecutive year as the firm marked down the value of 49 companies in 2023.
Before accounting for fees and adjusting for share classes with varying exposures to private investments, the hedge fund ended the year up just 0.8%, D1 founder Dan Sundheim wrote in an investor letter seen by Bloomberg.
Markdowns of about 10% in the private book ate into the stock portfolio’s 21% gain.
Like many crossover funds, D1 is seeking to make a comeback after a tough 2022, when its hedge fund lost 30.5% amid a rout in tech stocks and plunging VC valuations.
Now, executives at the firm are starting to see a “thawing” in private markets and anticipate more liquidity opportunities this year, Sundheim told investors in his letter.
“Absent a substantial change in the economic environment, we are optimistic that over time valuations can continue to compound again,” he wrote.
The firm is working closely with management teams to evaluate their finances and prospects, he said.
“Several of our portfolio companies are considering strategic options, including recapitalisation, sales, or public offerings.”
A share class that invests 35% in privates gained 3.6% last year, net of fees, as the venture book tumbled 13%, according to sources. That crimped gains from public stocks, which climbed 19%.
Private wagers at New York-based D1 comprise 60% of its US$19bil of assets, according to the letter.
The firm, which debuted in 2018, has pushed heavily into startups in recent years. Its biggest bets include Elon Musk’s SpaceX, Collectors Universe and Lineage Logistics.
It also owns a stake in Instacart, which has tumbled 25% since its September initial public offering.
Since inception, the firm’s private book has produced a net internal rate of return of 15.5%, the letter shows.
Its other stock bets fared far better.
D1’s best performers include Meta Platforms Inc, which almost tripled last year, as well as Microsoft Corp, Airbus SE, Amazon.com Inc and Rolls-Royce Holdings Plc.
Despite the gains in equities, D1 is “more excited about our short portfolio,” Sundheim said in the letter. — Bloomberg
