Todd Deutsch Finally Hits an Air Pocket

Sprechen Sie Deutsch?

Todd Deutsch of the Galleon Group is one of the biggest rockstars on Wall Street. Born and bred to be in the business, he is the Tiger Woods of equities, racking up huge gains over the past few years.  If you need any additional proof that this tape has been tough to trade, look no further:

A fund run by Galleon Group lost more than 9% in September after missing the stock market rally sparked by the Federal Reserve’s larger-than-expected interest rate cut.
Galleon Captain’s Offshore Ltd. lost 9.6% last month, leaving it down more than 20% so far this year, according to an update Galleon sent to investors this week. MarketWatch obtained a copy of the update. Phone calls to Galleon’s New York headquarters weren’t picked up on Wednesday afternoon. 

The stock market would not have blasted off like it did if most people were not positioned poorly, and it appears Deutsch compounded his problems by selling his longs while keeping shorts on, lowering the net exposure enough to hurt when the market ramped:

The Galleon Captain’s fund started September with a “neutral” position—meaning its long positions were evenly balanced with short, or negative, bets. But as equities rallied on the Fed rate cut, the fund increased short sales relative to long positions because it thought the market had rebounded enough and would be “range bound,” according to the update.
“As we brought down exposure, we see in hindsight that we sold our winners too quickly, hoping to reposition, and left the portfolio even more short-biased,” the firm said. MarketWatch

Over the long term we would favor value stocks over growth; history and common sense would likely support that position. But every dog has its day, and the blast-off in growth stocks can’t be helping Deutsch. A flip flop on the investment strategy is probably out of the question. Is he still fighting the tape?

The losses this year come after a strong 2006, when the fund returned 44% net of fees, Galleon noted. In September 2006, The Wall Street Journal reported that the $800 million Captain’s Offshore fund, run by Todd Deutsch, was up more than 30% as trades involving drug stocks and a contrarian bet on Best Buy paid off. Deutsch was named one of the top 100 traders of 2006 by Trader Monthly magazine, earning an estimated $75 million to $100 million.

The Captain’s fund has reduced risk in recent months, but it’s planning to stick with its investment strategy.  “Our decision to stay the course is based on the manager’s high conviction regarding the portfolio and our belief that his style of value investing will be rewarded,” the firm said in its update.

The Captain’s fund might take on a little more water while its strategy remains out of favor. Once the rotation into growth runs out of steam the fund might find the wind at its back. Good managers stick to their knitting and find a way to win, and I might even consider writing Todd a check if he is willing to do business with an odd-lotter.

Galleon’s other funds are holding up well, including an International offering run by Raj himself that we heard was up close to 40% year-to-date as of last week.

This markets has taken no prisoners. The good fund managers will be back.

Galleon Captain’s fund down over 9% in September
Marketwatch

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