Jeffrey Talpins is the Hedge Fund King You’ve Never Heard Of

| June 5, 2019 | 0 Comments

Jeffrey Talpins may be the hottest investor on Wall Street.

His firm, Element Capital Management, posted a gain of 26.8% through October, investors say, dwarfing the 1.86% loss suffered by the average hedge fund, according to data-tracker HFR. Element has posted average gains of nearly 21% since launching 13 years ago and hasn’t suffered a down year.

Mr. Talpins is a “macro” trader who uses options to try to capture the upside of—and limit potential losses from—strategies aimed at anticipating global economic shifts. Paying for stock and bond options can lead to losses in placid markets, but volatility over the past year has buoyed Element’s bullish wagers on U.S. stocks and the U.S. dollar. Mr. Talpin’s bearish bets on the U.S. interest rates and the euro also have paid off.

“Element is great at using options in a thoughtful way, so they often make more money when they get it right than they lose when they’re wrong,” says Adam Blitz, chief executive officer of Evanston Capital Management, which manages portfolios that invest in Element.

Now, Mr. Talpins has a new challenge: The more successful Element becomes, the harder it will be to beat the market.

While Element focuses on the most liquid markets, trades can still become more challenging or expensive the bigger a fund gets, clients note. And managing large amounts of money can pressure a manager to come up with new strategies for deploying the cash, forcing the fund to turn to second-tier ideas, while also preventing it from entering smaller markets.

Some heavy hitters in the hedge-fund world have seen hot streaks turn into deep slumps after their funds became enormous. John Paulson manages less than $9 billion, down from $38 billion, David Einhorn’s Greenlight Capital Inc. has shrunk to about $5.5 billion from $12 billion and Alan Howard’s London-based Brevan Howard Asset Management LLP manages nearly $7 billion, down from about $40 billion, though this year has been a winner for several of his firm’s funds.

Representatives of the firms wouldn’t comment.

Unlike other hedge-fund investors on a hot streak, the 43-year-old Mr. Talpins has kept a low profile.

Winning RecordJeffrey Talpins’s Element Capital has beenamong the best-performing hedge fundssince it was founded.Total returnsSources: Element investors; FactSet (Vanguard fund)Note: Element return for 2005 is from April 1 and itsreturns for 2005-17 are for Class A shares. For bothfunds, 2018 returns are year-to-date through Oct. 31.
%Element CapitalVanguard Balanced Index Fund InvestorShares2006’08’10’12’14’16’18-250255075

He has never made a television appearance, rarely speaks at industry conferences and isn’t part of the New York social scene. Quietly, his firm has become a heavyweight, managing $18.2 billion, up from $6 billion three years ago.Blackstone Group and the Abu Dhabi Investment Authority each have more than $100 million in the fund, according to people close to the matter. Spokespeople for Blackstone and for Abu Dhabi wouldn’t comment on performance of the investment firms.

Mr. Talpins, a former Yale University math whiz who, people close to the firm say, logs into the fund’s computer system every day on vacation, spends much of his time focused on developing broad investment themes. His focus is on attempting to meld old-school macro bets with a newer, quantitative approach that features structured wagers in stock, bond and currency markets.

An ideal trade might be one that yields gains only with a sharp rally, but keeps possible losses limited, rather than making outright wagers on the future of stocks or bonds. In late winter of 2017, for example, Mr. Talpins anticipated that Congress would pass a corporate-tax deal. Element loaded up on options on the S&P 500, a move that cost the fund for much of the year but led to huge gains when the deal came together and stocks climbed.

As the firm has grown, Mr. Talpins has retained the final call on big-picture trades. But he has slowly allowed colleagues to have more impact on trades after earlier finding it difficult to give up control, according to people close to the firm.

Element recently faced some controversy.

Earlier this year, the hedge fund was sued by a former managing director alleging she was paid less than her male counterparts. She said Mr. Talpins told her to draft thank-you notes and manage his traffic violations—work, she said, he didn’t assign to men with equivalent professional experience.

Element has denied the charges.

For all of Element’s popularity with investors, Mr. Talpins doesn’t make it easy on them. The fund has a minimum investment of $50 million, higher than many funds. Element also charges some of the highest fees in the business, with one share class levying a 2.5% annual management fee along with a 25% performance fee, according to Element marketing documents.

By comparison, the average hedge fund charges a 1.4% annual management fee and a 17% performance fee, HFR says.

Assets at Element are up about $6 billion in just the last year, according to a person familiar with the matter. Last April, Harvard University became a client, an early decision by the endowment’s then-new chief, N.P. “Narv” Narvekar. While quantitative-trading firms like Renaissance Technologies LLC, Two Sigma Investments LP and AQR Capital Management LLC manage much more money, Element’s recent growth has been more dramatic.

“I’d rather he not grow the fund too much from here and am confident he’d give money back if size becomes an impediment to performance,” Mr. Blitz says.

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