Thiel’s pay pall
By KAJA WHITEHOUSE, NY Post,
Ask anyone who knows Silicon Valley venture capitalist and PayPal co-founder Peter Thiel and the first thing they will tell you is that he’s really, really smart.
Ask the same people why it is, then, that Thiel’s hedge fund, Clarium Capital Management, is on track to suffer its third year of negative returns, and they will squirm and tell you not to worry, he’s super smart and his tactics will pan out — eventually.
There’s no doubt that Thiel, who sold PayPal to eBay for $1.5 billion when he was barely 35 years old, is an impressive guy. He’s also far more interesting than most of the traditional money men plying their trade on Wall Street.
In addition to PayPal, the staunch libertarian was an early investor in social networking phenomenon Facebook, and is involved in loads of nerdy side projects ranging from human genome sequencing to ocean colonies for humans.
Lately, Thiel’s venture-capital fund, Founders Fund, has been throwing money at Star Trek-like technologies, including robots and SpaceX, a private space-exploration company founded by his PayPal co-founder Elon Musk, on the premise that these game-changing technologies are the wave of the future.
But Thiel’s apparent genius seems to be failing when it comes to Clarium, which is down 17 percent this year, compared to average industry returns of 3 percent. Last year, Thiel’s firm lost a whopping 25 percent at a time when most funds were up by double digits.
“It’s been a very challenging and frustrating year,” Thiel told investors in a recent conference call, obtained by The Post. What’s made it so challenging, he said, “is getting a handle on what’s actually going on in the world.”
Indeed, Thiel’s strong suit in the tech world has been his ability to look into the future, make a bet based on his worldview and wait for it to bloom.
But when it comes to trading, where the only thing that matters is what happens today, this strategy appears to be failing.
Thiel’s ability to think outside the box just can’t keep up with Wall Street’s black boxes of instantaneous trading.
Thiel, who declined to be interviewed, believes deflation and a strong dollar are just around the corner because the “real economy and the financial economy” eventually have to mesh, according to the investor call.
He criticized Federal Reserve Chairman Ben Bernanke for creating a “fake Goldilocks market” by printing money and keeping interest rates artificially low for too long.
“We’ve seen this with Silicon Valley,” Thiel declared in the call, referring to inflated valuations in financial markets.
“It’s a decidedly non-Wall Street hedge fund,” said one former Clarium employee, who said Thiel is known as a generous boss who often invests in his employees’ tech projects when they leave the firm. He’s also got “an extremely long time horizon, unlike Wall Street,” this person said.
Even if Thiel is in it for the long term, investors may not be. Clarium’s poor performance has already led to billions in outflows, leaving the firm with a mere $800 million now, down from $7 billion in capital in 2008.
The bloodletting also forced Thiel to shutter Clarium’s posh Midtown Manhattan office this year, less than two years after moving half his staff from San Francisco.
And unlike most hedge funds, Thiel forgoes the traditional 2 percent management fee in exchange for a percentage fee on profits, which means the Clarium hasn’t made any money for quite a while.
“The timing on this has been extremely difficult to calibrate,” Thiel admitted to investors in the call about his macro investing views. He said Clarium had gotten squashed shorting stocks in recent months as equities posted their best gains in years.
And Thiel said he “will refrain from [shorting stock] anytime soon,” even though “we continue to think equities are extremely over-valued.”
As for his future bets: “We’re thinking of looking at going long on the dollar next year,” he said.
This view is also counterintuitive to the thinking on Wall Street, that QE2 will usher in a weaker dollar along with inflationary pressures.
Thiel’s Clarium Capital miscues
* 2008: $7B capital under management
* 2010: $800M capital under management
* 2009: fund down 25 percent
* 2010: fund is down 17 percent
* 2008: Opens posh Manhattan officen 2010: Closes NYC office
kwhitehouse@nypost.com
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Categories: Hedge Fund, Investment Wisdom