Nate Koppikar never thought he’d be talking to the investors in his hedge fund about Kim Kardashian. Or, to put it in financial jargon, there was a “low but non-zero probability” that her name would come up in a letter. But then, he notes, Kardashian “is not just a reality TV star anymore. Now she’s a private equity titan.”
And Koppikar’s fund, Orso Partners, has a big short on private equity.
Last fall, Kardashian launched private equity fund SKKY Partners with former Carlyle Group executive Jay Sammons. Less than a month later, Kardashian settled charges with the Securities and Exchange Commission for promoting a crypto token without disclosing that she’d been paid to do so.
To Koppikar’s mind, Kardashian’s move into private equity was a red flag, a “sure sign that the top is in for the illiquid private asset class.” The easy-money environment of recent years had made investing seem almost effortless, leading private investors to forsake due diligence for hanging out with celebrities — and using them to pitch their wares, he argues. Raising money was all that mattered.
San Francisco-based Orso, the short-dedicated hedge fund Koppikar launched in 2019 with Scott Matagrano, keeps a running tally of celebrities involved in private equity and venture capital, including such names as Serena Williams, Sean “Diddy” Combs, Jay-Z, Alex Rodriguez, Tyra Banks — and the list goes on. According to Koppikar, it is all about capitalizing on the “influencer” movement and the so-called democratization of finance that led inexperienced investors to lose their shirts via an app with the virtuous-sounding name of Robinhood.
Why focus on Kardashian? “It is ultimately fitting that America’s most famous reality TV star has gone into private equity,” Koppikar wrote in a letter to investors last fall. “Reality shows are scripted and fake. When the S&P 500 falls 25 percent, growth stocks fall 65 percent-plus, and private investment firms massively overweight growth claim that their private investments and real estate are up in 2022, there is no better way to describe it than ‘Scripted and Fake.’”
A veteran of the private equity world himself, Koppikar thinks more bad news is ahead for the asset class. He’s shorting private equity’s publicly traded asset managers, which he thinks will be among the biggest losers in what he foresees as a coming recession — one that will be different from 2008 because private equity credit funds, not the banks, are now holding the riskiest credits.
This year’s stock market rally has meant a tough start for short sellers like Orso, whose performance is typically quite volatile. But in 2022, Koppikar’s timing as Orso’s portfolio manager was spot on. “Nate’s genius is a God-given talent,” says partner Matagrano, who handles research at the fund. “He knows in which ponds we should be fishing and which ponds we should be avoiding because he has a very acute macro sense.”
Shorting big tech in 2022 might appear easy in hindsight. But at the beginning of last year, Koppikar worked hard to convince Matagrano and Orso’s COO and CFO, Bob Morelli, that they should do what was at the time unthinkable in financial circles: short Facebook.
“I’m thinking, ‘How are we ever going to get a research edge in a company as big and vast as Facebook? And how dangerous is it for us to be thinking about shorting big tech right now?’” Matagrano recalls. But in the end, Koppikar’s analysis proved prescient. “It was probably the most spectacular trade I’d ever seen,” Matagrano says.
Orso then went on to short Alphabet and Amazon as well as the VC-backed growth stocks owned by Tiger Management descendants’ crossover hedge funds — ones that also invest in venture capital. (One of Koppikar’s most memorable lines is a dig at DocuSign, a stock formerly owned by Tiger Global Management: “At peak, a company that quite literally should have been a basic feature in Adobe PDF was valued at $50 billion.”)
For Koppikar, targeting Tiger growth stocks was a way of shorting the “bad valuation marks” that he argues are prominent in the private investment industry. As he cast his gaze on what would come next, last summer he landed on publicly traded private equity giant Blackstone, largely because he predicted that its Blackstone Real Estate Income Trust, sold to retail investors, would struggle in the face of falling real estate prices and investor redemptions — which is precisely what has happened. Redemption requests from investors in several Blackstone real estate funds — both institutional and retail — were so high late last year that the respective funds put up their gates, which is a collective 5 percent redemption per quarter. By January BREIT alone had more than $5 billion worth of redemptions, with some $1.3 billion returned to redeeming BREIT investors that month.
“They were just making ridiculous stories that somehow they’re special, and they’re not special,” says Koppikar. “I think the important thing in our investment philosophy is: No one is special and no one does anything that differently.”
Except maybe Orso, which last year far outdid not only the markets but its short-selling peers: The fund ended 2022 with a net gain of 70.4 percent, according to a recent investor letter.
The stunning return is all the more remarkable considering how difficult short selling has become in recent years.
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