College Dropout Turned Hedge Fund Manager Returns 50% in 2021
Warren Buffett is his investment idol
It’s not everyday you hear about of a hedge fund manager who dropped out of business school. Most hedge funds boast CEOs and founders with shiny Ivy League degrees. It’s even rarer when you realize that this fund manager managed to outperform 99% of all hedge funds during 2021.
Meet Eric Khrom, the Founder and Managing Partner of Khrom Capital. Last year, Khrom Capital returned a staggering 50.1% net of fees. Before fees, Khrom Capital returned an even higher (but unlucky?) 66.6%. Fortunately, for us retail investors, Khrom Capital operates as a transparent fund and has published its yearly returns since its inception:
Khrom Capital capped off 2021 as its third year of returns over 30%. From 2019 to 2021, the hedge fund has rewarded its investors with a cumulative 214% return net of fees. That figure is even more impressive when you factor in the S&P 500’s return of 72% over the same time period.
Out of all hedge funds in 2021, Khrom Capital was ranked #3 based on performance. You can read about the Top 2 here:
After pursuing his Bachelor’s degree in Finance at Bernard M. Baruch College in New York City, Khrom decided to leave early and focus on his own business ventures. Shortly after, Khrom launched a bankruptcy servicing business in collaboration with New York based law firm Tsyngauz & Associates. In addition, Khrom had an early interest in e-commerce and founded EEK Development. EEK Development focused on creating web applications for e-commerce businesses.
It wasn’t until March of 2008 that Khrom decided to take the leap and start his own hedge fund. Veteran investors will likely remember what happened shortly after.
From March to December of 2008, the S&P 500 crashed lower by 32%. Khrom Capital lost 32.6% that year. Talk about a bad start. However, many top hedge funds were founded in 2008 and the following year for the same reason. 2008 marked a massive opportunity to buy high quality stocks at a tremendous discount. Take for example Brad Gerstner, who founded Altimeter Capital in 2008. In an interview, Gerstner noted:
“You take somebody like Tiger Global and Chase who started in 2000 right after the dot-com blowup. So there was plenty of examples in my world of folks who started small during periods of duress driven by deep conviction and their own capabilities. And so, for me, it seemed from the outside looking in like I was crazy, but it made perfect sense to me.”
The next year, Khrom Capital bounced back and returned a stunning 82.9% net of fees, or 91.9% before fees.
Khrom Capital Partner Vikram Vish joined the fund in 2014. Previously, Vish had worked stints as a research analyst at Steve Cohen’s SAC Capital and as an investment banking analyst at Goldman Sachs. Vish received his Bachelor of Science (BS) degree in Finance from The Wharton School at the University of Pennsylvania.
Eric Khrom has stated that Warren Buffett’s Partnership founded in the mid 1950’s has inspired his investing style of value investing. In 1956, Buffett received $105,000 in initial seed funds from 8 investors. Interestingly enough, Buffett added $100 of his own money to the seed fund for a total of $105,100. For context, $105,100 adjusted for inflation is worth roughly $1.07 million today. Buffett’s goal for the Partnership was to beat the Dow Jones Industrial Average’s (DJIA) performance by 10% every year.
By 1962, Buffett’s assets under management (AUM) had skyrocketed higher to $7.2 million. By then, Buffett had increased his client pool to 90 investors and was making a name for himself in the investment world.
In 1968, Buffett had his best year, beating the DJIA by over 50%. However, Buffett decided to close the Buffett Partnership the following year and start his own venture, namely the rebranding of Berkshire Hathaway. Buffett had acquired textile manufacturing company Berkshire Hathaway earlier in 1965.
The Partnership liquidated all of its stock except for Berkshire Hathaway and Diversified Retailing. Buffett gave the limited partners of the Buffett Partnership two choices: liquidate your holdings or keep the stock. Buffett added that:
“I think both securities should be very decent long-term holdings and I am happy to have a substantial portion of my net worth invested in them”
Khrom Capital Current Holdings
Khrom Capital manages $120 million in AUM based on its last 13F filing. Like Buffett, Khrom is a self-described value investor, unlike many of today’s high performing tech-centric funds. Furthermore, Khrom Capital employs a high conviction, concentrated investment strategy focused on 12 to 15 value stocks, although the found is currently holding 20 positions.
Macy’s tops off Khrom Capital’s largest holdings with a 11.92% allocation, followed by an HCA call option with an 8.96% allocation. Unlike Buffett, however, Khrom dabbles in options.
Khrom Capital Quick Stats
Top 10 Holdings as a % of Portfolio: 77.65%
Number of Positions: 20
Average Holding Period: 0.65 quarters
Top 10 Average Holding Period: 0.8 quarters
Top 20 Average Holding Period: 0.65 quarters
New Positions: M, DXLG, PLCE, PRTY GOCO, TLYS, GTES
Sold Out Positions: ASO, HOME
Increased Positions: RM, GIII, CPRI, LFG, MED
Decreased Positions: HCA call option, COF, HLF, PRTS, VNO
No Changes: BERY, CC, TPR
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