Key Takeaways
- • O-Cap Management, a New York-based hedge fund run by Michael Olshan (son of Olshan Properties founder Morton Olshan), is returning outside investor capital amid persistent underperformance.
- • The fund has delivered a cumulative loss of 17.7% after fees from September 2009 through June 2017, while the S&P 500 gained 161% over the same period—a stark performance gap that accelerated in 2017 with an 8.03% year-to-date decline as of the second quarter.
- • O-Cap's deteriorating results stem from significant exposure to energy sector weakness (down 8.45% in H1 2017) and broader market headwinds, including the dominance of passive ETF flows, FAANG stock concentration in index gains, and limited investment opportunities in the fund's core sectors.
- • In a September client letter, Olshan characterized current market conditions as late-cycle with excessive risk-taking for diminishing returns, explicitly stating the fund does not see attractive buying opportunities in its focus areas.
- • The fund's management declined to comment, with CFO Lloyd Jagai hanging up on a Business Insider reporter, signaling minimal transparency around the return-of-capital decision.
Summary
O-Cap Management, a small New York-based hedge fund helmed by Michael Olshan, is returning outside investor capital as the fund faces severe, sustained underperformance relative to broad equity benchmarks. Olshan, a former managing director at Jana Partners and son of commercial real estate titan Morton Olshan, launched O-Cap during the Great Recession and has since overseen a cumulative loss of 17.7% after fees spanning September 2009 through June 2017. Over that identical eight-year period, the S&P 500 delivered 161% in gains, illustrating a dramatic performance divergence that has ultimately prompted the capital return decision.
Performance deterioration has accelerated sharply in 2017. The fund posted a 4.3% loss in the second quarter alone and stood down 8.03% year-to-date through June. Energy sector exposure proved particularly damaging, with the fund declining 8.45% in the first half of 2017 as commodity markets and oil and gas valuations came under pressure. This sector bet underscores a fundamental mismatch between the fund's investment thesis and prevailing market dynamics.
In a September 2017 letter to clients, Michael Olshan attributed the fund's struggles to structural market shifts and valuation concerns rather than individual security selection. He cited the rise of passive investment vehicles and ETFs as distorting price discovery, the outsized concentration of S&P 500 gains in FAANG technology stocks, and a dearth of attractive opportunities in the fund's core sectors. Critically, Olshan signaled skepticism about current valuations, warning that "market participants are taking on an increasing amount of risk for lower return expectations" late in an asset price reflation cycle. He concluded: "We do not feel today's market is rife with attractive buying opportunities in the core sectors in which we focus."
Management's response to press inquiries—non-responsiveness from Olshan and a hung-up call from CFO Lloyd Jagai—reflects minimal appetite for public discussion around the return of capital and the fund's strategic pivot. The decision underscores broader industry pressures as institutional investors have grown increasingly selective, withdrawing capital from underperforming vehicles in favor of lower-cost, passive alternatives or higher-conviction active strategies.
Performance deterioration has accelerated sharply in 2017. The fund posted a 4.3% loss in the second quarter alone and stood down 8.03% year-to-date through June. Energy sector exposure proved particularly damaging, with the fund declining 8.45% in the first half of 2017 as commodity markets and oil and gas valuations came under pressure. This sector bet underscores a fundamental mismatch between the fund's investment thesis and prevailing market dynamics.
In a September 2017 letter to clients, Michael Olshan attributed the fund's struggles to structural market shifts and valuation concerns rather than individual security selection. He cited the rise of passive investment vehicles and ETFs as distorting price discovery, the outsized concentration of S&P 500 gains in FAANG technology stocks, and a dearth of attractive opportunities in the fund's core sectors. Critically, Olshan signaled skepticism about current valuations, warning that "market participants are taking on an increasing amount of risk for lower return expectations" late in an asset price reflation cycle. He concluded: "We do not feel today's market is rife with attractive buying opportunities in the core sectors in which we focus."
Management's response to press inquiries—non-responsiveness from Olshan and a hung-up call from CFO Lloyd Jagai—reflects minimal appetite for public discussion around the return of capital and the fund's strategic pivot. The decision underscores broader industry pressures as institutional investors have grown increasingly selective, withdrawing capital from underperforming vehicles in favor of lower-cost, passive alternatives or higher-conviction active strategies.
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