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 due to sustained underperformance since its 2009 launch.
- • The fund's primary vehicle lost 17.7% after fees from September 2009 through June 2017, versus a 161% gain for the S&P 500 over the identical period—a significant performance gap highlighting structural challenges in the fund's strategy.
- • O-Cap posted a 4.3% loss in Q2 2017 and was down 8.03% year-to-date as of the primary source date, with energy sector exposure contributing an 8.45% loss in the first half of 2017.
- • In a September 2017 client letter, Olshan attributed losses to challenging market conditions including ETF proliferation, FAANG tech stock concentration in index returns, and a lack of attractive investment opportunities in the fund's core sectors.
- • Management declined to engage with media inquiries, with the fund's CFO Lloyd Jagai terminating a reporter call, signaling limited transparency regarding the capital return process.
Summary
O-Cap Management, the hedge fund arm of New York real estate scion Michael Olshan, is returning capital to outside investors as the fund contends with prolonged underperformance relative to broad equity markets. Olshan, whose father Morton Olshan founded commercial real estate heavyweight Olshan Properties, previously served as a managing director at hedge fund Jana Partners before launching O-Cap during the financial crisis recovery period.
Since its inception in September 2009, O-Cap's primary fund has delivered negative returns on a cumulative basis despite operating through a broadly favorable market environment. Through June 2017, the fund lost 17.7% after fees compared to the S&P 500's 161% gain—a 178.7 percentage-point underperformance spanning nearly eight years. More recently, O-Cap declined 4.3% in the second quarter of 2017 and was down 8.03% year-to-date through the reporting period, indicating accelerating drawdowns.
The fund's September 2017 client letter attributed performance headwinds to structural market shifts and sector-specific challenges. Olshan specifically cited the rise of passive investment vehicles such as ETFs, the outsized contribution of FAANG technology stocks to index returns, and constrained opportunity sets within the fund's focus areas. Energy sector exposure emerged as a particular drag, with the fund posting an 8.45% loss in the first half of 2017 amid broader industry turmoil. The manager expressed skepticism about current valuation levels, stating in the letter that "market participants are taking on an increasing amount of risk for lower return expectations" late in an extended market cycle.
The capital return decision reflects broader stress within the hedge fund industry, where performance lapses and fee structures have prompted institutional investors to redirect capital toward lower-cost alternatives. Management's refusal to engage with media inquiries—including the CFO's abrupt termination of a reporter call—limited disclosure regarding the mechanics and timeline of the capital return process.
Since its inception in September 2009, O-Cap's primary fund has delivered negative returns on a cumulative basis despite operating through a broadly favorable market environment. Through June 2017, the fund lost 17.7% after fees compared to the S&P 500's 161% gain—a 178.7 percentage-point underperformance spanning nearly eight years. More recently, O-Cap declined 4.3% in the second quarter of 2017 and was down 8.03% year-to-date through the reporting period, indicating accelerating drawdowns.
The fund's September 2017 client letter attributed performance headwinds to structural market shifts and sector-specific challenges. Olshan specifically cited the rise of passive investment vehicles such as ETFs, the outsized contribution of FAANG technology stocks to index returns, and constrained opportunity sets within the fund's focus areas. Energy sector exposure emerged as a particular drag, with the fund posting an 8.45% loss in the first half of 2017 amid broader industry turmoil. The manager expressed skepticism about current valuation levels, stating in the letter that "market participants are taking on an increasing amount of risk for lower return expectations" late in an extended market cycle.
The capital return decision reflects broader stress within the hedge fund industry, where performance lapses and fee structures have prompted institutional investors to redirect capital toward lower-cost alternatives. Management's refusal to engage with media inquiries—including the CFO's abrupt termination of a reporter call—limited disclosure regarding the mechanics and timeline of the capital return process.
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