Episode summary
Holding a Hedge Fund Manager Through a 50% Drawdown — to a 5X | Nicholas Csicsko
Investment Management Operations
· · 7 min · Hosts: Ted Seides · Guests: Nicholas Csicsko
Summary
Nicholas Csicsko describes staying with an old-school long/short hedge fund manager through a brutal stretch that included a 14% loss in 2019 and another 30% decline in 2020, taking the drawdown close to 50% at the trough. He says the relationship started with unusually high transparency, monthly full-portfolio Excel files, and a manager who had a long track record and had already closed outside capital rather than grow too large.
The hard part was deciding whether the losses reflected temporary stress or a broken process. Csicsko says he met the manager seven or eight times in person during COVID, talked through the portfolio for hours, and concluded that the underlying holdings were intact and the manager had “no quit” in him. He also points out that the manager’s short book was a distinct hedge in a portfolio that otherwise lacked that exposure.
The decision paid off when performance turned in 2021 and the position compounded 5x from 2021 to 2026. Csicsko says the lesson was not just about trusting a manager, but about recognizing when a painful position still serves a unique portfolio role worth preserving.
Key takeaways
- Csicsko says the manager’s drawdown approached 50% after a 14% loss in 2019 and a further 30% decline in 2020.
- He says he met the manager in person seven or eight times during COVID to test whether the portfolio and process were still sound.
- Csicsko argues the manager’s shorting skill made the fund a unique hedge the portfolio otherwise lacked.
- He says the position compounded 5x from 2021 to 2026 after the team stayed invested through the drawdown.
- The manager’s willingness to close outside capital and even return money reinforced Csicsko’s view that the business was not broken.
Notable quotes
“you know, I really want to earn back your capital. I want to reward you for your patience”
“this has been painful, but we don't have anything else like this in our portfolio”
“This is a hedge if things get a lot worse in certain areas”
“they served a distinct role in the portfolio and that was worth fighting for”
How the episode opens
I give you an example of a fund that I would call just an old school long short fund. Uh this manager really just cares about investing, loves shorting, has an innate ability to short, and has really made a lot of money shorting over the years. And so this manager started their business in 2008, and they've had a great long-term track record.
But I would say that some people have just periods of meh and other people have real periods of stress. And so, you know, we invested with this manager in 2017 and the first few years were good because I'd known that manager for a long time. We had a pretty high level of transparency.
You know, every fund is going to be different. Every fund's ability to share what they're doing, what they own, how they own it is going to change over time and it's going to be bespoke. But this manager specifically was very open about sharing his whole portfolio to to the extent that he he would just he still does just sends uh his entire portfolio in an Excel file to to me monthly because you know he he's doesn't really have any concerns about what we would do with that information.
This manager is the type of manager that closed outside capital when he was about at 300 million in assets because he didn't ever really want to be over 5600 million and had that logic that's not there with most folks that is hey I should close about half of my capacity because I want to double the money before I'm returning capital. And so this was all good. The setup was good but 2019 was this manager's worst year in the firm's history and they were down 14%.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- hedge fund drawdowns
- long-short investing
- capital allocation
- covid-era meetings
- portfolio risk management
Companies and tickers mentioned
- Trinity Church Wall Street
Watch the episode
Watch “Holding a Hedge Fund Manager Through a 50% Drawdown — to a 5X | Nicholas Csicsko” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Investment Management Operations, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
