During the past few years, a number of major hedge-fund investors have put money into young, private companies to test their chops as venture capitalists. But in a rarer move, at least one prominent venture capitalist, Chamath Palihapitiya, is going the other way.
Earlier this year Palihapitiya, who runs the $1.5 billion venture firm Social Capital, launched a small internal hedge fund for third-party investors.
The idea behind the fund, a precursor to which was opened in 2013 using Palihapitiya's own capital and that of some colleagues, was to harness the research process his firm has honed for identifying future success stories in the private arena, and direct it toward smart public-market investments.
"The premise was really simple, which is that what is the real difference between a private company and a public company, and to be honest with you, there is very little difference — except the scale in which it is at in terms of long-dated ultimate value," said Palihapitiya in an interview at the Sohn San Francisco investment conference on Oct. 5. "And so we kind of treat everything as a company. We never talk about ticker symbols. We never talk about buying and selling. We talk about investing and owning, and so far so good."
On May 1, Palihapitiya's firm opened Social Capital Public Equity Partners. Since then, it has posted more than 6 percent returns net of fees, noted Palihapitiya, beating both the stock market and the average hedge fund. That performance has been driven in part by Amazon — a stock the fund managers believe will be worth $3 trillion within 10 years — which has risen about 27 percent since the beginning of May. Other long positions include Workday, the finance and human resources cloud company whose growth potential Palihapitiya touted at the recent Sohn conference, and the cloud company NetSuite, which is set to be acquired by the software giant Oracle.