Kingdom Ridge Capital - Long/Short Hedge Funds
Kingdom Ridge Capital is what professional investors refer to as a long/short hedge fund. Those who are not asset management industry insiders or professionals may think hedge funds are all about trading, and, in fairness, there have historically been firms that have acted as “trading” shops. However, there are hedge funds that have a very long term horizon. Kingdom Ridge Capital tends to invest over the medium to long term but also sometimes engage in short-term trading.
People are often confused about hedge funds, and don’t fully understand the concept behind a long/short hedge fund. “Long/short” is an investment insider’s shorthand term for an investment strategy where an investor tries to earn a return by owning (also known as being “long”) securities while also attempting to make money by selling borrowed shares of stock(which is known as “shorting”). The investor replaces those borrowed shares at a later time with stock that wasacquiredat a lower price.
Kingdom Ridge Capital “hedges” an investor’s risk as it allows them to theoretically make money in markets that are rising and falling. In a market that is moving higher, an investor may be trading off the higher returns that could be found in a long-only fund, but over the long run the short book should be profitable in directionless markets. Because of the level of risk associated with shorting stocks, funds like Kingdom Ridge Capital may only invest money that is raised from qualified investors such as foundations, pensions, family offices, and endowments.
Kingdom Ridge Capital - Watching, But Not Investing in Private Companies
Kingdom Ridge Capital makes clear decisions about what they do (and don’t do) and they stand by those decisions. Kingdom Ridge investment universe includes public equities in technology where their bottom-up fundamental stock picking expertise has the best chance to deliver returns. One area Kingdom Ridge Capital specifically avoids is making investments in private companies.
However private companies bear watching because of the potential impact they can have that may on public companies. Unlike public companies, private companies tend to be more innovative and can move more quickly to adjust to changing market dynamics. This means that at times, private companies are in better positions to capitalize on changes in the market. They are also often acquired by publicly traded companies so understanding the strengths and weaknesses of these companies helps Kingdom Ridge analysts quickly understand the implications of M&A transactions.
While the private sector is gaining much attention from investors, it can require a different skill set than the one that originally made the hedge fund successful. The investments also tend to be illiquid and may not match well with the liquidity profile of the fund’s underlying investors.
While Kingdom Ridge Capital thinks it is important to understand private technology companies, they do not see these pre-IPO companies having a place in the firm’s portfolio.
Kingdom Ridge Capital - Earnings Season
Kingdom Ridge Capital is focused on fundamental investing, so their analyst team – Jim Jungjohann, Andy Cobb, Nick Caputo, Mark Zepf, Brian Thonn and Chris Zepf – spend a great deal of time sorting through the fundamental data points that emerge when a company announces results. Fortunately, (or unfortunately depending on perspective), many technology companies tend to announce earnings at roughly the same time of each quarter. Kingdom Ridge, along with many other investment insiders, refers to this time period as “earnings season.”
Earnings season starts roughly two weeks after the end of a quarter and tends to last two to three weeks. For companies whose fiscal years are in step with the calendar quarters, this means most earnings announcements occur in January, April, July and October. During the last two weeks of those months, generally speaking, companies release their earnings press releases at a time when there is little to no trading – either before the markets open or after they have closed – so that sell side and buy side analysts can digest the information before deciding how to value the stock after the data release.
During this time, Kingdom Ridge Capital analysts are busy sorting through the data and updating their proprietary models to understand if the stock is likely to go up or down based on this new information. This very thorough, careful analysis helps Kingdom Ridge decide whether they should buy or sell the stock once the stock market opens.
Kingdom Ridge Capital - Benefits of Telecommuting
Kingdom Ridge Capital is a company that promotes an employee-centric culture and working environment, one of many reasons why there is virtually no turnover in the company. Telecommuting is a practice that Kingdom Ridge Capital offers its workers, and it is an option that has been very positively received.
Nearly 86% of small-company executives say that employees who telecommute are just as productive as those who remain in the office, and 46% of these companies have fully embraced this concept. Almost 3.7 million employees now work at home at least half the time, and growth of regular work-at-home employees has grown by 103%, so clearly Kingdom Ridge is on the cutting edge of changing office and employee trends. It is also worth noting the nationwide impact that companies with telecommuting options can have, as the national savings for those employees who work at home half the time would be roughly $700 billion a year, employees would be offsetting carbon footprints, greenhouse gas emissions would drop, and employees would save on average $2,000 - $7,000 a year.
Telecommuting also produces a higher level of employee production and output, and Kingdom Ridge is a company that values its employees and the employees’ families. Employees who work from home experience higher levels of productivity and lower levels of anxiety and stress. Communication can still be arranged via video conferencing or email, and employees are less distracted and better able to focus on the task at hand.