In the world of health-care hedge funds, there's
and there's everyone else.
But it's been a bad year for the roughly $350 million funds group, and people have been wondering whether next year it will just be everyone else.
Oracle's head, Larry Feinberg, says there's no way he's closing up. He acknowledges having a bad year (but really, who hasn't?) and vows to stick it out.
"Have I done a bad job? Absolutely. But I'm cleaning some positions up," Feinberg told
. "We're not going to be liquidated. We've raised cash, plenty to meet redemptions" if they come at the end of the year. Would he close up shop rather than strive to get back to his "high-water mark"? "I'd never do that," he says.
"This is the toughest market I've ever been in," he confesses. "I'm not running and hiding. I've done a terrible job. But the base business is intact." And he's optimistic: "Am I going to make this back and more? I expect to." He says some health-care stocks are so cheap, "this could be a once-in-a-generation opportunity."
Feinberg is a controversial, powerful figure in the world of health care.
"Larry's probably the best-known, most public health-care investor with the best track record," says one former Oracle employee. Biotech investors say he is a scrappy, aggressive and single-minded investor. "He lives and breathes stocks. He works all the time. He works harder than anyone at Oracle," says the former employee.
Feinberg had a middle class upbringing as part of "the only Jewish family" in Burlington, Vt. His father ran a chain of drugstores where he was working full-time at age 19. Later, he joined
Drexel Burnham Lambert
before spending four-and-a-half years at Jack Nash's legendary hedge fund,
He's earned the respect, if not the affection, of many health-care investors. "I can say a lot of things about Larry, but he's a very good investor," says Stu Weisbrod, a onetime Oracle analyst who left earlier this year. Weisbrod has gone on to start his own hedge fund, called
Feinberg says his hedge funds are down between 15% and 25% this year, after being up about 15% after the first quarter. At the funds' peak, assets totaled about $500 million, he said. He also runs a $200 million private equity fund. Feinberg is bracing for redemptions at the end of the year from the domestic funds. In the offshore funds, he's had redemptions of "slightly over a third."
At the worst point early this month, he was down 30%. He says his big mistake was to stay with his long positions in small- and mid-cap companies, while hedging by betting against the large-caps. He says on reflection that he should have bought puts on the
, which is down 27% this year.
Oracle is now concentrating on investing in mid-cap medical technology, biotech and health-care services companies. Feinberg says he's focusing on companies with market caps between $500 million and $5 billion, long and short. Like most health-care hedge funds, but unlike
Long Term Capital
, he has virtually no leverage. In the past, Oracle had been known to make big bets on small-cap biotech companies, like
. Some of the big positions in biotech that have hurt him are
, down 57% from its peak this year, and
, down more than 60% this year.
But he says he made money in
when it got a bid from
. He said he currently is short the HMOs and among biotechs likes
, and other big-caps like
, particularly as a liquid proxy for
, which licensed its new drug
Feinberg says if he finishes the year under water, it will be his first-ever down year. He says that including this year, his average annual return, net of fees, is 30% since Oracle's inception in 1989. In 1995, the firm is said to have had a spectacular year, up about 86%, but the subsequent year was lackluster. Last year, his set of funds was rumored to be up about 20%.
The hedge fund manager says that in the 12-month periods after he has been down two quarters in a row, he has had an average return of 50%.
Feinberg is said to be difficult to work with and Oracle has had its share of turnover. Joe Dowling, one of the fund's analysts and a widely respected generalist, resigned in early October. Dowling would not comment on his departure.
Feinberg thinks the source of the rumors of his troubles are people who want to see him fail. "They're all thrilled I'm having a
bad year. They're little kids with grudges. I've never screwed anyone out of anything."
Former employees have complained about the Oracle bonus structure. Feinberg says that Oracle shifted to a pay structure based on personal performance late last year, rather than paying out a flat percentage of the profits. Under the new system, each analyst gets a separate profit-and-loss statement. That's life in the hedge fund business. He says that was the system under which he worked with Nash at Odyssey.
"I went to Jack Nash after my first year and said I wanted a raise, and he said, 'No.' I said I wanted a bonus and he said, 'No.'"
Larry Feinberg says, "They all think I'm going to get liquidated. That I'm going to run out of money. I have plenty of cash in the fund. People who are counting us out have a surprise coming."