Josh Friedman’s $10.5 billion hedge fund has shifted to having almost 20% of the fund in cash, as it backs away from a shaky stock market

Mike Blake/Reuters

Billionaire Josh Friedman’s Realization Value fund began shifting its portfolio to cash before last year’s market sell-offs, an investor letter viewed by Business Insider states.
The $10.5 billion fund is now 18% cash as of the end of the first quarter, the letter states. At the end of March of 2018, the portfolio held no cash.
The fund has returned nearly 8% through the first three months of 2019.
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Canyon Partners’ $10.5 billion Realization Value fund has spent the last 12 months pulling back from the equities and filling its portfolio with cash, the fund’s first quarter letter to investors states.

The Los Angeles-based manager told investors that the portfolio is now nearly a fifth cash — 18%, to be exact — as of the end of the first quarter. After 2018’s first quarter, the fund’s portfolio held no cash.

"[The fund] is now characterized not only by less exposure, but also by less risky exposure," the letter reads.

Representatives for Canyon did not immediately return requests for comment.

The letter also notes that while predicting macro and political outcomes is not the specialty of the firm, which is best known for its credit investing prowess, the "caustic, polarized political discourse" and "largely untested fragilities in market structure, as illiquid assets have increasingly found their way into highly liquid investment vehicles," has forced the fund to cut back on its exposure.

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The fund has gotten off to a good start to 2019, returning nearly 8% for investors through the first quarter. The average hedge fund in that time returned 5.9%, according to Hedge Fund Research, the best first quarter in more than a decade.

The manager, run by billionaire Josh Friedman, told investors that it began to hold more cash in the second and third quarter of 2018 when the market began a serious sell-off that tanked many hedge funds’ entire 2018 performance.

"In hindsight, we were fortunate to have reduced [the fund’s] level of investedness by 9% over the six months preceding Q4 2018, and by another 4% over the course of October and November prior to the market lows in December. This cash accumulation gave us the flexibility to act as a liquidity provider rather than a liquidity seeker when the markets entered freefall," the letter reads.

So far in 2019, the fund’s performance has been driven by its equity portfolio, mainly an unnamed gaming company that has been a rumored acquisition target, and its investment in Puerto Rican debt.

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