AHMET Okumus knew that he wanted to be a money manager the moment he made his first trade at Istanbul's new stock exchange in 1987 – when he was 17. “I would cut classes to go hang out in the exchange and watch the trading,” says Okumus with a twinkle in his eye. “And then I'd go back to school to play sports.”
Okumus, now 33, isn't playing anymore. As the lead fund manager at his company, Okumus Capital in New York, he spends most of his time directing strategy on the three hedge funds the company sells, all of which have been outperforming their benchmarks and peer groups for most of their existence.
The funds, which focus on mid-cap and large-cap US equities, each have a US and offshore version and are on average 90 per cent long and 15 per cent short – though Okumus stresses his flexibility. Okumus manages US$550 million.
What sets his hedge fund apart from other hedge funds? The commitment to purchase stock only when, in his opinion, it is severely undervalued. “Lots of people call themselves ‘value,' but they're not,” says Okumus. “They buy stock at low prices – yes. But we don't let the stock sit there getting expensive. We're opportunists. We sell below fair value.”
To determine that fair value, Okumus and his team use the classic bottom-up method – reading as much as possible on companies, meeting with management, clients, competitors and distributors. Most of the 15 persons he has on staff help him do the research; their average age is 30. He's so focused on portfolio management that he leaves the people management to three others, including his cousin, Ibrahim Okumus, a vice-president of the company.
When Okumus finds something he likes, he bets the farm. Each of his funds normally holds 20 or fewer stocks. That level of concentration can lead to big returns – and big risks.
The Opportunity Fund, Okumus' oldest and largest, launched in Aug 1997, has US$224 million under management with annualised returns of 42 per cent since inception. Its benchmark, the S&P 500, has grown just 6 per cent yearly over the period.
Opportunity has seen losses of 54 per cent in a single month; to recover from that took six months. In Opportunity's life, the S&P 500 has never had that kind of volatility. Still, over the past 12 months, the S&P has lost 28 per cent; Opportunity is up 15 per cent.
Ahmet is a professed contrarian. “We're usually buying when the masses are selling and selling when the masses are buying,” he says in his promotional literature. Take Tenet Healthcare. The California outfit is tainted by a Medicare payments scandal, but Okumus is swayed by the aggressive stock buyback the company has been doing lately. He's also looking at its history.
“The last time Tenet was down 70 per cent – three years ago – the CEO bought 1 million shares,” says Okumus. “I think there are going to be more inside purchases like that again.”
Okumus is also confidently swimming against the current in technology. “What people don't realise is that technology is a cyclical business,” says Okumus. “And looking at current earnings doesn't help. You need to look at earnings power.”
His Okumus Technology Value Fund (total assets: US$70 million), launched in May 2000, is up 10 per cent this year; compare it with the Nasdaq, which is down 37 per cent for the same period. He's bullish (and contrarian) about such stocks as Compuware, a software company in Detroit, Michigan, of which he owns more than 5 per cent.
“It's a good cash-flow generator and it's in the best business to be in software (mainframe software),” says Okumus.
He also has great hopes for LSI Logic, a semiconductor maker in California that is suffering from the downturn in the sector; trading at one times sales, it's usually three times as much.
Another attraction is that Okumus' researchers have found that LSI's CEO has a remarkable record in trading the company's stock: Every time he buys shares, their value goes up at least 100 per cent within 18 months. Recently the CEO bought 150,000 shares.
The son of a wealthy businessman, Ahmet grew up among the elite of Istanbul, attending private schools and playing basketball and tennis. But his fascination for the markets made him decide to go to the US for college. He began at Georgia Southern University but left after just a year because there was no brokerage nearby.
“We didn't have Internet investing back then,” he says.
In 1991 he transferred to San Diego State University and landed an internship with AG Edwards just a week after his arrival.
Starting out researching San Diego companies, he soon expanded to US outfits, and by senior year he stopped going to classes altogether and never received a degree. “I wish I had (dropped out) sooner,” he says with a grin.
By all accounts, it hasn't stopped him a bit. The US$100 Okumus says he started trading with in 1987 had grown to US$2.4 million ten years later.
At that point, he decided to leave San Diego – and AGEdwards – to run his own fund in New York, primed with his savings and money from his family.
To build his fund, he needed investors.
For the first time, Okumus didn't have the cozy network of family acquaintances and connections he'd enjoyed as a kid.
He picked up a copy of the US Offshore Funds Directory and called the first name he saw: the Anabasis Fund. “I spoke to them and set up a meeting. They were interested in me. They invested money a few weeks later,” Okumus says, still incredulous five years on.
Anabasis (now the Sperry Complete Manager fund), a fund of funds based in New York, says that the US$3 million it has invested with Okumus over the years is now worth US$12 million. This performance has since won Okumus investors such as Sir John Templeton.
Like many hedge-fund managers, he has his own money tied up in the funds – and he also has nearly all of his mother's. Besides the 1 per cent management fee and 20 per cent of profits he stands to take away, having Mom's money is a great incentive to perform.
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