Fred Liu is Up More Than 164% And We Are Not

An Interview with the Star Money Manager of 2020

Hayden Capital’s Fred Liu is having a breakout year. As I write this and based upon what I believe are his largest positions, Fred Liu and his fund might be up close to 200% after fees for the year. What I know for certain is that in the first three quarters of this year, his fund was up over 164%. In fact, in the second quarter alone, he was up over 93%! To do this just by investing in equities and not using fancy derivatives or crazy leverage is an amazing accomplishment. For me, he is the standout money manager of the year.

I recently had the opportunity to interview Fred in order to learn not necessarily how he posted such a performance, but instead to understand more about his strategy and his thought process. I am so grateful for the time he graciously gave me and I’m still ruminating over the nuggets of wisdom I took away from our conversation.

Here are some big points I took away from our conversation:

1.     Fred views his firm and his fund as a startup, which means since 2014 he has been working on product market fit and truly hit on it in 2019. Considering how he has adapted and changed is fascinating. (See page 3 of the transcript for this discussion)

2.     It is interesting to think that in consumer technology the bigger a company gets and faster it scales, the less risky it becomes in a winner take all world.  (See page 2 and page 17 of the transcript for this discussion)

3.     64% of Fred’s fund is invested in stocks that trade outside the U.S. I have been seeing this opportunity as well and have written up Nintendo and La Francaise des Jeux as examples of the value and quality you can get when you step outside of the US financial markets. (See pages 4-6 of the transcript for this discussion)

4.     Fred presents his thesis on AfterPay (Australia: APT) on pages 10-14 of the transcript.

5.     My favorite line of his by far from the interview: “I also tell our partners, every single one of them, that I promise you one day your portfolio will be down 50 percent. Peak to trough I guarantee it to you.”

Here is the full transcript of our talk:

Interview with Fred Liu

I will also add as an addendum that while 2020 has been good to some people like Fred, lots of people are suffering and some, like Chris Kelly, have seen huge reversals of fortunes. I wrote about his year here: What do you do when you lose almost everything?

P.S. Here are links to Fred Liu’s Q3 investor letter and to his AfterPay research report:

Hayden Capital Q3 Investor Letter

AfterPay research presentation