SRS Investment Management: The Quiet $10 Billion Hedge Fund Most People Have Never Heard Of

The financial media hardly acknowledges the existence of a certain type of hedge fund. The type that doesn’t sit for glossy magazine profiles, grandstand at conferences, or tweet. Among those companies is SRS Investment Management. On a Tuesday afternoon, you can stroll past One Bryant Park and observe the lunch crowd entering the Bank of America Tower without realizing that a $10 billion fund is making decisions on a quiet floor inside that affect social media behemoths, car rental stocks, and a portion of the larger Tiger Cub ecosystem. This anonymity is intentional. It’s a stance.

Shortly after leaving Tiger Global, where he had joined in the tumultuous months following its 2001 launch, Karthik Sarma founded SRS in 2006. The ancestry is important. Sarma is the kind of aggressive long-short investor that has been produced over the past 20 years by Tiger alumni, or the so-called Tiger Cubs. extended, focused positions. capital for patients. a readiness to hold a stock for years while others come and go. Prior to all of this, he had an undergraduate degree from IIT Madras, a master’s from Princeton, and a few years at McKinsey. That combination—engineer turned consultant turned hedge fund manager—appears frequently in the biographies of individuals who go on to become billionaires.

Avis Budget Group is by far the company’s most well-known wager. At one point, SRS held about 43% of the business, and at year’s end in 2023, the position represented nearly 37% of its portfolio of U.S. common stock. It’s the kind of focus that causes risk officers to lose sleep and prime brokers to become anxious. You would have expected the fund to be in severe pain when Avis crashed more than 42 percent in early 2024 following a 27-fold increase between 2020 and 2022. It wasn’t. In the first quarter, the long-short fund saw a mere 7% decline. The long-only fund saw a 4.7% decline. Not very good. Not disastrous either. In and of itself, the math underlying that resilience is fascinating.

As it happens, a special-purpose vehicle that was restricted to internal SRS capital held the majority of the Avis exposure. Avis was carried at a significantly lower weight, in the mid-single digits of total assets, by the hedge fund and long-only structures themselves. Additionally, the shorts appear to have been doing well that quarter, which is precisely what happens when one of your big longs is cut in half in a long-short book. That type of construction has a subtle skill that isn’t often featured in the news. It only appears when something breaks and the fund manages to stay intact.

Sarma’s larger body of work reads like the greatest hits of the Tiger era, updated for the social media and streaming age. During times when other tech-heavy hedge funds flattened, Netflix and Meta, two significant U.S. positions, both saw sharp increases. The journey with Snap has been more difficult. The Chinese online retailer Pinduoduo has occasionally cost the fund money. However, since its October 2015 launch, the long-only fund has compounded at a rate of 18.1 percent annually, well ahead of the MSCI’s 11.5 percent over the same period. The 2022 results are also noteworthy; SRS ended the year up 8.5 percent, while the majority of concentrated tech and consumer funds suffered significant losses. That’s the year that most likely reveals the firm’s true mindset.

A close examination of the Avis story gives the impression that Sarma sees some businesses in a manner similar to that of a private equity owner. He is seated on the Avis board. He and the company have renegotiated standstill agreements on multiple occasions, most recently in September of last year. SRS has been stealthily navigating the increasingly hazy boundaries between activist, anchor shareholder, and regular public-market investor for a considerable amount of time. As they get older, more concentrated hedge funds might gravitate toward this model, which has fewer ideas, stronger convictions, and longer holding periods. It’s also possible that Sarma is the only one for whom it works.

Observing the company from the outside, it’s remarkable how little it promotes itself. It’s a simple website. There are roughly forty employees listed on the LinkedIn page. In the typical leak-prone areas of finance Twitter, there isn’t a quarterly investor letter circulating. The silence is almost theatrical for a fund that earned its founder about $2 billion in 2021 and placed him 16th on the most recent Rich List with $600 million for that year alone. It’s difficult to ignore the fact that some of today’s most prosperous money managers have discovered that being uninteresting in public is a kind of moat all its own.