How Meredith Whitney’s Hedge Fund Sputtered in Debut Year

Jan 12 2015 | 7:49am ET

The Heartland

Her fund presentation lists 16 heartland states, predicting the region’s growth over a decade will be twice the national average. The area wasn’t a standout in her firm’s first 14 months. Companies in the Russell 2000 Index that are based in those states performed about the same as the total index, which climbed almost 10 percent, according to data compiled by Bloomberg.

American Revival ended its first two months up 4 percent, thanks to a 30 percent surge in the Woodlands, Texas-based retailer, Conn’s Inc., according to the person familiar with Whitney’s firm, who asked not to be identified talking about internal matters. Her fund didn’t post another monthly gain until June. By then, Conn’s was down about 40 percent for the year as loans to customers soured. The fund lost more than $2 million on the pick, the person said.

‘Doesn’t Run’

Losses also included hundreds of thousands of dollars each on San Antonio-based Cullen/Frost Bankers Inc. and Home BancShares Inc. in Arkansas as both slid last year, the person said. The lenders would have been better investments earlier. They surged in 2013 before her fund started trading, with Home BancShares more than doubling.

Whitney didn’t reply to messages seeking comment. Many new fund managers struggle, and few investors predicted last year’s market swerves, said her attorney, Stanley S. Arkin.

“I know lots of guys who’ve had trouble getting their funds off the ground -- there’s a lot of competition out there,” Arkin said. “Meredith is somebody who doesn’t run away and doesn’t put her head into a bunker.”

Not all of Whitney’s big calls have worked out. She told “60 Minutes” in 2010 that hundreds of billions of dollars of municipal defaults were coming. Instead, municipal bonds thrived. Whitney later told Bloomberg News she had made a “guesstimate.”

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