Barac Capital Management, LLC is the general partner of the Barac Value Fund, LP (the “Fund” or "Partnership"). The company was founded by Ted Barac, a seasoned investment professional, with the belief that investors often over-pay for high-fee alternative asset solutions that deliver below average returns and expose investors to excessive risks. The Partnership aims to address these issues and provide investors with a more attractive offering for their capital.
The Fund's investment philosophy is derived from a belief that many funds have a short-term investment horizon and tend to cling to indexes, focus on consensus trades, and chase momentum -- often leading to buying securities when they are expensive and selling when they are cheap. Instead, the investment philosophy of the Fund is to combine research-driven value investing with a longer time horizon, to allow the Partnership to capitalize on value opportunities and market inefficiencies. This longer-term investment horizon also helps to moderate transaction costs and allow for greater tax efficiency, relative to higher-frequency trading programs.
Put simply, the Partnership’s value-investment strategy entails looking beyond momentum and sentiment and seeking assets that are substantially undervalued, relative to intrinsic value, and holding them until they approach fair value. Conversely, the Partnership attempts to avoid securities or asset classes that the General Partner believes to be overvalued.
The assessment of intrinsic value will be derived from fundamental analysis that utilizes both a top-down and bottom-up analytical approach which capitalizes on the General Partner’s extensive institutional experience in corporate securities analysis. Investment allocations to different asset classes (e.g. stocks, bonds) may vary considerably, over time, depending on the General Partner’s value assessment of the different asset categories.
Hedge funds can charge substantial fees (often 2% of capital plus 20% of income) which can be unjustified on a risk/reward basis and can misalign the interests of the hedge fund managers and investors. Performance fee structures can incentivize hedge fund managers to use aggressive leverage and take big bets, which offer themselves substantial personal upside whilst personal downside can be more limited (known as the “trader’s option”).
The Fund charges only a 1.5% management fee, with no incremental charges based on operational expenses or performance incentives. As opposed to a hedge fund’s 20% performance fee, the performance incentive is the result of the fact that a substantial portion of Mr. Barac’s net worth is invested in the fund. The fee structure reflects a belief that a good hedge fund manager should be incentivized through their own investment, in the actual fund, and through long-term success (growing the asset base) by providing value for investors.
Risk management is fundamental to the overall integrity of the Fund’s strategy which focuses extensively on capital preservation and downside risk. The Fund does not use leverage, short stocks, or use options or derivatives and a considerable focus is put on credit and general risk analysis to determine risk/reward and the appropriate sizing of positions. The Fund further controls risk by limiting exposure to any one single-name security and we do not invest in illiquid stocks, mortgage-backed securities, or other illiquid assets.