3G Capital was founded by Pavel Begun and Cory Bailey in July 2004. The name comes from the pair’s philosophy: Good business; Good management, and Good price. The hedge fund is one of the smaller ones we track; its 13F equity portfolio value is just under $165 million at the end of June.
Last quarter, 3G Capital completely revamped its portfolio, selling out of several stocks and adopting new positions in their stead. The move took the duo away from big names like Coco-cola Enterprises Inc (CCE), Microsoft Corp (MSFT) and Citigroup Inc (C). Unfortunately, so far, the move has not fared well. 3G Capital’s top long positions lost 19% since June, compared to a 10.7% loss for the S&P 500 (SPY).
3G Capital’s only position to beat the market since the end of last quarter was in Darden Restaurants Inc (DRI). Darden manages a large brand portfolio, including Red Lobster, Olive Garden, Capital Grille and LongHorn Steakhouse. The infamous Israel Englander of Millennium Management increased his stake in the restaurant management company by 745% last quarter (check out Englander’s top picks), while Jeff Vinik (Vinik Asset Management) increased his fund’s position by 117%.
3G Capital lost big in Itau Unibanco Holding (ITUB); they lost 22% on the position after selling off 74% last quarter. The loss may have been significant but was it a wise move to divest. After all, Lee Ainslie, the man behind the famous Maverick Capital, bought a $244.6 billion position in the company last quarter, eclipsing 3G’s current 30.2 million position (check out more on Lee Ainslie).
The 3G Capital hedge fund lost big across the board otherwise, with all its other positions losing between 13% and 22% since the end of June. Other funds have made some similar choices; Boykin Curry of Eagle Capital Management bought a position in Goldman Sachs roughly 3 times that of 3G Capital’s. However, consensus doesn’t equal success. 3G Capital may be able to turn it around but flipping a portfolio like that seems exceptionally risky, if not reckless.