- Jamie Zimmerman’s Litespeed Master Fund gained 30% in 2021.
- Unique distressed-debt opportunities gave Zimmerman plenty of chances to deploy her playbook.
- The Litespeed team is also interested in the “wreckage” of special-purpose acquisition companies.
Jamie Zimmerman was pregnant when she got her first slug of money to run her own fund.
Like other women on Wall Street in the 1990s, she didn’t immediately reveal that news to her colleagues in the distressed-debt department at Oppenheimer & Co.
“It occurred to me that if they found that I was pregnant, they would take it away,” the pioneering female hedge-funder told Insider in an interview.
Zimmerman, the founder of the $278 million Litespeed Master Fund, made sure no one could take over that initial fund and get credit for her work by branding it with her initials the “JZ Equity Fund.”
Zimmerman is one of the few women to run her own hedge fund — and she’s been doing it since 2000, boasting a 10.6% annualized return since inception.
Her firm, Anqa Management, manages the Litespeed Master Fund — an event-driven hedge fund focusing on distressed companies and company events such as mergers and acquisitions — which gained 30% in 2021.
That’s more than double the average event-driven hedge funds’ strong returns of 13% last year, their highest performance since 2009, according to data provider Hedge Fund Research. Mergers and acquisitions deal flow hit a record high in 2021, with $5.5 trillion worth of global deals spread across 58,000 transactions, according to data from the deal-tracking firm Refinitiv.
More deals — alongside some unique distressed-debt opportunities last year — gave Zimmerman plenty of chances to deploy her playbook, she said.
“2022 is also shaping up to be an interesting year, given perhaps the potential ramp in interest rates or just normalization of work post-COVID,” she said. The fund has gained about 3% this year as of the end of February.
“You have historically tight credit spreads, but there are a lot of highly levered companies, and experience has taught me that things can change fast, so we could certainly see some interesting restructuring opportunities in 2022.”
(Insider interviewed Zimmerman, who could not immediately be reached for a follow-up, before Russia invaded Ukraine, and it’s unclear how the conflict will affect deal activity.)
The six-person Litespeed team is also interested in the “wreckage” of special-purpose acquisition companies that have been announced over the past two years. SPACs were super hot in early 2021 but have since lost steam due to regulatory scrutiny and legal issues. In addition, most SPACs that launched in 2020 or 2021 will soon be approaching their two-year deadline to find a target to take public or liquidate.
“Many of the companies in the
world do not have meaningful revenues or, more importantly, they don’t have any profits,” she said. “Some actually have debt, and we are watching those for opportunities.”
How Zimmerman went from lawyer and aspiring investigative journalist to arbitrage pro
Zimmerman started out as a lawyer, but she thought that she would one day become a journalist — attracted to the investigative aspect of the job and the opportunity to dig deep.
But, as reporting wasn’t exactly known for paying the big bucks, she thought she’d try Wall Street first.
She got her first job in finance at now-defunct investment bank L.F. Rothschild — her experience clerking for a bankruptcy court judge appealed to the company. Michael Gordon, co-founder of alternative investment firm Angelo Gordon, was head of the arbitrage department at L.F. Rothschild at the time. Gordon made the decision to hire her.
Zimmerman used her technical knowledge of the bankruptcy world as a lawyer and curiosity to eventually hunt for merger-and-acquisition opportunities instead of chasing stories.
“I feel like I’m using the skills of an investigative reporter when I look at investments,” she said.
After Rothschild, Zimmerman joined Dillon, Read & Co’s risk arbitrage group in 1988 until 1990. From there, she worked in the distressed debt department at Oppenheimer until 1997 and then joined Toronto-Dominion Bank as the head of research for a risk arbitrage and special situations portfolio.
At that point in her career, she figured she already had experience running a fund and would go at it on her own. Zimmerman said she received support from her former bosses at Oppenheimer and Dillon Read, who still invest in her fund to this day.
Between looking at financials and market research, dissecting management incentives, and studying dynamics among industry players, Zimmerman enjoys “analyzing the risk/reward, taking the risk, and sticking your neck out.”
Putting those skills to work helped her make a successful call on the Oklahoma City-based shale producer Chesapeake Energy, which came out of Chapter 11 in 2021. Her firm was one of the largest buyers of unsecured bonds in a credit-default-swap auction held in August 2020.
Under the plan, the bonds converted into stock and more than doubled in price, Zimmerman said. The company’s stock price is up 80.7% to $81 over the past 12 months.
“We believe that understanding the intricacies of intra-creditor disputes and having a view on how the new equity was going to be distributed gave us an edge,” she said.
Litespeed typically targets companies that are filing for bankruptcy. For example, when MGM filed for Chapter 11 back in 2010. Litespeed bought unsecured bonds in MGM before it went into bankruptcy, which were exchanged in the Chapter 11 plan for new equity. The fund still owns its stake in MGM, which is set to be acquired by Amazon for nearly $9 billion.
While there’s a risk that the Federal Trade Commission will block Amazon’s purchase, she’s still betting that the deal will close.
The calls that helped Litespeed boost returns in 2021
Her plays in three stocks specifically added 4.9% to the fund’s fourth-quarter profit-and-loss statement last year, according to documents seen by Insider.
Shares of NeoPhotonics, a laser manufacturing company, soared in early November 2021 when it was acquired by Lumentum. British drugmaker Indivior just recently announced that it would explore a secondary listing in the US.
Zimmerman also bought the textbook publisher Houghton Mifflin Harcourt for $2.88 a share in 2021. The company’s share price almost tripled as it turned to online programs that benefited from the surge in remote learning due to the pandemic, according to a Bloomberg report. On February 22, the publisher announced it was set to be acquired by Veritas Capital for $2.8 billion, for $21 a share, after it was reported to be considering a sale in January.
Placing bets on businesses going bankrupt or merging with other companies could come with big risks, but Zimmerman relishes the thrill of it.
“I enjoy that you get a scorecard,” she said. “You know you’re either right or wrong without waiting for someone to tell you whether you did a good job.”
That scorecard can also be a double-edged sword. Zimmerman had built up the fund’s assets under management from $4 million in 2000 to $3.4 billion by mid-2014. By September 2018 it had dropped to $303 million. At the time the hedge fund industry was facing an exodus of investors who struggled to justify high fees for underperformance.
Since the fund’s inception, it’s had three down years, including 2014 and 2015, according to Zimmerman and investor letters seen by Insider.
“People thought we were going to close because we were not going to earn an incentive fee until Litespeed reached its high-water mark,” Zimmerman said, referring to the provision that ensures that an investor doesn’t pay fees until their losses have been recovered.
“We told our investors that we were committed to continuing and we were determined to recoup our interim losses,” she said. “However, more than a few substantial investors did not believe us and when they pulled out, others followed suit.”
But investors have missed out over the past six years, she said, as the fund returned 14.8% annually through February 2022, according to Zimmerman.
“Litespeed is smaller than we were at our peak, but we’re doing a great job,” she said, adding that she wasn’t interested in the rat race of gaining assets.
“Litespeed is not looking to be a $3.4 billion fund again,” she said. “We could manage the money, but for me, managing a smaller team makes coming to work more enjoyable. I passed on a call to potentially sell Litespeed in 2014 because I enjoy and am proud of what we do.”
Women winning investors’ trust: It’s all about putting up the numbers
It’s no secret that the hedge-fund industry has long been dominated by straight, white men.
Of approximately 250 diverse-owned hedge funds in 2021, only about one-third were women-led, according to estimates by Rob Manilla, chief information officer of the Kresge Foundation.
Zimmerman thinks the industry has come a long way since she started and is more inclusive of women raising families now.
“As a woman in the past, it might take longer because there was this thought that maybe you would have kids and disappear from the workforce. I hope and think those attitudes are changing and that it has become clear that a woman can balance family and career.”
To her point, more female fund managers are emerging these days. The former Lone Pine exec Mala Gaonkar and ex-Viking star Divya Nettimi are expected to start funds with more than $1 billion in assets under management this year, according to a Bloomberg report highlighting nine incoming new funds from women.
Zimmerman said there’s no reason to buy into a narrative that women are unable to compete at hedge funds.
“Why should that be? You know, that’s like saying women can’t do math, you know? That’s bullshit, really.”