Hedge fund managers often set themselves apart by managing a certain amount of capital, charging a certain amount in fees, or having a certain level of wealth. Although Edelman handles $3.8 billion, it is a far smaller sum than other, more well-known hedge funds. With a $1.1 billion net wealth, Edelman recently became a member of the elite three-comma club, yet at least 45 other hedge fund managers monitored by Forbes rank higher than him. The impressive long-term success of Edelman's Perceptive Life Sciences hedge fund is its main selling point. The performance of its annualised 30.2% net-of-fee return since its founding in 1999 has surpassed David Tepper's Appaloosa Management's 25% annual return since 1993 to lead all human-managed hedge funds. It offers a more over 130-fold return for Edelman.
At 62, Edelman is not well-known outside of the specialised field of investing in biotechnology. His success has allowed him to charge his limited partners a management fee of 3% of assets and 25% of earnings, though he is a rock star in the field of clinical data and endpoints. He has no regard for stature "I desire a solid track record. That's the scorecard I have "He is adamant. And he thinks that a large part of what gives him an edge is his knowledge of the peculiarities of human nature.
Edelman pursued a PhD degree in pharmacology after studying psychology at UC San Diego, but he gave it up in 1980 to relocate to New York City with the hope of fusing science and commerce. He studied part-time while holding a bookkeeping position at an actors' union, eventually earning his M.B.A. at New York University in 1987. His next trip was Wall Street, where he worked as a research analyst for biotech.
Due to his inability to create consistent opinions, Edelman found it difficult in such situation. He continued thinking about the chances and changing his opinion. When asked about his time at Prudential Securities, Edelman responds, "I feel the stock is going up, but not that much — you can't print anything like that on the sell side."
Identifying the preconceptions of market players is crucial for Edelman. He compares the stock market to a game of poker: Even though the "price" of playing has increased as the pot gets larger, he argues that if a hand is doing well, you should continue to wager more as additional cards are dealt.
Edelman disapproves of both buying low and selling high strategies. Only invest in a stock, he advises, "if the analysis shows that it is value more, and sale it if it is worth lesser." "If new research or information suggests it should go more, this may mean buying anything back at a greater price than where you traded it." In the instance of Neurocrine, Edelman began purchasing it at $5 and kept doing it all the way up to $80. Recently, the stock was exchanged for $84.
According to Edelman, "We are really concentrated on simply looking forward." You must put your past experiences with the stock out of the way.
Having over 200 positions in his portfolio, which makes his fund more varied than competing index ETFs like the iShares Nasdaq Biotechnology fund, is another distinctive component of Edelman's strategy. But Edelman's behaviour is not completely irrational. "I don't consider them to be positions I want or dislike. I convey my thoughts using position sizes and think in terms of possibilities "says Edelman.
He has about 80% of the posts; the remainder are mostly in medical devices or specialised pharmaceuticals. There is a recurring idea that science must be included. He steers clear of insurers and only has a small number of large hospital chains or huge pharmas a la Merck. In order to outperform the market, Edelman carefully sizes each position to ensure that it matter in a manner that makes sense to him before going "all in" on his winning bets and folding when required.
Adam Stone, chief investment officer of Perceptive, adds, "We have a really good staff that knows how to figure out what pharmaceuticals are likely to work, but what is special is what Joe brings to the board." Nowadays, there are many clever scientists managing portfolios, but there aren't any seasoned money managers that can size a portfolio like Joe.
After learning one of its drugs hindered the action of a gene linked to a rare nerve disorder in a late-stage trial, Edelman made a significant investment in Alnylam Pharmaceuticals in 2017. As a result, the company's stock increased by 229% in 2017. The study demonstrated that the medication, patisiran, helped reduce patient symptoms and inhibit the liver from producing transthyretin.
There is no doubt that the stellar success of health care and biotech companies over the past 20 years has contributed significantly to Edelman's track record. However, Edelman has also proven his mettle in bear markets. Biotech equities fell 21% in 2016, but his fund returned 3.8% net of fees thanks to six good short bets and two long home runs. In the previous year, Edelman more than quadrupled the Nasdaq Biotechnology Index's stock performance, which returned 21%. Only 2008 and 2002 were bad years for Edelman.
But despite all of his investment successes, Redwood City, California's Acerta Pharma was indeed a game-changer. Edelman's biggest risk-reward position at the moment is Global Blood Therapeutics, which it acquired a $20 million stake in in 2013. The California-based startup is working on a sickle-cell anaemia medication. The standard of care for sickle-cell disease, which frequently involves blood transfusions, is ineffective and has severe negative side effects, thus the potential benefit is enormous. According to Edelman, the market may be worth $5 billion globally. Cons: It's not obvious whether Global Blood's strategy will succeed.
According to Edelman, "I don't want to be a hedge fund manager who doesn't take much risk. If not, why am I acting in this way?
Hedge Fund Master: All In
Perceptive Advisors has about 200 long and short positions, making it comparable in size to several index funds. But the top five investments listed below represent almost a third of Edelman's total holdings.
San Diego, California's Neurocrine Biosciences (NBIX) According to Edelman, Ingrezza, the first pharmaceutical approved for the treatment of uncontrollable jerky movements brought on by the use of antipsychotic drugs, may also be used to treat Tourette syndrome.
Cranbury, NJ-based Amicus Therapeutics (FOLD) Edelman has high expectations for the company's Pompe disease medication, which mixes an engineered enzyme substitution and a molecular chaperone to treat a rare, fatal muscle-wasting condition.
South San Francisco, California-based Global Blood Therapeutics (GBT) In the $5 billion global market for addressing sickle-cell anemia, Edelman is optimistic about Voxelotor. The largest possible home run for Perceptive is GBT.
Cambridge, Massachusetts' Alnylam Pharmaceuticals (ALNY) The company's RNA-interference initiative includes a drug called patisiran that tries to stop a gene linked to a rare illness that destroys the brain system and organs from working.
ZGNX, Zogenix, Emeryville, California By demonstrating that targeting serotonin can be a game-changer in conditions such as Dravet syndrome diseases in children, the business is improving the science of antiepileptic medications. ZX008, a new medication from Edelman, should be effective in treating additional uncommon seizure diseases.
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