Outperforming the S&P 500 & Growing from One-Man Shop to Multi-Manager Hedge Fund | David Orr of Militia Capital
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
David Orr, founder and CIO of Militia Capital, discusses transforming his $160 million long-short equity hedge fund into a multi-manager platform. Starting with just $3 million in 2021, the fund has grown primarily through profits rather than capital raises. (01:57) Orr explains his unique approach to finding uncorrelated portfolio managers and his willingness to speak openly on social media despite industry conventions.
- Main themes include multi-manager hedge fund evolution, social media transparency in finance, and contrarian investment philosophy focused on balance sheet analysis over popular narratives.
Speakers
David Orr
David Orr is the founder and CIO of Militia Capital, a hedge fund that launched in 2021 with $3 million and has grown to $160 million in assets under management. He has a background in poker which influences his risk management approach and portfolio manager selection process. Orr is known for his active presence on finance Twitter and his contrarian investment philosophy focused on balance sheet analysis and short selling.
Key Takeaways
Focus on Balance Sheet Analysis Over Popular Narratives
Many investors, particularly self-described value investors, fail to properly analyze balance sheets and capital structures. (33:40) Orr emphasizes that you can have a reasonable operating business, but if it's sitting behind massive debt or lease liabilities, the equity can become worthless quickly. This fundamental analysis is often ignored by both value investors who focus solely on price multiples and story stock investors who rely purely on sentiment and momentum.
Embrace Regulatory Clarity Through Direct Research
Rather than relying on overly conservative compliance professionals, Orr advocates for reading actual regulations yourself. (06:27) He discovered that many compliance restrictions were interpretations rather than actual legal requirements. By using the 506(c) exemption instead of the more restrictive 506(b), he gained significant marketing flexibility while still maintaining proper investor accreditation verification.
Build Uncorrelated Portfolio Manager Relationships
Successful multi-manager platforms require finding portfolio managers with different styles and geographic focuses to maintain low correlation. (49:01) Orr specifically seeks quirky thinkers who operate outside conventional frameworks, and he's particularly interested in long-short bond and biotech specialists. The key is understanding their risk-taking patterns while allowing them significant autonomy.
Recognize Market Exhaustion Through Breadth Analysis
During speculative rallies, watch for correlation breakdown among momentum stocks as a signal of impending reversal. (39:48) Orr explains that when speculative money spreads from epicenter stocks to broader junk names, and then correlation dies down before prices fall, it indicates the market has spread to too much speculative content with no remaining dry powder.
Maintain Tax Efficiency as a Competitive Advantage
Tax loss harvesting and holding long positions for extended periods can provide significant alpha, especially with primarily US-based taxable investors. (22:01) Orr regularly harvests tax losses on short positions by closing them and reopening after 30 days, while holding quality longs for years to capture the tax advantage of long-term capital gains treatment.
Statistics & Facts
- Militia Capital grew from $3 million at launch in 2021 to $160 million in assets under management, with David Orr noting that most growth came from profits rather than capital raises. (01:47)
- The fund currently holds over 1,000 positions across its multi-manager structure, resulting in volatility that is now lower than the S&P 500, compared to nearly double the S&P 500's volatility when Orr was the sole manager. (12:09)
- Orr's personal partition within the fund grew from $10 million in net deposits to $90 million, meaning approximately $60-70 million went to support other portfolio managers, primarily funded from his own profits. (04:00)
