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Summary List PlacementIn the two years since D1 Capital launched, the world has changed drastically.
In 2020 alone, a pandemic has killed more Americans than World War I, and global protests over police brutality have companies adopting Black Lives Matter as corporate policy — all while one of the most contentious US presidential campaign races in history rages on.
And Dan Sundheim made money through it all, thanks to a string of bets that have emerged as winners in the new normal.
The former Viking Global Investors chief investment officer started trading at D1 in July 2018 with more than $5 billion — including more than $500 million of his own money — and hasn't looked back.
A September investor letter said the firm had made more than 78% after fees since launching, including returns of 31.5% this year through August.
August was a blockbuster month, with D1 more than doubling the S&P 500's return and giving investors a net return of 16.4%. Assets under management have ballooned to $15 billion.
One method in Sundheim's approach is that a little less than one-third of that capital is invested in private-market bets, some of which have already produced substantial profits. One of his first wagers after launching was a $160 million bet on the cold-storage firm Lineage Logistics, an investment that's appreciated more than 150%, buoyed by the surge in online-grocery demand amid the pandemic.
The firm bought a 5% stake in Unity Software in July 2019 for about $250 million, which is now worth more than $1 billion following the company's September initial public offering.
The fund also has large wagers on Robinhood, the zero-commission trading app that exploded during the quarantine era; Elon Musk's rocket company, SpaceX; the eyewear disrupter Warby Parker; and TransferWise, the cross-border cash-remittance platform.
The fund's private bets — which in September also reaped gains from IPOs for Snowflake and Outset Medical — have produced $1.5 billion in profits so far in 2020, according people familiar with the performance.
New York-headquartered D1's hot start has bolstered Sundheim's fortune to a net worth north of $1 billion, a conservative estimate.
But the story of how Sundheim, 43, joined the hedge-fund billionaires club, amassed a $300 million art collection, and bought a minority stake in the Charlotte Hornets off Michael Jordan begins before D1 and Viking.
Business Insider's conversations with a dozen college classmates, coworkers, and people who've invested with him revealed a whip-smart, mild-mannered colleague who had early flashes of investing brilliance. He avidly discussed and traded tech stocks as an undergrad at the Wharton School of the University of Pennsylvania with his frat brothers, identifying winners among the hysteria of the dot-com bubble. As a Bear Stearns analyst, he quietly moved markets while lurking on esoteric investor message boards.
People who have known Sundheim for decades are unsurprised by his success and uniformly depicted a low-key, laid-back manager who prizes performance over bravado and ostentatious displays of intellect.
"Certain people are born to do certain things, and Dan was born to deploy capital," Dris Upitis, a former portfolio manager at Viking with Sundheim, said.
Sundheim declined requests for interviews, and his spokesman Jonathan Gasthalter declined to comment.
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The Wharton years
As many people in the industry will tell you, there are many jerks who work in hedge-fund land. Big egos and big wallets can be a dangerous combination, but those who have known Sundheim longest say he's just like he was when he was at Wharton in the late '90s: humble, smart, and loyal.
"He's a little bit aloof in the sense because he's always thinking about something," said Joey Levin, the CEO of IAC who was two years behind Sundheim at Wharton and in the same fraternity — Zeta Beta Tau.
Still, Levin called him "a goofy, fun guy," and others who knew him in college said he was never trying to prove to anyone that he was the smartest person in the room.
"Dan was particularly down to earth and fun to hang out with casually: absolutely no cockiness, no pretentiousness. No, 'I'm the smartest guy in the room.' None of that," another college friend said.
The fraternity is well-represented within D1: Chief Operating Officer Jeremy Katz, Director of Research Michael Lean, and partner Teddy Gleser were all in the fraternity at the same time as Sundheim.
Those in the fraternity with him remember investing being Sundheim's primary interest, especially in tech companies — though he managed to steer clear of the ones that would collapse when the dot-com bubble popped a couple years later.
A knack for ferreting out companies with legitimate long-term prospects would become a through line in his career and typified his early run at D1, which also began during the tail end of a frothy bull-market run.
In the late '90s, it meant eschewing pitfalls like Pets.com and instead, according to a source who knew him in college, investing in winners like F5, an infrastructure-technology company that was hit when the bubble burst but rebounded and is still around today.
During his senior year at UPenn, he also started dating Brett Cohen, his future wife.
Cutting his teeth on Wall Street
Wharton led to Bear Stearns, where Sundheim put in hundred-hour weeks in the firm's merchant-banking division, then a newer, small group focused on middle-market buyouts.
"Dan was, in a super positive way, different than everyone else there," Rob Lewin, the chief financial officer of KKR who worked with Sundheim at Bear Stearns, said. "If you had asked at the time who was going to be uniquely successful out of all the people we worked with, it was pretty clear to me and others who it would be."
In his limited spare time, he was getting a master class in value investing from Joel Greenblatt's Value Investors Club website — an investing message board that's highly selective about who joins.
Under the alias Sunny329, Sundheim would enter the club's twice-monthly competition for the best investing idea and won four times, netting himself thousands of dollars. He also made one of his first big calls: A 3,400-word exposé on the Orthodontic Centers of America that alleged the company was a fraud and forced it to publish an 8-K responding to the claim.
The company eventually went to zero, and the report was so widespread on Wall Street that his bosses at Bear Stearns were asking him to download it for them to read, unaware he was the author.
"Reading the write-ups taught me how to invest as much as any textbook, class, or mentor at Wharton," he said in a Barron's article in 2018.
He parlayed his growing profile on Wall Street into an analyst job at one of the most prominent hedge funds, the billionaire Andreas Halvorsen's Viking Global Investors.
'Like LeBron'
Viking was where Sundheim's former hobby and night job became his full-time one. Starting as an analyst covering financial services in 2002, he rose the ranks to eventually become co-chief investment officer in 2010, when Viking cofounder David Ott retired.
His investing style was a patient one, his former coworkers said.
"I wonder if his resting heartbeat is 40. Maybe when things get crazy, it hits 50," Upitis, the former Viking portfolio manager, said.
"Investing billions of dollars doesn't really stress him out," Levin said.
While there's a perception that many "Tiger cubs"— the investing progeny of the legendary hedge-fund manager Julian Robertson and his firm Tiger Management — focus on technology companies, Sundheim's expertise is broad, and he wasn't overly protective of any company or sector.
Read more: Julian Robertson's Tiger Management is at the center of a quarter-trillion-dollar web linking billionaires, the Pharma Bro, and a 'Big Short' main character
Some of Sundheim's top bets at Viking were in financial payments, including Experian and Mastercard, which was "an absolute home run," according to a former colleague.
When Upitis joined Viking, he brought expertise in the payment-processing space — presenting a potential conflict. Analysts and portfolio managers often are loath to give up a company or industry and learn another one. But Sundheim gave up the companies and let Upitis add them to his portfolio, going on to have success in other sectors, including healthcare investments, for which he teamed up with Scott Zinober.
"He doesn't have a turf-war instinct; he's remarkably easy to collaborate with," Upitis said. "I think of Dan like LeBron James. Whatever team he is on is going to be a contender because he makes everyone else around him so much better."
Aaron Gelband, a Viking portfolio manager who worked closely with Sundheim, said part of what made him a compelling leader was that he never asked questions as a pretext for showing off how smart he is or making someone else look dumb — a not uncommon tendency in high finance.
"Dan never did it," Gelband said. "He asked just enough to know whether the idea you were pitching was good or not."
Fred Pollock — the chief investment officer of Grosvenor Capital Management, a longtime investor in Viking and now D1 — described him as a "generational talent."
He had a knack for risk management, even as an analyst, Pollock said. From there, he became a "learning machine," expanding beyond his sector when many analysts focused narrowly on being "the best widget maker they can be."
Sundheim's long-term investing strategy is one reason he struck out on his own: Viking is not jumping in and out of stocks daily, but Sundheim was on the far end of the firm's public-investments timeline, sources who worked with him at the fund said.
That said, he's willing to change his mind on a dime when presented with better evidence, unworried about having been "wrong," a mindset he shares with Amazon founder Jeff Bezos.
"His ego doesn't get tied up in stuff," a former Viking colleague said.
With D1 — which stands for "day one," a nod to Bezos' philosophy of avoiding complacency and continually adapting — it was clear there would be more long-term plays, specifically private-market investments, than at a typical hedge fund of its size.
His goal was for D1 to combine the best parts of a big asset manager and a family office, Sundheim wrote to prospective investors in 2018.
He's put the money to work: The firm has deployed more than $4.5 billion across 32 private investments.
"They're not the first people to have the idea to cross over to the private side," John Collison, one of the billionaire founders of Stripe, said. "They just seem to have done that strategy better than anyone else."
The approach is a departure from the traditional hedge-fund model, but it isn't entirely novel. As unicorns have proliferated and stayed private longer, tech-minded funds have looked to capitalize on prospective gold mines well before an IPO. Private assets in Chase Coleman's Tiger Global now dwarf those in its public fund, while Philippe Laffont's Coatue has also moved heavily into private investments in Silicon Valley.
D1's names are some of the biggest in unicorn land, including Collison's Stripe, Juul, and Sweetgreen. Sundheim sits on the boards of Instacart and Shippo and has made big investments in companies as varied as Gitlab to the aforementioned cold-storage-warehouse owner Lineage Logistics, which the firm has built up a $900 million stake in.
They haven't all been runaway successes. The private portfolio took a hit last year on its Juul position after a regulatory crackdown on vaping, according to Institutional Investor.
But D1 also had a significant stake in the cloud-data company Snowflake, which saw its stock more than double on its first day of trading in September, and Outset Medical, a portable-dialysis company that also had a stellar debut last month.
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"He is one of the rare investors who believes that companies should focus first and foremost on doing right by the customer," Instacart CEO Apoorva Mehta said in an email.
He's worked to connect the founders of companies he's invested in with one another, recently starting a group chat for everyone to network.
"I'll get random macro thoughts from Dan at 3 in the morning — I don't know when he sleeps," Collison said.
How he decides where he puts his money comes from a collection of things, such as his ability to nail down what he's trying to figure out in as few questions as possible.
His superpower is his "uncanny ability to understand what other people are going to be excited about 12 to 18 months from now," the ex-Viking colleague said. "We can all be looking at the same 10 stocks, but he'll have kind of an intuitive knack for which one the multiple is going to go from 15 times to 25 times."
"It sometimes feels like he has a crystal ball," Upitis said.
"It was matter of fact, a certainty," Levin said.
"It wasn't something that I was even thinking about," Levin said. But Sundheim deduced what the company was asking of him and saw the vision. Five years later, Levin was named CEO.
Sundheim is not without flaws, of course. Value stocks have been a bugaboo where his sagelike predictions short-circuit.
There's a price for everything, and even if a business' prospects are weak, it can still be undervalued.
He's been stung on a few occasions by betting against cheap stocks, including metals and mining shares in 2016 and Chinese real-estate developers, according to people who've worked with him.
At D1, the short portfolio has had some winners but has underperformed the long portfolio, down 26% since its inception.
"His weakness is value stuff. He just doesn't understand cigar-butt stocks," a former Viking colleague said, referring to undesirable cast-off companies.
That hasn't necessarily been a bad blind spot to have over the past decade, in which value investing has provided meager returns.
"It's been great for his career that he's avoided crummy companies," his former colleague said.
Billion, with a B
Sundheim was likely already approaching the three-comma club before he even conceived of D1.
He had a lucrative run during his 15 years at Viking, in which the firm's assets under management grew from roughly $3.5 billion in 2002 to $32 billion in 2017. He started managing his own portfolio in 2005 and took the helm as sole chief investment officer in 2014, raking in $275 million in earnings that year and $280 million the next, according to Institutional Investor's hedge-fund "Rich List."
"He is in a league of his own as a stock picker and portfolio manager," a Viking investor letter announcing Sundheim's departure said.
In addition to the $500 million from his family office he plowed into D1 at its inception, he had at least $65 million in real estate in Manhattan and the Hamptons alone, a minority stake in the Charlotte Hornets worth an unknown amount, and an art collection including Jean-Michel Basquiat's "Dustheads," which he bought off the disgraced financier Jho Low in 2016 for $35 million.
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A Uniform Commercial Code lien filing shows Sundheim has at least 28 other works, including two Cy Twombly pieces sold at auction for $70 million and $50 million, a Willem de Kooning worth $21 million, and three Andy Warhol pieces that went for a combined nearly $50 million. He has a line of credit with JPMorgan Chase based on the value of the collection, Bloomberg reported in February, though it's not clear how much he's drawn down.
An expert in contemporary-art valuation who reviewed the works told Business Insider that, all told, their estimated value was nearly $390 million.
But D1's stellar performance thus far easily pushed him over the billionaire threshold. The initial $500 million cash pile in D1 has substantially appreciated, based on the firm's 106% gross return on its main fund since its inception and massive profits generated by the private investments.
And that's not including the value of his equity stake in D1 as the majority owner or money pocketed from performance fees.
Sales of hedge funds are rare, but D1 could be worth at least $200 million — even after discounting for liquidity and "key person risk"— based on its size and strategy, according to valuation multiple estimates provided an equity analyst.
And D1 is making big bucks for its founder and employees: The hedge fund charges varying management and performance fees for different share classes. Even if all of the firm's investors were in the share class with low management fees, with $15 billion in assets, the firm would bring in $150 million per year before any performance fees.
Sundheim has not been shy about spending his money, whether endowing exhibits at New York's Whitney Museum of American Art, making splashy purchases at auction houses, or buying the apartment below his for nearly $30 million.
But for those who have known him for decades, not much has changed besides his schedule. He's still a low-key guy who likes to deploy capital.
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Some said his flashy purchases were actually good value buys. The Basquiat painting was significantly cheaper than what Low paid for it years prior, and he and his wife, Brett, bought Brooke Astor's 14-bedroom apartment in 2011 for $21 million — less than half of what the late socialite's estate was asking.
He's a big sports fan, friends and colleagues said, with Knicks season tickets and a new relationship with Hornets owner Jordan.
In nonwork settings, he's easy to be around because "there's not a feeling of 'we all know who the boss is here,'" Upitis said.
"It's not like he's texting me pictures, bragging about a new house he just bought," he added.
Levin said the fact so many people at D1 worked for him at Viking or knew him from college was a clear sign he's respected and liked as a boss.
"When you go visit their offices, they're having fun there," he said.
While Sundheim is not active in seeking out TV appearances or speaking engagements, Pollock said he believed he'd have a profile similar to Warren Buffett one day, if he keeps it up.
"Dan is a legend to the people in the know, and he will be a legend to everyone else soon enough," he said.
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"He is one of the rare investors who believes that companies should focus first and foremost on doing right by the customer," Instacart CEO Apoorva Mehta said in an email.
