Aaron Weitman's CastleKnight Management continues the legacy of Appaloosa Management's David Tepper — and with roaring success in a short time. A long-time partner at Appaloosa, Weitman is also Tepper's nephew, and he launched his own fund in late 2020 with backing from Tepper.
He's grown his assets under management dramatically in recent years. Weitman's AUM was approaching $700 million at the beginning of 2023 after coming in at only $425 million as of 2021.
The first three years
For its first three years of operation, CastleKnight notched a net return of 119.8% net or 163% gross, versus the S&P's 33.6% gain and the Russell 2000's 22.9% return. The Bloomberg index rose 5.4%, while the Credit Suisse index returned 20.7% over the same period.
CastleKnight Management recorded net compound annual growth rate of 30% over the first three years, compared to the S&P 500's 10.1% CAGR and the Russell's 7.1% CAGR. The Bloomberg U.S. HY Index's CAGR was 1.8% over the same time frame, with the Credit Suisse Hedge Fund Index's CAGR coming in at 6.5%.
Although the fund managed to withstand the bear market of 2022, Weitman believed that the next three years would create a greatly improved environment for CastleKnight and its strategy.
The 2022 bear market
Of course, the stock markets nosedived in 2022, with the S&P 500 plummeting 18.1% for the year after being down as much as 27% at one point, and the Russell 2000 tumbling 20.5%. The tech-laden Nasdaq 100 plunged 32.4%, while the Bloomberg U.S. HY Index slipped 11.2%. As a result, 2022 was the worst year for the stock markets since 2008.
Many hedge funds fell victim to the market slaughter of 2022, but Weitman's CastleKnight eked out a positive return, gaining 3.9% net/ 6.3% gross for the full year.
"Our blend of deep fundamental underwriting and active portfolio management, along with our ability to create value through active involvement in restructurings, allowed us to weather a storm that was unrelenting for most of the year," Weitman explained in his 2023 investor letter, which was obtained by Hedge Fund Alpha.