8 Knots Management is the top-performing health care–focused hedge fund over the past five years in what has otherwise been a volatile sector. It is up 34 percent this year through May after surging 8.4 percent last month.
Since its 2019 inception, 8 Knots has had only one down year, when it dropped 9 percent in 2021. Otherwise, it has been up by double-digit rates in the past few years: 22 percent in 2022, 43 percent in 2020, and 20 percent in 2019. This is especially remarkable given the huge losses suffered by other biopharma and life sciences funds in 2021 and 2022.
However, 8 Knots is not a typical life sciences fund. It does not specialize in the same fledgling, productless companies relying on potential blockbuster drug or product pipelines. Rather, many of its largest positions are well-established, profitable midcap and large-cap companies. 8 Knots managed $588 million at year-end 2023, according to a regulatory filing.
Scott Green founded 8 Knots in 2019, after eight years at OrbiMed, most recently as a partner. Before that, he had stints at Bank of America Merrill Lynch and Bear Stearns Asset Management. Green earned an undergraduate degree in economics from Brandeis University, where he made the men’s basketball team as a walk-on in his junior year and was named team captain as a senior.
In his LinkedIn profile, Green stresses that 8 Knots deploys a market-neutral strategy that aims to generate positive returns in both up and down markets. The firm has filed 13F documents detailing quarter-end U.S. stock holdings only for the past two quarters. At the end of March, it held just 15 stocks, with the five largest accounting for roughly two-thirds of assets. All are well-established companies with big bets on health care providers.
For example, Tenet Healthcare was the largest long at the end of the first quarter, making up more than 15 percent of assets after the firm boosted its stake by 75 percent. The operator of hospitals and ambulatory surgery centers has a market capitalization of about $13.5 billion.
The second-largest long, with more than 15 percent of assets, is Encompass Health Corp., a provider of post-acute health care services. Its market cap is about $8.6 billion. Dialysis services company DaVita, with roughly a $12.4 billion market cap, is the third-largest long, accounting for more than 13 percent of assets. The No. 4 long position is McKesson, a pharmaceuticals distributor and provider of health information services, representing nearly 11 percent of assets. It has a market cap of more than $77 billion.
In the first quarter, 8 Knots established a new position in BrightSpring Health Services that immediately became the hedge fund’s fifth-largest long position. The company, backed by private equity firm KKR, went public in January 2024. It is a home- and community-based health services provider for people who need specialized care, such as seniors, individuals with long-term behavioral issues, and those in neurorehabilitation.
