In a stark reversal of the hottest trade on Wall Street, Polen Capital's flagship fund has lost nearly US$50 billion in assets after betting against artificial intelligence darling Nvidia Corp. and embracing Adobe Inc., a company disrupted by AI. The Florida-based firm's assets have plummeted 60% in four years, now totaling about US$33 billion.
A Costly Miscalculation
Polen Capital, based in Boca Raton, Florida, is not an industry giant, but its experience highlights how missing a single big winner can reshape fortunes in the AI era. The Polen Growth Fund, which holds fewer than 30 stocks, avoided Nvidia and instead invested in software stocks like Adobe, Salesforce Inc., and ServiceNow Inc. In June 2023, Polen told clients that Nvidia's upside was already priced in. The stock then surged nearly 400%.
The BVP Nasdaq Emerging Cloud Index, tracking cloud-based software companies, fell 3% over the same period. As a result, the flagship fund's investments are down 45% from their 2021 peak, despite the broader bull market. Assets in the fund have shrunk from about US$14 billion to less than US$2 billion, an 86% decline, according to Bloomberg data.
Client Exodus and Staff Departures
The damage has been compounded by client withdrawals and a wave of senior staff departures, according to interviews with a dozen former employees and people familiar with the firm. Morgan Stanley, which previously recommended the fund's strategy to wealth clients, has removed it from its top picks list. Morningstar ranks the fund 243rd out of 249 similar funds.
Polen CEO Stan Moss, an accountant who took over in 2012 after founder David Polen's death, along with investment leads Dan Davidowitz and Damon Ficklin, initially transformed the firm from a small operation into a profitable money manager. Assets grew from about US$2 billion to a peak of US$83 billion. However, the wrong-way AI trade has reversed much of that progress.
Rising Stakes in AI
The AI boom has raised the stakes for investors everywhere. With SpaceX going public and Anthropic and OpenAI heading toward giant IPOs, the risks are growing in private markets as well. Alternative asset managers have placed huge bets on software companies that could be upended by AI.
Eric Jackson, founder of EMJ Capital, called the AI shift "bigger than mobile, bigger than dot-com." He added that value investors analyzing these stocks are missing the point. Polen's conservative approach may have cost it dearly.
The Polen Growth Fund's top holdings as of March included Microsoft Corp., Eli Lilly & Co., and Broadcom Inc., reflecting a shift after recent changes. However, the firm's overall assets under management, excluding credit strategies and international units, have stabilized but remain far below their peak.
