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Parsa Kiai Matthias Knab, Opalesque: Most hedge funds that still run a short book run a handful of high-conviction positions. Steamboat Capital Partners currently runs about 60 - with significant alpha.
That number is not an accident of style. It is the visible output of fourteen years of adaptation by a manager who launched in 2012 with a fundamental, value-oriented, opportunistic, generalist long/short approach - and who has since rebuilt significant parts of the machinery underneath it in response to structural changes in how markets work. The meme stock era changed how Steamboat sizes a short. The regulatory environment changed what the firm is willing to treat as a catalyst at all.
It matters because the last twelve months were about as hostile to short sellers as markets get. By founder and CIO Parsa Kiai's account, the S&P 500 returned almost 21% over the period - and the basket of the most heavily shorted US stocks returned close to 50% - to the upside. Steamboat, which manages roughly $300m, says it generated alpha on both sides of the book anyway.
In this follow-up conversation, Kiai walked me through the environment and structure first, then how it got that way.
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Matthias Knab: When we last spoke, we presented you as a fund that actually makes money on the short side. How did that claim hold up over the last twelve months?
Parsa Kiai: It's interesting, because the last 12 months have been one of the most frothy environments that we can remember, in general stock markets and also with all of the enthusiasm surrounding artificial intelligence. In terms of short selling it has been a very challenging environment. You look at indices like the S&P 500 and they're up almost 21% in the past year. And the most shorted index - the basket of stocks with the highest short interest - has actually done even better, over 50%.
Even in that environment, our portfolio has done very well, specifically because of the techniques and strategies we outlined in our webinar with you. We don't just short for the sake of shorting. We specifically try to find targeted opportunities where we think there's overvaluation, business challenges, deceptive accounting, bad management, broken balance sheets, and a host of other factors. Many of the things we outlined have gone down, even though the market and highly shorted stocks have gone up. We've been able to generate very good returns on both our long and our short portfolios, despite the fact that the market has gone pretty much up in a straight line.
Matthias Knab: You disclosed three live shorts in that session. Where are they now?
Parsa Kiai: Each was around $3bn of market cap. Over the past year, those three shorts were down roughly 7%, 20% and 50%. That's the opportunity we want to capture.
It's not big enough for the largest funds, but it's a perfect size for us. In the world of 50 or 100 billion dollar funds, there are opportunities available to us that are not available to them because of our size - especially on the short side.
Matthias Knab: You call yourself a small fund, but $300m is not small.
Parsa Kiai: It's small in the spectrum of hedge funds. It's a great size for us. What we like is exactly that gap - the opportunities that are too small to matter to the largest managers.
Matthias Knab: Let's continue with portfolio construction, because your numbers are unusual. How many positions are you running?
Parsa Kiai: It depends on the opportunity set and where we are. Right now we have a large number of investments, because we see so much opportunity in different areas of the market, long and short - close to 40 long investments and 60 short investments. Depending on the opportunity set, that could be greater or smaller. The typical range would probably be 30 longs by 50 shorts.
Matthias Knab: Sixty shorts is a lot. That's a very diverse book.
Parsa Kiai: That's very diverse, and we have friends of ours who operate differently. But for us, we have a lot of humility and respect for how difficult short selling is, and because of that we make sure that we stay diversified.
If you make a mistake in your long portfolio, that mistake becomes smaller and smaller over time. If you make a mistake in your short portfolio, that becomes a bigger and bigger problem. The easiest way to blow up a fund is to have very large position sizes in a short portfolio.
Matthias Knab: Take me through the arithmetic.
Parsa Kiai: We will have a 2% short, because we know that it could very easily go up 50%, and then it becomes a 3% short - and we can maintain that short and be patient. If we had a 10% short and it goes up 50%, now it's a 15% short, and at that point it's very difficult to remain patient.
We have the experience, the scar tissue, and a lot of repetitions in our short portfolio. We think we can optimize it by having a large number of smaller shorts, because that allows us to be much more patient in the inevitable time when a short goes against you. The number of shorts we have is specifically designed to monitor and mitigate the volatility in our short portfolio, which in aggregate makes it a better, more profitable portfolio over time.
The diversification works at two levels, too - within each portfolio, and among the two portfolios.
Matthias Knab: How long have you been running the strategy in this form? Was the book always constructed this way?
Parsa Kiai: It's a little more than 14 years now. We've always been relatively diversified in our short portfolio, and our investment approach has been the same since launch - fundamental, value-oriented, opportunistic, generalist, long/short. That has remained the same.
But like all investors, we strive to evolve and adapt. The world today, in 2026, is different from the world in 2012. The participation of retail investors, the proliferation of ETFs and levered single-stock ETFs, zero-day expiration call options, the development of meme stocks - there's a lot of things that have occurred, and we've tried to learn and adapt from all of them. You see different industries come in and out of favour, different valuation techniques develop.
So we maintain a steadfast belief in our core principles, but we do adapt. We don't want to say we learned how to invest in the 1980s and we're only going to remain in that mindset.
Matthias Knab: Was there a specific point where you looked at the short book and decided, now we do it like this and run about 60 of them? Or did it just evolve?
Parsa Kiai: There have certainly been several instances. The post-COVID experience definitely changed how we think about shorting. You remember when the meme stock mania and all that happened - that was a big moment in terms of changing how we operate, by having smaller positions, more diversified positions, and also trying not to fight that battle, or that crowd, because we're talking in different languages.
But there are many other things. If you look at the first Trump presidency, there was a de-emphasis on regulatory frameworks. That had been a big way that we thought about shorting stocks: a company is doing something wrong, and a regulator is going to come in and do something about it - whether it's environmental protection, consumer protection, antitrust, something. We said, there's a regulatory catalyst. Now we de-emphasise regulatory catalysts, just because of the political environment that we're in.
Same thing with the SEC, and whether you can demonstrate corporate malfeasance to them and get them to do something. We've changed our belief in that. We're humble enough to say that the world has changed, we need to change how we think about some things, and we've changed some of those things.
Matthias Knab: So if the regulator is no longer the catalyst, what replaces it?
Parsa Kiai: We have a broad approach to short-selling, but catalyst-driven shorting is productive because it controls one of the most important factors in shorting, which is timing. Sometimes the longer the short investment time horizon, the more opportunity for something to go wrong - either because management desperately tries to do something and perhaps it goes right, or the company gets lucky, or the market moves substantially. With a specific catalyst you can mitigate that risk.
We look for unsustainable dividends, over-levered balance sheets, hidden liabilities, deceptive management teams engaging in fraud or aggressive accounting, and more traditional factors such as secularly declining or zero-terminal-value business models. Dividend reductions and eliminations - Cable One, Xerox, Medical Properties Trust. Balance sheet restructurings - Wolfspeed. Litigation and legal catalysts. Those are catalysts that resolve on company mechanics rather than on somebody else deciding to act.
Matthias Knab: When you speak with allocators today, what do they want to know? What are the doubts you have to address?
Parsa Kiai: In our experience, investors have wanted a lot of specialisation, and they have sought comfort in private markets - with the notion that because an investment doesn't have its stock price move day to day, it's safer. I think that notion is becoming appropriately dismantled.
If you look at private credit, many investors loved it because they said, look, I can get 10% returns and I don't have to worry about mark-to-market. It turned out that was an illusion. Private credit returns actually do carry credit risk. They have illiquidity risk. And now many investors are trying to get their capital out of these vehicles and they're being gated. So private credit looks more likely to be a mid to high single-digit return, at best, instead of what was anticipated. Venture capital and private equity still have challenges in terms of exits.
What we try to tell investors is that nothing is a free lunch. All of these things come with a cost. Especially for a small fund like ours, we have the ability to find pockets of mispricing that we can exploit, and because of our diversification we can generate good returns in different market environments without any need for the illiquidity or opacity that comes with other areas. Whatever is the flavour du jour, it is never a free lunch. We're transparent about the opportunity set in front of us.
Matthias Knab: We're seeing assets rotate back into hedge funds. Does that match what you see, and who is your typical investor?
Parsa Kiai: We see the same thing you see - money is coming back into the hedge fund industry after many years of seeking private equity, private credit and venture capital. The hedge fund industry has done a very good job over the past few years navigating the ups and downs. There was a period where, because of suppressed volatility and a host of other factors, it was a challenge, but the industry has done very well at getting smarter and getting leaner. So yes, we share that enthusiasm.
Our bread and butter investors are smaller family offices and institutional investors that want a more nimble, more generalist approach - as opposed to the largest institutional investors that want to be invested with the largest hedge funds. Our current investor base is a great group of family offices, institutional investors and high net worth individuals that we're very proud to be partnered with.
Matthias Knab: And the opportunity set going forward?
Parsa Kiai: Exceptionally good. I think we're going to be in a period of heightened volatility from a variety of sources - the geopolitical aspect of what's going on with the hostilities in Iran and elsewhere, the path of corporate earnings, and the big debate about the productivity of artificial intelligence spending. Some of these things are unpredictable and some you can have a view on, but they're all going to create opportunities on both the long and the short side, and that's where we try to exploit the mispricings we find.
This is where the diversification earns its keep. There will be periods like July 2026, which was very turbulent for the artificial intelligence investments many people made. In that period we were able to generate good returns despite the volatility, because of our short portfolio. In other periods throughout 2026 we generated good returns because of our long securities. We think there are substantial opportunities to find winners, both long and short, within artificial intelligence and outside of it.
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Parsa Kiai founded Steamboat Capital after serving as a Partner at Sonterra Capital, which he helped launch in 2008; earlier he was an energy analyst at Perry Capital and began his career at Goldman Sachs' Investment Banking Division.
Related coverage: The Big Picture: Now is not the time to give up on short-selling and Reclaiming the Hedge in Hedge Funds - Steamboat's approach to shorting. The video replay of the Steamboat Investor Workshop, covering the nine short sale archetypes, is available here.
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