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Hedge Funds Shut as Managers Struggle in Year of Two Percent Returns
By Katherine Burton Dec 1, 2014 6:00 PM CT
Hedge funds are shutting at a rate not seen since the financial crisis, as
many managers post disappointing returns and an elite group of firms
dominate money raising.
The $37 billion Brevan Howard Asset Management LLP is the latest firm to
close a fund. Last week it pulled the plug on its $630 million commodity
fund managed by Stephane Nicolas after it had tumbled 4.3 percent this year
through the end of October, according to a person with knowledge of the firm.
In the first half of the year, 461 funds closed, Chicago-based Hedge Fund
Research Inc. said. If that pace continues, it will be the worst year for
closures since 2009, when there were 1,023 liquidations.
“Most hedge funds have not performed extraordinarily well,” said Stewart
Massey, chief investment officer at Massey Quick & Co. in Morristown, New
Jersey, which invests in the private partnerships. He expects that
redemptions will hit small-and medium-sized firms this year, reducing assets
to a level where “they will have to make a decision whether to carry on or
not.”
Related: Hedge Funds Lose Money for Everyone, Not Just the Rich
Hedge funds, on average, have returned just 2 percent in 2014, their worst
performance since 2011, according to data compiled by Bloomberg. Smaller
funds have struggled to grow as institutional investors flocked to the
biggest players. In the first half of 2014, 10 firms including Citadel LLC
and Millennium Management LLC accounted for about a third of the $57 billion
that came into the industry.
Photographer: Chris Ratcliffe/Bloomberg
A security guard stands outside the building housing the offices of Brevan
Howard Asset... Read More
Interest Rates
Many of the closures have been among macro funds, which have returned less
than 1 percent this year, on average, according to Bloomberg data. Macro
managers have complained that in an environment of low interest rates and
muted swings in prices, it’s difficult to make money.
Josh Berkowitz’s Woodbine Capital Advisors LP said earlier this year that
it was closing down after assets dwindled to $400 million from a peak of $3
billion four years ago. Keith Anderson’s Anderson Global Macro LLC and
Kingsguard Advisors LP, started by two former Goldman Sachs Group Inc.
traders, both shut after less than three years in business.
Oil Prices
Some commodity strategies have also struggled as oil prices have tumbled.
Hall Commodities LLP, a London-based $100 million hedge-fund firm run by
Tony Hall and Arno Pilz, told clients in October it’s shutting down after
less than two years, citing poor performance.
Other managers have struggled to regain after years of losses. Dan Arbess
said last month that he’s closing his Perella Weinberg Xerion Fund after
failing to recoup a 21 percent loss dating from 2011. The fund, which
focused on distressed credit and special situations, hadn’t been able to
charge any performance fees since then.
The $740 million Archipel Asset Management AB told investors in October it
was closing after its biggest backer, Stockholm-based Brummer & Partners,
pulled out because of lackluster performance. Archipel, which traded based
on computer models, lost 3 percent in 2013 and 1.3 percent in the first nine
months of this year.
Market Bets
Massey of Massey Quick expects to see more redemptions and closures among
long-short equity funds, which have underperformed the bull market in stocks
because they bet on falling shares as well as those they wager will rise.
Stock hedge funds have climbed 41 percent since the end of 2008, according
to data compiled by Bloomberg versus a 153 percent rise in the Standard &
Poor’s 500 index.
Investors, he predicts, will end up pulling from funds at exactly the wrong
time, giving up on their insurance just as stock markets tumble
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