Convexity misses mark in 1st quarter

Convexity Capital Management, the $12.6 billion fund run by Harvard University’s former endowment head Jack Meyer, told clients it had a “disappointing” first quarter as it missed benchmarks by 1.5 percentage points amid falling volatility.

The firm, whose strategy works best in choppy markets, saw “lots of smoke, not much fire” in the first three months of the year as fixed-income markets moved little, Mr. Meyer wrote in a letter to clients last month.

“It’s been a while since we have had a negative quarter,” Mr. Meyer wrote in the letter, a copy of which was obtained by Bloomberg News. “After careful consideration we have decided we do not like it. It will never happen again. OK, ignore that last statement. Of course it will happen again. But we are confident that we can continue to add value over the long term and that these bumps in the road will be … well, just bumps in the road.”

The shortfall was the first in two years. Mr. Meyer exceeded a group of market indexes by an annual average of seven percentage points since he began trading in February 2006. Over the past 12 months, the fund topped the benchmarks by 2.8 percentage points.

Mr. Meyer ran Harvard’s endowment, the world’s biggest, for 15 years before leaving in 2005 with more than 30 employees amid an outcry over pay.

He declined to comment.