Greg Coffey was described by Louis Moore Bacon as “one of the most impressive traders in the world” when the billionaire founder of Moore Capital Management LLC hired him in 2008 to help manage his hedge funds. His investment performance since has been subpar.
Mr. Coffey's main Moore Emerging Markets Fund Ltd. returned an average of 6.2% annually in the three years through Oct. 31. Hedge funds rose an average of 7.6% in the same period, according to Hedge Fund Research Inc.
As Mr. Coffey fails to meet Moore's profit target and investors pull out, Mr. Bacon is making changes to give his 40-year-old star hire a second chance. The London-based trader is starting a new fund, leaving behind almost $100 million of assets that he inherited when he joined Moore and that have underperformed this year, according to two people with knowledge of the matter. Moore also has backed Mr. Coffey's effort to distinguish himself from the firm by creating a group labeled Greg Coffey Funds, which includes the new GC Moore Emerging Macro fund, and registering a partnership called Greg Coffey Investments LLP.
“Building your own brand within someone else's firm does raise questions about how long you're going to stay,” said Michael Rosen, chief investment officer of consultant Angeles Investment Advisors LLC, Santa Monica, Calif.
Mr. Bacon, in a Nov. 16 letter to clients, said the new fund was started at the request of investors for a “separate vehicle” and that Mr. Coffey has no plans to leave the firm.
“Greg Coffey and his team are steadfast in their efforts to continue to grow and succeed in their business at Moore Capital,” Mr. Bacon wrote in the letter. “Greg Coffey and I enjoy a mutually beneficial and strong relationship which has continued to flourish through our collaboration in navigating these turbulent markets.”
Mr. Bacon and Mr. Coffey declined to be interviewed.
In November 2008, Mr. Coffey joined New York-based Moore, together with his 12-person team, from rival GLG Partners Inc., where he oversaw more than a quarter of the London-based hedge fund's $24 billion of assets at the time. He was named co-chief investment officer of Moore's European business, the first person Mr. Bacon has shared the title with since he started the hedge fund in 1990. Mr. Coffey became a partner in the firm, which manages $15 billion.
Mr. Coffey is known for his quick-fire trading style — buying and selling large volumes of securities daily. He spends his day surrounded by six computer screens on Moore's trading floor, according to a person with knowledge of the firm. His homes in Australia are also outfitted with trading systems.
The Moore Emerging Market fund lost 7.4% this year through October, compared with the average 3.9% decline posted by the industry. The losses stemmed from Mr. Coffey's bearish outlook on emerging markets since the start of the year, according to two investors, who were among more than a dozen people that provided details while asking not to be identified because Moore is a private firm.
Mr. Coffey's other hedge funds have fared better since they were started in April 2009. A $1 billion equity fund returned an annual 17%, after losing 4.1% this year through October, according to Mr. Bacon's letter. A $200 million fixed-income and currency fund is up 7.2% annually and 3.9% this year.
Mr. Coffey isn't satisfied with his investment returns, said Arpad Busson, who has invested in Mr. Coffey's funds since the trader managed money at GLG.
“Performance has been very respectable compared to peers,” said Mr. Busson, founder of EIM SA, a Nyon, Switzerland-based firm that invests in hedge funds on behalf of clients. “Is he the guy that stands out, and has been No. 1 recently? No. But he has kept up with the leaders.”
Mr. Coffey has fallen short of Moore's target returns of 18% to 25%, according to a person familiar with the matter.
Mr. Coffey also manages a portion of Mr. Bacon's largest fund, Moore Global Investments, which lost 3.1% this year through October. Similar macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities, fell an average of 3.3%, according to Chicago-based Hedge Fund Research. Moore charges investors 25% of investment profits, compared with the industry norm of 20%.
At a June conference in Rome, Mr. Coffey told a room of 40 potential clients that he favored holding cash because of market volatility. He said he expected a rally in August and September and that there would be a lot of investment opportunities in emerging markets, according to two attendees. Mr. Coffey posted a 4.3% loss in August and a 3.4% gain the following month.
Illiquid investments, such as stakes in private companies that are hard to trade, accounted for 2% points of the loss for Mr. Coffey's fund in August, when fears of slowing economic growth in the U.S. and Europe's sovereign-debt crisis roiled markets, according to an investor.
Mr. Coffey experienced the pitfalls of buying stakes in private companies at his previous employer. Investors in the biggest hedge fund that Mr. Coffey managed at GLG have been waiting for more than three years to get all of their money back after he invested in a Siberian coal mine co-owned by Russian oligarchs.
Moore last month gave clients the choice to remain in the Moore Emerging Markets fund, which would contain the illiquid assets being shed by Mr. Coffey, put money in Mr. Coffey's new fund, have an investment in both funds or pull their money entirely without penalty.
The new GC Moore Emerging Macro fund has about $700 million in assets, according to the investor letter. It gained 5% this month, according to clients. The old fund managed as much as $1.6 billion last year.
“In situations like these, the reorganization tends to give the portfolio manager a second opportunity to improve performance, and if the manager decided to leave further down the road, he could do so on a higher note,” said Alper Ince, a partner at Pacific Alternative Asset Management Co. in Irvine, Calif.
Mr. Bacon, in his letter, called the fund reorganization a “rebranding exercise” undertaken for investors. The “vast majority” of clients in Mr. Coffey's old fund decided to move their money to his new one, he said. Mr. Bacon is managing the remaining assets in the Moore Emerging Markets fund, including the illiquid holdings, which investors said are valued at about $96 million.
Other changes have been made at Moore to set Mr. Coffey and his team apart. His deputy, Eric Dannheim, relinquished the title of chief operating officer of Moore's European business at the start of this year to become CEO of Greg Coffey Funds, according to a marketing document. The new role allows Mr. Dannheim to spend more time trading and to focus on raising money.
In recent months Mr. Coffey and Mr. Dannheim have stepped up efforts to canvas investors. Mr. Coffey's June presentation in Rome was at a conference organized by Goldman Sachs Group Inc. Attendees said it was the first time they had seen him attend a marketing event since joining Moore. Mr. Dannheim presented at a Morgan Stanley-organized event in Barcelona last month and is slated to present at another Goldman Sachs event in December in New York.
There has been speculation inside and outside the firm about Mr. Coffey leaving Moore ever since he posted a 7% loss in February 2010, rumors that Mr. Bacon dismissed in his letter.
