Louis Moore Bacon plans to give back $2 billion, or 25% of his main hedge fund, to investors, saying it may be too big for him to achieve past returns as “liquidity and opportunities have become more constrained.”
Mr. Bacon, who seeks to exploit macroeconomic trends such as changes in interest rates and currencies, returned a “disappointing” 0.35% in the first half and a “tolerable” 6% in the past year, according to letter sent Wednesday to clients. He has gained more than 18% since starting the Moore Global Investments fund in 1989.
“Unfortunately, as the amount and percentage of the assets I manage have increased these last several years, the markets have been trickier and less liquid,” Mr. Bacon wrote in his eight-page letter. “The ‘risk on/risk off’ environment appears to be an abiding presence that has kept my market engagement low.”
He declined to comment beyond the letter.
Mr. Bacon, who manages virtually all of the $8 billion macro fund himself, up from 50% as recently as 2007, outlined several reasons for the need to be more nimble and put on smaller bets.
“Markets are increasingly distorted by central banks’ attempts to squeeze drops of growth from an over-indebted private sector across much of the developed world,” through such practices as bond purchases and super-low interest rates, Mr. Bacon wrote.
The U.S. markets are hindered by “a caustic political environment and an anti-business administration,” he said. U.S. banks have retreated from making markets in many securities because of the Dodd-Frank Act, which limits them from trading for their own accounts.
As for the eurozone, the “banking authorities have been a special case in ineptitude” because they delayed demanding that banks raise capital “until it is largely infeasible,” he wrote. He called the eurozone “a potential disaster area of catastrophic proportions.”
This environment has made markets much more difficult to trade and reduced opportunities in debt, currency and credit markets, he said.
Mr. Bacon’s Moore Capital Management oversees a combined $15 billion in all of its six funds. The manager previously returned about $2 billion over the life of the macro fund, he said in the letter. Every time he gave money back, performance improved.