Institutions are prominent among the investors that will have collectively reduced hedge fund assets managed by Claren Road Asset Management LLC by 75% in the year ending Sept. 30.
The New York-based manager has been hit by two redemption requests totaling nearly $4 billion within the past nine months by institutional and other investors fleeing from its credit long/short strategies that until last year had never experienced a down year.
Claren Road's assets under management peaked at $8.5 billion as of Sept. 30, 2014, declined to $4.1 billion on July 31, and will fall precipitously to $2.1 billion as of Sept. 30, not including possible performance gains or losses.
The Carlyle Group LP, Washington, better known as a private equity manager, has owned a 55% stake in the firm since December 2010, and said in an 8-K filing with the Securities and Exchange Commission last week that investors had submitted requests to redeem a total of about $2 billion — roughly 48% of existing assets — from Claren Road's two long/short credit hedge funds in the quarter ending Sept. 30.
This latest redemption wave mirrors that of the fourth quarter of 2014 when investors demanded the return of $1.9 billion.
Specialist hedge fund investment consultants probably have played a role in the Claren Road exodus as they counseled clients to get their money back, observers noted.
“Between Cliffwater and Albourne Partners clients, there's a huge chunk of Claren Road exposure,” said one industry source who asked not to be identified.
Stephen L. Nesbitt, CEO of Cliffwater LLC, Marina del Rey, Calif., declined to comment.
David Harmston, the Norwalk, Conn.-based head of the client group of Albourne Partners Ltd., London, did not respond to an e-mail request for comment.
Institutional investors that have redeemed — with or without their consultant's input — or are closely monitoring the firm pointed to performance problems in the past year stemming from losses in investments in mortgage companies Fannie Mae and Freddie Mac, natural resources and bad bets on Greece.
The company's flagship Claren Road Credit Partners fund was down 4.8% year-to-date through June 30, Bloomberg reported.
By contrast, the HFRI Fund Weighted Composite index returned 2.2% for the six months ended June 30 and the HFRI Relative Value (Total) fixed-income index returned 2.3% for the same period. Both indexes are produced by Hedge Fund Research Inc.
Among funds that submitted redemption requests for Claren Road this year are:
nThe $7.7 billion Sacramento County (Calif.) Employees' Retirement System is retrieving its $29 million investment in Claren Road Credit Partners on Sept. 30 because of performance concerns, said CEO Richard Stensrud in an e-mail;
nThe $2.5 billion Houston Municipal Employees Pension System is redeeming its $5 million investment in Claren Road Credit Partners on Sept. 30. Spokesman Peter Koops would not give the reasons for the redemption; and
nThe $26.2 billion Employees Retirement System of Texas, Austin, redeemed its $80 million Claren Road investment earlier this year, according to an Aug. 18 investment committee report. Mary Jane Wardlow, an ERS spokeswoman, said in an e-mail that “Claren Road did not provide the level of transparency required (by) ERS to effectively monitor and manage the investment.” She did not specify the timing of the termination.
Meanwhile, investment officials of the $62 billion Massachusetts Pension Reserves Investment Management Board, Boston, which has invested $25 million in Claren Road Credit Partners, are “monitoring” the situation, said Cosmo Macero, a spokesman. Mr. Macero declined to say whether PRIM has placed a redemption request with the manager.