Richard Perry, one of the biggest names in hedge funds, is calling it quits after 28 years.
Mr. Perry, 61, is winding down his New York-based flagship fund as the industry confronts one of the most tumultuous periods in its history. In a letter to investors Monday, he said his style of investing no longer worked.
“Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable,” Mr. Perry wrote in the letter.
It's a remarkable turn of events for Mr. Perry, who is one of the longest-standing hedge fund managers. He was part of an elite group of proteges of Robert Rubin at Goldman Sachs Group who went on to run marquee hedge funds. Over the fund's first two decades, Mr. Perry posted an average return of 15% without ever having a down year.
But lately Perry Capital and many rivals have struggled to persuade investors that hedge funds are worth the high fees they charge. Over the past year his fund, which manages about $4 billion, has lost more than half its assets. Fortunes changed for Mr. Perry amid a reshuffling of top executives that started in 2014, and the fund, which focuses on investing around corporate and sovereign events, has lost money in each of the last three years.
The closure is the latest -- and almost certainly not the last -- in what is shaping up to be the biggest shakeout in the $2.9 trillion hedge fund industry since the financial crisis. London-based Nevsky Capital closed its doors, citing fewer money-making opportunities because of the emergence of computer-driven strategies and index funds. Tudor Investment Corp. dismissed about 15% of its workforce in a shakeup in August. And Brevan Howard Asset Management plans to stop charging existing clients management fees on any new investments they make in two of its hedge funds, according to a person with knowledge of the matter.
The fund will return a substantial amount of its client money next month, according to the letter. Mr. Perry's fund has been selling out of investments in recent months. In the quarter ended June 30, it had dialed back its U.S. stock investments by 40%, exiting positions including hospital operator HCA Holdings Inc. and pipeline company Spectra Energy Corp., according to its latest filing.
Perry Capital's less liquid positions will be sold over the next year, or longer. Some of them, including its remaining preferred shares in Fannie Mae and Freddie Mac, “will take time, energy and capital to successfully realize an appropriate result,” Mr. Perry wrote in the letter. The core team will remain in place to aid in the liquidations and capital will be returned quarterly as transactions are completed.
"Our interests are aligned -- the Perry funds represent almost all of my liquid capital," Mr. Perry said.
The fund's assets peaked at $15 billion in 2007, when it made $1.5 billion betting against subprime mortgages, according to people familiar with the firm. The following year the fund plunged 28%, breaking its winning streak.
Performance rebounded for a time, then took a turn for the worse in 2014, after Paul Leff, who founded the firm with Mr. Perry, stepped back from his role as co-chief investment officer. Subsequent changes in top-level management over the next two years added to investors' frustrations, former clients said.