Difficult investment conditions for hedge fund managers are pushing even seasoned firms to get out of the business.
Since the beginning of 2017, 16 well-established firms managing multiple billions in hedge funds and hedge funds of funds have either closed up shop completely or set up family offices and returned money to external investors.
Among a spate of recent closures that began in June were:
- BP Capital LLC.
- Criterion Capital Management LLC.
- EACM Advisors LLC.
- Emerging Sovereign Group LLC.
- Highfields Capital Management LP.
- Ivory Investment Management LLC.
- Omega Advisors Inc.
- Tide Point Capital Management LP.
- Tourbillon Capital Partners LP.
Long-tenured industry observers said it's unusual to see so many large well-known hedge fund management companies return investor cash over a short period of time.
Hedge fund returns have been muted this year — the year-to-date return of Hedge Fund Research Inc.'s HFRI Fund Weighted Composite index as of Sept. 30 was just 1.45%, compared to 8.59% in 2017 and 5.44% in 2016 — highlighting the difficulty of managing large asset pools in such a tough market, sources stressed.
"The industry seems to be moving toward midsized, more entrepreneurial hedge fund managers who can invest more nimbly in current market conditions," said Andrew Saunders, senior managing director at Castle Hill Capital Partners Inc., New York, a specialist consultant to hedge funds.
Sources said some closures were prompted by generational issues as founders near retirement without the will to undertake succession planning.
"Many veteran managers already have made a lot of money and are asking themselves: 'Why should I look under the hood of my strategy? Why do I need to deal with all of these regulations?' Some managers decide to skip the hassle and convert to family offices," said hedge fund attorney Steven B. Nadel, partner in the investment management group of Seward & Kissel LLP, New York.
The most common reason managers gave for closing their funds or returning investor money was simply that the investment strategy stopped working.
A case in point is New York-based Tourbillon Capital Partners. The global long/short equity hedge fund manager announced in an Oct. 8 letter to clients obtained by Pensions & Investments that it will return money managed for external investors in its flagship Global Master Fund at the end of the year.
In the letter, Jason H. Karp, founder, CEO and co-chief investment officer, said executives after thorough analysis concluded that the firm's primary investment principle — "to isolate and only be compensated for alpha" — is "no longer an optimal way to manage your and our own money."
Mr. Karp told investors that he and senior executives will continue to manage their own money "in a radically different, unconstrained manner that I believe will allow us to focus only on our highest-conviction ideas."
As of June 30, Tourbillon managed $1.2 billion, according to data provided to P&I. As of Feb. 28, the firm managed $3.4 billion, per its most recent ADV filing with the Securities and Exchange Commission.
Tourbillon is a comparative youngster — the firm launched in 2012 — among the venerable hedge fund managers returning capital after decades in the business.