Bacon’s Spinoffs Falter as Mikheev Said to Liquidate Fund
Louis Moore Bacon built Moore Capital Management LLC into one of the biggest and most successful hedge funds over more than two decades. His record investing in startups run by former traders is less stellar.
Salute Capital Management, run by Lev Mikheev, is the third hedge fund backed by Moore and run by one of his ex-traders to liquidate in the past four months. Mikheev returned to Moore two weeks ago after his two-year-old fund lost 11 percent last year, said a person with knowledge of the matter, asking not to be named because the information is private.
Bacon, 55, whose New York-based firm oversees about $15 billion, invests client and partner money in former employees’ startup hedge funds and is often their biggest backer. The faltering spinoffs show that once-successful traders don’t always flourish running their own hedge funds, just as a half- dozen alumni from Goldman Sachs Group Inc. have struggled to make money for clients since striking out on their own.
“You often see traders not functioning as well as they did in their old jobs, where they had the benefit of top-down input from senior people,” said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a Darien, Connecticut-based firm that advises asset managers. “Being able to run a portfolio well is not the same as running a business well.”
William Tung and Tim Leslie also have told clients they were liquidating funds they started after leaving Moore.
Mikheev, 49, who managed about $300 million at Salute Capital, rejoined Moore’s business in London as a portfolio manager. Salute has offices in the U.K. capital and Moscow.
Mikheev had left in 2009 to start Salute, named for the former Soviet Union’s space station program Salyut, and focused on investing in stocks in Russia and Eastern Europe. Mikheev struggled to raise money from clients beyond the $250 million Moore had invested in Salute, according to the person. Mikheev first came to Moore in 2003 and had overseen as much as $1 billion in emerging markets, the person said.
Shawn Pattison, a spokesman for Moore, declined to comment.
As some traders close their funds and return to Moore, Bacon has rearranged investments among those who manage money within his firm, two people with knowledge of the matter said in November. He pulled some money last year from Greg Coffey, co- chief investment officer of Moore’s European business, after what was once his largest fund posted losses, the people said this month.
The move was a mutual decision between Bacon and Coffey to cut the trader’s capital amid difficult market conditions, one of the people said. Coffey, 40, owns a stake of between 10 percent and 25 percent in Moore Capital Management LP, according to a registration statement filed last month with the U.S. Securities and Exchange Commission.
“The downside of giving someone an ownership stake is that in the beginning people are often very excited, just like in a marriage, so they only think about how to get in,” said Jerome Lussan, founder of London-based Laven Partners LLP, which performs due diligence on hedge funds and helps managers structure their firms.
Tung, who started Avesta Capital Advisors LLC almost a decade ago after leaving Moore, told clients in January he planned to return to the firm after shuttering his $636 million equity hedge fund. Tung lost 6.4 percent last year, an investor said. His fund declined by 1.7 percent in 2010 after gaining 10 percent in 2009 and 2.9 percent in 2008, according to a November investor letter.
Hedge funds fell by an average of 5.8 percent in 2011 and rose 8.2 percent in 2010 and 9.2 percent in 2009 after losing a record 19 percent in 2008, according to data compiled by Bloomberg.
Tung, 41, said in a Jan. 12 letter to clients that returning to Moore, a macro-strategy fund that seeks to profit from economic trends by trading everything from currencies to commodities, would boost his chances of success because of the “prominent role that ‘macro’ is playing in the stock market.”
Moore had at least $200 million invested in New York-based Avesta, according to a person with knowledge of the matter. Tung had worked at Bacon’s fund for six years before he started his own business.
Leslie told clients in December that his James Caird Asset Management LP would liquidate its $1.6 billion credit fund. Leslie, 46, started the JCAM Global fund in 2003 while working at Moore and, with the help of an investment from Bacon’s firm, spun it out in 2008.
Moore had at least $500 million in James Caird, people familiar with the matter said. Leslie’s fund lost 8.9 percent last year through November, a person familiar with the matter said in December.
One investor withdrew from London-based James Caird because Leslie incurred losses on shares of commodity companies, drifting away from his credit strategy, the client said.
Those investments included stakes in Australia’s White Energy Co. and Nexus (NXS) Energy Ltd., said a person with direct knowledge of the trades. White Energy, a coal-technology company, plunged 89 percent last year and Nexus, which helps develop oil and gas reserves, slumped 52 percent.
Nicki Kahner, a James Caird spokeswoman, declined to comment.
The firm said in December it planned to raise $500 million for a fund that will be managed by Robert Miller, who has worked with Leslie since 2003.
Liquidations in the hedge fund industry rose to 775 last year, the most since 2009, as Europe’s sovereign-debt crisis roiled global markets, according to Hedge Fund Research Inc., a Chicago-based research firm.
Former Goldman Sachs trader Pierre-Henri Flamand lost about 2.4 percent through February since his $1.8 billion hedge fund Edoma Capital Partners LLP in London, started in November 2010, according to investors. Morgan Sze’s Azentus Capital Management Ltd. lost about 4.8 percent through February since its April 2011 inception in Hong Kong.
Closures of Moore spinouts span more than a decade. Tony Anagnostakis, who left in 2001 to run his own hedge fund, Agnos Group LLC, returned to Bacon’s firm two years later, industry publication Absolute Return reported at the time. His $1 billion fund rose about 10 percent in 2002, the magazine said.
Ron Connors, who was a fixed-income strategist at Moore, received $50 million from his former employer when he left in 2003 to start Cornerstone Global Macro Management LP, Absolute Return reported that year. Connors now works at Rafferty Capital Markets Inc. He didn’t respond to an e-mail and telephone message seeking comment.
Gains of 19%
Bacon started Moore in 1989 and his main fund returned an annual average of 19 percent through March, according to an investor update.
Bacon’s willingness to bring back traders who struggled on their own extends to his family. He rehired his older brother, Zack Hampton Bacon III, in February to oversee strategic planning after Zack closed his New York fund, Hampton Capital LLC, a person briefed on the matter said that month. Bacon had invested his own money with his brother, the person said. Zack had left Moore in 2005 to work at Alstra Capital Management LLC before starting Hampton in 2009.
Setbacks haven’t deterred him from investing in spinouts. Moore allocated $800 million to a hedge fund started last year by former employees Jens-Peter Stein and Kornelius Klobucar, two people briefed on the matter said in February.
Their firm, Stone Milliner Asset Management AG, began trading in January with more than $1 billion and returned 2.3 percent in the first quarter, according to an investor letter, a copy of which was obtained by Bloomberg News. Profitable bets included a wager against the Japanese yen, which fell in response to favorable U.S. economic data, the firm said.
Macro hedge funds gained 2.8 percent on average in the first three months of the year, according to data compiled by Bloomberg. Hedge funds of all strategies rose 3.8 percent, the industry’s best quarter since the final three months of 2010.
Stein and Klobucar, both former Morgan Stanley traders, had joined Moore in 2006 and produced annual profits of about 8 percent before they left at the end of last year, people with knowledge of the matter said in February.
Moore also invested about $250 million in Bramshott Capital LLP, a London-based hedge fund started by Paul Findley in 2011, people familiar with the matter said.
Bramshott, which invests in European equities, lost about 5.3 percent last year from its May inception through November, according to investors. Findley had joined Moore in 2008.
Within Moore, executives pulled capital from Coffey’s emerging markets macro fund last year and removed hard-to-sell assets that the trader inherited when he joined the firm in 2008, according to people familiar with the matter. The changes were made after Coffey lost 6.2 percent through the first 10 months of 2011, the people said. Assets in his fund declined to $700 million in November from as much as $1.6 billion in 2010.
Coffey, who was from London-based GLG Partners Inc., renamed all three hedge funds he manages at Moore last year to add his GC initials to their titles. Bacon commented on the rebranding and on “rumors” that Coffey may leave Moore in a Nov. 17 letter sent to clients, saying he and the trader have a “strong relationship which has continued to flourish through our collaboration in navigating these turbulent markets.”
The GC Moore Emerging Macro fund declined 0.8 percent in the first two months of this year after gaining 1.1 percent in the last two months of 2011, according to an investor. An equity fund Coffey oversees slumped 7.9 percent last month and 2.8 percent this year, while his fixed-income and currency fund lost 1.3 percent in March and 0.2 percent in the first quarter.