- Convexity investors pulled more than $1 billion last quarter
- Ex-Harvard endowment chief’s firm peaked at about $15 billion
Jack Meyer, the investor who built a multibillion hedge fund firm after more than quadrupling the size of Harvard University’s endowment, has seen assets erode to below the level he started with a decade ago following weak performance.
Convexity Capital Management fell to about $6 billion in assets as of June 30 after meeting more than $1 billion in redemption requests last quarter, according to two people with knowledge of the matter. The Boston-based firm, which peaked at around $15 billion in early 2013, risks underperforming for the fifth year in a row after missing its benchmarks by roughly 3.6 percentage points in the first half, said one of the people asking not to be identified because the returns aren’t public.
Meyer declined to comment.
Meyer, 71, who averaged annual gains of 16 percent in his last decade at Harvard, has suffered a reversal of fortune at his hedge fund as investors lose patience. Convexity is among a number of prominent money managers struggling in a prolonged climate of low interest rates driven by central-bank policy. Value investor Grantham Mayo Van Otterloo & Co. recently cut about 10 percent its 650-person staff following a sharp decline in assets.
It has been a slow bleed for Convexity as it takes three years for investors to fully redeem because of contract terms, said one of the people. Convexity’s assets were at $7.1 billion at the end of the first quarter, said the person.
After faring well during most of its early years, the fund trailed its benchmarks by about 0.3 percentage point in 2012, 3.4 percentage points in 2013, 2.4 percentage points in 2014 and 0.6 percentage point in 2015, one of the people said. The firm reports relative performance rather than absolute returns, seeking to create alpha by beating indexes selected by its clients. Returns can vary for different investors.
Convexity refers to a measure of how a bond’s value is impacted by movements in interest rates. The firm’s strategy, which involves trading options and asset swaps, typically benefits during periods of market volatility.
Meyer used similar strategies at Harvard, which helped it keep its status as the richest school in the world. Under his leadership, the endowment grew to $25.9 billion in 2005 from $4.7 billion 15 years earlier. He left in 2005 amid criticism over compensation. Meyer began trading at Convexity in 2006 with $6.3 billion, a record for a hedge fund startup at the time, including a $500 million commitment from Harvard.