Hedge-fund veteran Richard Perry is making a bold move. He’s being relatively upfront about why he decided to close his main fund, effectively ending his Perry Capital’s 28-year run.
"I had to be realistic, and it hadn’t been working for the last couple of years," he told Bloomberg News this week. He was no doubt referring to the billions of dollars of withdrawals and negative returns that have plagued the New York firm in recent years.
He added, "It would be better not to be in this mark-to-market world, and focus on longer-term investments.”
In other words, times have changed. Investment strategies that worked a decade ago don’t anymore. And so as a result, Perry seems more interested in going back to his roots of analyzing specific companies and investing in them for the long haul rather than trading in an increasingly confounding market.
Why is it so tough to make money right now?
Based on Perry’s statements, he appears partly to blame the practice of "marking to market," or revealing the worth of one's investments in real time. Investors and regulators have demanded more transparency by traders since the 2008 crisis, and that's had a profound influence on markets.
Disclosing asset values on a regular basis makes markets more efficient and gives entry to electronic market makers who essentially shrink the price gaps between securities that would otherwise arise in more opaque conditions. This squeezes money managers who used to profit from irrational discrepancies that used to emerge.
Increased disclosure also opens up funds to heightened scrutiny, so as money managers try (and often fail) to predict the future in a period of unprecedented central-bank interference, investors are closely watching them. It's kind of awkward. Not only that, investors have demanded more freedom to withdraw cash from hedge funds since the credit crisis, meaning that they can vote with their feet if a manager's performance is sub-par.
Of course, there's more to it than that when you look at specific trades. For example, some of Perry's fund’s failed trades included a wrong-way bet on paper companies, which have struggled in an increasingly digital era, and another on Puerto Rican bonds, which have been buffeted by the island's increasingly dire situation.
But every big money manager will be wrong sometimes. Perry and others want the freedom to make longer-term wagers without the scrutiny of investors looking for short-term returns. Perhaps they can plow into areas of the market that are so esoteric that they're less efficient, but to do that, they need to manage less money and be less exposed to the risk of withdrawals.
It's incredibly difficult to prove one's worth as an investment professional at a time of sky-high valuations, more efficient markets and endless cheap money. An increasing number of respected money managers are realizing that and just getting out of the game.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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