The Tricky Art of the Hedge Fund Handoff
Bruce Kovner is betting he can pull off what eluded Stanley Druckenmiller and George Soros: keeping his hedge fund firm alive after he moves on. On Sept. 13, Kovner named Chief Investment Officer Andrew Law, 45, to run his $10 billion Caxton Associates. Kovner, 66, who started the New York firm in 1983, told clients in a letter that he will retire by the end of the year. Peter D’Angelo, 64, the firm’s president and co-founder, will also step aside.
Caxton is confronting a difficult challenge faced by a growing number of hedge funds: managing the transition to new leadership in a business where success is built on the founders’ trading skill and reputation. In the past year or so at least three top hedge fund managers stopped investing client money. Soros, the 81-year-old billionaire, told investors in July that he would turn Soros Fund Management into a family office. Druckenmiller, 58, shuttered his Duquesne Capital Management in August 2010. Kovner declined to comment, as did officials for other hedge funds mentioned in this story.
Chris Shumway, 45, founder of Shumway Capital Partners, named a new chief investment officer in November and told clients that he planned to step back from managing money. Within months of the announcement, clients asked to redeem $3 billion, prompting Shumway to return all outside money by the end of the first quarter of this year. “I don’t recall staying with a hedge fund after the main manager stepped away,” says Peter Rup, CIO of Artemis Wealth Advisors, which invests in hedge funds for clients. “It’s down to a lack of trust in the ability of the successors to step up, so as an investor, why take the risk?”
At Caxton, Kovner started preparing clients for the change about three years ago when he promoted Law to the new role of CIO. Law, who joined the firm in 2003, manages about 20 percent of the assets of Caxton Global Investments’ main fund and has been the primary contact for the fund’s investors. The fund, which trades a variety of assets, from currencies to commodities as it seeks to profit from broad economic trends, has returned an average of 21 percent a year after fees since inception, compared with an average gain of 11 percent including dividends by the Standard & Poor’s 500-stock index. Law is confident that if the fund continues to deliver strong returns, investors will stick with him. “When you don’t get the markets right,” he says, “that’s when people fall out.”