Hedge Fund Kingsguard Said to Close After October LossesKelly Bit
Kingsguard Advisors LP, a global macro hedge-fund firm started in 2012 by two former Goldman Sachs Group Inc. traders, is shutting down after losses in October, according to two people familiar with the matter.
Rishi Chadda and Cyrus Pouraghabagher, who started the New York-based firm to bet on interest rates, volatility, credit and mortgages, lost 8.3 percent last month, said the people, who asked not to be identified because the information is private. Kingsguard was initially backed by Investcorp, which provides startup capital to alternative-investment firms, with about $50 million, still its current asset size.
Some hedge-fund managers were caught off-guard in recent weeks as growing concern about the global economic recovery, a plunge in oil prices and the sudden exit of Bill Gross from Pacific Investment Management Co. rattled stock and bond markets. The market swings deepened losses for many macro managers who’ve been struggling for years as central banks around the world suppress interest rates.
“If you’re in an environment where it’s very challenging for your strategy, as it has been for macro since 2009, the rate of failure is going to be exceptionally high,” said Troy Gayeski, a partner at New-York based SkyBridge Capital, which invests in hedge funds. “When the established guys are fighting tooth and nail to raise or retain assets due to mediocre performance and you’re a startup manager and your only history is challenging, you’re going to go out of business eventually.”
Pouraghabagher and Matthew Gross, a spokesman for Bahrain-based Investcorp with FTI Consulting Inc., declined to comment. Chadda didn’t return a request for comment.
Other macro firms that experienced losses include Robert Citrone’s $15 billion Discovery Capital Management LLC, which fell 11 percent in a macro fund last month through Oct. 17, bringing declines since the start of the year to 21 percent. Brevan Howard Asset Management LLP’s main hedge fund, which has never posted an annual loss since starting in 2003, fell 2.7 percent in the first 24 days of October, according to a person with knowledge of the matter, who asked not to be identified because the results aren’t public. The fund, managed by billionaire Alan Howard, is down 2.3 percent this year through that date.
Chadda and Pouraghabagher started their careers as analysts in the mortgage department of Goldman Sachs in the summer of 1997, before rising to senior trading roles at the firm. Chadda became a managing director and worked in Goldman Sachs’s interest-rate products group, and Pouraghabagher became a vice president on the firm’s mortgages desk, which included derivatives and residential mortgage securities that lack government backing.
Some former bank traders have faced difficulties as they moved into the $2.8 trillion hedge-fund industry, where the flow of market information is reduced and they need to compete with thousands of investment firms to win clients. Among those that closed this year is KKR & Co.’s equity hedge fund, which was run by Bob Howard and his former team from Goldman Sachs. Howard’s former boss at Goldman Sachs, Pierre-Henri Flamand, shut his own hedge-fund firm in 2012 because of losses and as assets dwindled.
“It’s very challenging to come out of sell-side proprietary desks and launch your own fund,” Gayeski said. “Instead of one boss and an unlimited balance sheet you have a variety of clients with different expectations and counterparty relationships you have to manage. That transition is very treacherous.”
In this year’s first half, 461 hedge funds were shut, according to Chicago-based Hedge Fund Research Inc. Liquidations climbed to 904 last year, the most since 2009. Hall Commodities LLP, a London-based $100 million hedge-fund firm run by Tony Hall and Arno Pilz, told clients last month it’s closing after less than two years in business, citing poor performance.