PJT's Taubman Sees Investors Exiting Hedge Funds in Market Rout

  • Paul Taubman said limited partners are seeking liquidity
  • If market turmoil persists, no one unscathed, PJT CEO says

Paul Taubman, whose PJT Partners Inc.’s advisory business has helped hedge funds raise $25 billion over the past decade, said market turbulence may spur investors to flee such bets.

“In the hedge fund world there’s no doubt that with all this volatility, you’re seeing either a slowing of net inflows or outright outflows,” Taubman said Thursday on a fourth-quarter conference call. “What that does, it creates more of a flight to quality.”

Hedge funds recorded net investor capital outflows for the first time since 2011 in the fourth quarter amid market volatility even though industry assets rose during 2015 to $2.9 trillion, according to data provider Hedge Fund Research Inc. Those outflows may represent only a fraction of investor activity since some redemption requests submitted in the fourth quarter haven’t yet shown up in the data.

Shares of PJT, which advises on mergers, restructurings and fund placement, dropped 6.8 percent to $22.70 at 11:26 a.m. in New York, extending its decline for the year to about 20 percent. The company, which went public in October, posted a fourth-quarter loss of $24.9 million, with revenue of $103.8 million. Placement contributed about $38 million in fees.

Taubman said private equity will be less affected by short-term volatility because investment horizons are usually longer. In 2015, there was a record distribution from such funds and they will seek more capital, he said.

In the secondary market, where limited partners sell to third parties, investors are looking for more liquidity, he said. To the "extent there are some major shocks in the market, there probably will need to be some aggressive reallocation of their existing funds,” Taubman said.

PJT’s Park Hill business, led by Daniel Prendergast, helps advise investors on where to place capital, such as in real estate or private equity funds. The operation has committed about $70 billion for investors in private equity since it started in 2006.

“I think we’re very well positioned, but no doubt if we end up with a precipitous drop and a very, very different market environment, I don’t think there’s anyone who’s going to come out of that unscathed,” Taubman said.

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