Perry Capital Closing Flagship Fund After Almost Three Decadesby and
‘Market headwinds against us have been strong,’ Perry wrote
Fund lost 18.4% since end of 2013; assets drop more than half
Richard Perry, one of the biggest names in hedge funds, is calling it quits after 28 years.
Perry, 61, is winding down his New York-based flagship fund as the industry confronts one of the most tumultuous periods in its history. In a letter to investors Monday, he said his style of investing no longer worked.
“Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable,” Perry wrote in the letter.
It’s a remarkable turn of events for Perry, who is one of the longest-standing hedge fund managers. He was part of an elite group of proteges of Robert Rubin at Goldman Sachs Group Inc. who went on to run marquee hedge funds. Over the fund’s first two decades, Perry posted an average return of 15 percent without ever having a down year.
But lately Perry Capital and many rivals have struggled to persuade investors that hedge funds are worth the high fees they charge. Over the past year his fund, which manages about $4 billion, has lost more than half its assets. Fortunes changed for Perry amid a reshuffling of top executives that started in 2014, and the fund, which focuses on investing around corporate and sovereign events, has lost money in each of the last three years.
The closure is the latest -- and almost certainly not the last -- in what is shaping up to be the biggest shakeout in the $2.9 trillion hedge fund industry since the financial crisis. London-based Nevsky Capital closed its doors, citing fewer money-making opportunities because of the emergence of computer-driven strategies and index funds. Tudor Investment Corp. dismissed about 15 percent of its workforce in a shakeup in August. And Brevan Howard Asset Management plans to stop charging existing clients management fees on any new investments they make in two of its hedge funds, according to a person with knowledge of the matter.
The fund will return a substantial amount of its client money next month, according to the letter. Perry’s fund has been selling out of investments in recent months. In the quarter ended June 30, it had dialed back its U.S. stock investments by 40 percent, exiting positions including hospital operator HCA Holdings Inc. and pipeline company Spectra Energy Corp., according to its latest filing.
Perry Capital’s less liquid positions will be sold over the next year, or longer. Some of them, including its remaining preferred shares in Fannie Mae and Freddie Mac, “will take time, energy and capital to successfully realize an appropriate result,” Perry wrote in the letter. The core team will remain in place to aid in the liquidations and capital will be returned quarterly as transactions are completed.
"Our interests are aligned -- the Perry funds represent almost all of my liquid capital," Perry said.
Win Streak Ends
The fund’s assets peaked at $15 billion in 2007, when it made $1.5 billion betting against subprime mortgages, according to people familiar with the firm. The following year the fund plunged 28 percent, breaking its winning streak.
Performance rebounded for a time, then took a turn for the worse in 2014, after Paul Leff, who founded the firm with Perry, stepped back from his role as co-chief investment officer. Subsequent changes in top-level management over the next two years added to investors’ frustrations, former clients said.
David Russekoff became sole CIO after Leff’s departure, but his reign was short-lived. He left in late 2015 amid the firm’s worst year since 2008. He was replaced by a three-person investment committee composed of Todd Westhus, Maulin Shah and Todd Gjervold. Gjervold departed the firm in July, according to his profile in LinkedIn. Since the end of 2013, the fund has tumbled 18.4 percent.
In recent years the firm profited from investments in distressed Argentine and Greek sovereign bonds and preferred shares of Fannie Mae and Freddie Mac. Gains were outweighed by losses on bets including Williams Cos., Energy Transfer Equity LP, International Paper Co. and Puerto Rico.
Before starting his hedge fund, Perry had a decade-long career at Goldman Sachs, where he worked on Rubin’s arbitrage desk investing in the stocks of merging companies. Rubin, who later became U.S. Treasury secretary, spawned a group of successful hedge fund managers including Frank Brosens, co-founder of Taconic Capital Advisors, and Eric Mindich of Eton Park Capital Management.
Some of Perry Capital’s best-known alumni include Christopher Hohn, who accumulated a fortune of $100 million before leaving in 2003 to found TCI Fund Management, and Alp Ercil, Perry’s former Asia head, who has raised more than $3 billion to invest in distressed assets since leaving in 2012 to start Asia Research & Capital Management.
In an interview Monday, Perry said while he is focused on the current investments, “I have this hope that someone says, ’I love what you guys did, your team did things that were completely different, and how can I participate with them in the future?’"
He added that he’s ready to provide capital and advice to Westhus and Shah, if they want to start their own businesses.
“Most importantly I don’t feel like being defensive or arrogant,” Perry said. “We provided capital in some difficult times to companies and countries and we were there when very few others were."