Ex-Goldman Trader Speaks Out After Shutting Asia Hedge Fund Startupby
Guard plans to return 95% of capital to investors by June 14
Lim said he is reflecting on mistakes, fund performance
After deciding to shutter his hedge fund following a slump in returns, former Goldman Sachs Group Inc. trader Leland Lim is in search of some answers.
Lim’s Hong Kong-based Guard Capital Management, one of Asia’s most successful hedge fund startups, decided to close its $873 million macro hedge fund after a 5.1 percent loss in 2016 and another 4 percent retreat in the first quarter of this year.
In the first media interview since he announced the move to investors, Lim, 41, said an “intense” analysis of the fund’s disappointing performance led him to believe that the investment team’s setup wasn’t ideal. He’s reflecting on the mistakes he made building the team and thinking about how he can improve his approach.
“The only moral thing to do if you are not 100 percent sure you are optimized is to give the money back while you re-assess, even if the business itself happens to be profitable,” Lim said, who declined to disclose details of trades that backfired.
Lim’s firm told investors it plans to return 95 percent of their money by June 14, with the remainder refunded around August, according to a May 4 newsletter seen by Bloomberg. The closure is a reversal for the macro hedge fund, which expanded assets from $50 million at inception in 2014 to $1.1 billion at its peak in 2016, putting it among the most successful hedge funds launched in the last three years, according to Eurekahedge Pte in Singapore.
Managers are trying to address mounting investor discontent over hedge funds charging high fees for mediocre returns. Investors pulled $70 billion from the $3.1 trillion global industry in 2016 in the first annual net outflows since 2009 and another $5.5 billion in the first quarter, according to Chicago-based Hedge Fund Research Inc. Fund liquidations surged to an eight-year high last year while new starts sank to an eight-year low.
Lim previously co-headed Goldman Sachs Group Inc.’s macro trading team in the Asia-Pacific region outside Japan. Guard joins other high-profile funds founded by Goldman Sachs alumni that have shuttered or returned outside money. They include Eric Mindich, a one-time star trader at the Wall Street bank, who this year threw in the towel on his firm.
Here are some excerpts from the interview with Lim.
Why Lim decided to return money: “Over the last 12 to 18 months, I felt that I was not capturing the opportunities in the magnitude that I normally would have.”
Market conditions in recent years: “We were blessed with a fantastic macro trading backdrop during Guard’s life. We were able to capitalize nicely on that for the first few years. I think the macro backdrop remains extremely fertile for our particular style of concentrated risk-taking.”
On how it was a tough decision to shut down: “Whether we are talking about the investors who took the time to get to know us and trusted us to manage their capital or whether we are talking about the employees who sign up knowing the risks of a young hedge fund, but work extremely hard side by side with you to overcome those risks. When these folks all put their trust in you, there is a hesitation to shut because you feel like you are letting them all down.”
On hedge funds closed by former colleagues: “Goldman Sachs was and still is a great breeding ground for risk takers. If you have a disproportionate number of hedge fund chief investment officers with a Goldman background, you will also have a disproportionate number of hedge fund closures by people with a Goldman background."
Will he manage money again?: “I want to learn from this and, if I can understand and fix the issues, then I could see myself managing money again if afforded the opportunity.”