Ex-Harvard Star Meyer Is Said to Cut Jobs as Firm Bleeds AssetsBy
Convexity axed 15 positions in second layoff round in a year
Hedge-fund firm’s assets are down 80% from $15 billion peak
Jack Meyer, the investor who built a multibillion-dollar hedge fund firm after more than quadrupling Harvard University’s endowment, cut his workforce this year as assets declined, according to a person with knowledge of the matter.
Convexity Capital Management eliminated 15 information-technology positions in the first half after dismissing 10 back-office staffers in 2016, said the person, who asked not to be identified because the matter is private. The company now has 67 employees.
The cutbacks came as the Boston-based firm saw more than $1 billion in net outflows during the first six months of 2017, bringing assets to slightly more than $3 billion -- roughly half the amount Meyer started with about a decade ago.
Meyer, 72, who averaged 16 percent annual returns during his last decade at Harvard, has seen assets drop by about 80 percent from a peak of $15 billion in early 2013 as the firm underperformed its benchmarks. Convexity isn’t alone in its struggles as a number of fund managers have found it difficult to make money in a low-interest-rate environment driven by central-bank policy.
Meyer declined to comment.
Investors are responding by pulling capital from hedge funds and moving into lower-cost passive strategies. Hedge funds saw net outflows of more than $100 billion for five straight quarters starting in October 2015, according to a report last week from eVestment. Convexity has faced a slow drain of assets because it takes three years for clients to fully redeem, based on contract terms.
Convexity underperformed in 2016 for the fifth straight year. It could face a repeat after missing benchmarks by about 1.8 percentage points in the first half of 2017, said the people, who asked not to be identified because the information isn’t public. The firm reports relative performance rather than absolute returns, seeking to create alpha by beating indexes selected by its clients. Returns can vary for different investors.
Convexity refers to a measure of how a bond’s value is affected by movements in interest rates. The firm’s strategy, which involves trading options and asset swaps, usually benefits from market volatility -- a factor that’s been scarce lately.
Meyer used similar strategies at Harvard, which helped him expand the endowment to $25.9 billion in 2005 from $4.7 billion 15 years earlier. He left in 2005 amid alumni criticism over his compensation. Meyer began trading at Convexity in 2006 with $6.3 billion, including a $500 million commitment from Harvard, setting a record at the time for a hedge-fund startup.