Year of the Exit: Veteran Hedge Fund Managers Leave IndustryBy
Blue Ridge, Eton Park and Hutchin Hill all closing their doors
Hedge fund closures have outpaced launches for three years
First came the wave of pension funds and other institutions stepping away from hedge funds. Now big-time managers themselves have decided they’ve had enough.
While hedge fund closures have been ticking up since 2014, this year has been different: the names have gotten bolder, their time in the industry longer and their assets under management greater. Richard Perry was the first marquee manager to drop in late 2016, followed this year by Eric Mindich and John Griffin. Even Paul Tudor Jones, one of the original macro managers, closed the fund that was supposed to help him promote his successors.
“This is a generational shift,” said Joe Marenda, a hedge fund specialist at Cambridge Associates. “The veterans were the early founders of the industry to a large degree. Now they’re in a place in their lives in which they’ve accumulated a great deal of wealth -- most of them are trying to figure out act two.”
And no wonder. The days of easy returns and high compensation are gone. Now managers face increasing pressure over high fees, lagging returns in calm markets and competition from trillion-dollar firms like Vanguard Group offering passive investments and quantitative strategies. The industry, which oversees $3.2 trillion in assets, has grown just 4.4 percent in the first three quarters, according to Hedge Fund Research, and liquidations have outpaced launches for the third year running.
“There’s a long list of why some managers just prefer not to operate in the current environment,” said Brett Turenchalk, an associate in client analytics at Novus Partners. “It goes on and on with low volatility, crowding and too much competition.”
And there’s the question of the good life. This year’s departing managers, all 50 or older, have amassed fortunes. They have managed other peoples’ money for decades. With the game getting harder, why not walk away?
Griffin, who ran Blue Ridge Capital for 21 years, and had been in hedge funds for 30 years, notified investors Friday he would shut down his $6 billion hedge fund after failing to recoup losses he posted in 2014. Griffin, 54, was a Tiger cub, one of the proteges of billionaire manager Julian Robertson, who closed his famed Tiger Capital Management to outside clients in 2000.
Mindich, a former star trader at Goldman Sachs Group Inc., said in March that he would unwind his $7 billion firm, Eton Park Capital Management. Mindich, 50, blamed industry headwinds, a difficult market environment and disappointing results from the previous year.
Neil Chriss, 50, decided in November to close his $2.2 billion firm, Hutchin Hill Capital, and dismiss 121 employees after missing performance targets three years in a row. “We fought hard, but did not deliver the performance that you expected from us,” he said in a letter to clients.
The firm lost 5.5 percent this year through mid-November. Chriss said he’ll continue to focus on quantitative investing.
Oil trader Andy Hall decided to shut his main fund, Astenbeck Master Commodities Fund II, in August, after it lost almost 30 percent in the first half of the year. Hall, 67, blamed the “frustrating” dominance of algorithmic traders.
Jones, 63, shut his discretionary macro fund at Tudor Investment Corp. and decided to personally manage his main BVI fund in a bid to stanch investor withdrawals. John Burbank restructured his firm, Passport Capital, by announcing the closure of his flagship fund this month.
“Returns over the past two years are unacceptable and cause me to rethink how to manage money in this environment,” Burbank, 53, wrote to clients.
New Year, New Funds
Not every veteran is heading for the exits. A few seasoned managers are jumping back into the industry.
Steven Cohen, the billionaire trader who leads family office Point72 Asset Management, has prepared to stage a hedge fund comeback in the new year. Cohen, 61, is expected to launch Stamford Harbor Capital in 2018, raising $3 billion to $4 billion in addition to his own wealth. He was banned from trading outside money until Jan. 1 after his former hedge fund pleaded guilty to securities fraud four years ago.
Cohen will have competition from Daniel Sundheim, the former chief investment officer of Viking Global Investors. Sundheim, 40, will launch his own equity hedge fund, D1 Capital Partners, next year.
— With assistance by Katherine Burton