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Markets

‘Not Fun Any More,’ Says Ex-BofA Prop Trader Shutting Hedge Fund

‘Not Fun Any More,’ Says Ex-BofA Prop Trader Shutting Hedge Fund

  • Srinivas Dhulipala to shut Kildonan Castle Asset Management
  • Hedge funds should run credit bets very differently, he says

Srinivas Dhulipala helped Bank of America Corp. wager its own money on credit through the global financial crisis. Before that, he handled complex trades at Morgan Stanley, focusing on risky Latin American debt.

But the pain of running a modern credit hedge fund is enough to lead him to close up his shop, Kildonan Castle Asset Management, and pay out its capital to clients.

Srinivas Dhulipala

Srinivas Dhulipala

Source: Kildonan Castle Asset Management

“To do this day after day was just not fun anymore,” Dhulipala said in an interview. “It’s been eating away at me. You’re constantly feeling the pressure to perform on a monthly basis.”

The 48-year-old cited the challenges of outperforming the market while investing in an asset class like credit and still offering quarterly redemption windows to clients. He’s throwing in the towel at a particularly tough moment for the broader hedge fund industry.

Read more: The good, bad and the ugly as hedge funds post worst year since 2011

His firm, which managed $550 million at its peak, still holds about $300 million after a couple of years of tepid returns. It plans to finish payouts at the end of the quarter, Dhulipala said. Altogether, Kildonan averaged annual returns of roughly 5 percent since its inception in 2011, he said.

It would be better, he said, to run a hedge fund exactly opposite of how firms like his typically do.

“The best way to make money in this market is to do the reverse of what liquid credit hedge funds do,” he said. “You have concentrated bets and you have a long lockup to see it through any noise.”

Without the crutch of longer lockups, hedge funds must be ready at a moment’s notice to liquidate positions and accommodate redemptions. They end up having a widely diversified portfolio, which then look a lot like the broader market, he said.

Dhulipala started his hedge fund after stepping down as the head trader on a key desk at Bank of America that wagered the firm’s own money. At the time, new regulations were reining in banks’ ability to make so-called proprietary bets. Kildonan mainly made investments in corporate debt, with a mix of long and short positions on company borrowings.

John Karabelas, the firm’s president, left recently to join Japanese bank Mitsubishi UFJ Financial Group Inc. as its head of the U.S. institutional clients group in a sales role.

Dhulipala, who designed airbags as an engineer before making the switch to Wall Street in 1999, hasn’t decided what he’ll do next.

“Flow of funds and top-down macro factors became more important than underlying fundamentals to make money over a short period,” he said. “You want to come to work and feel productive. In this type of a market you just don’t feel that way.”