One year ago
»» Managers focused on tech stocks were poised to move past 2010’s bumpy ride thanks to a wave of new tech products and initial public offerings from high profile Internet firms. “I can’t remember a time when technology was changing so rapidly,” Steve DeLuca, director of research for the $153 million Spinner Global Technology Fund, said at the time.
Not all of the changes turned out for the best, and that fund wound up losing 12.91% for the year. Still, the AR Technology Index ended up 3.78% overall, far exceeding the Composite’s slim loss. But that gain wasn’t produced smoothly: After a strong first half, the index was whiplashed in the last six months. For instance, it followed a 3.48% monthly drop in September with a 4.46% gain in October.
Spinner’s founder is forthright about the difficulties of 2011. “Last year, we had a fair amount of exposure to Asia and China, in particular, and that was unhelpful,” founder and chief executive Art Spinner told AR this week. “The kind of saw tooth pattern of the market made fundamental analysis harder than we would have liked.”
This year he believes there are better opportunities to be had by investing in traditional technology companies versus trendier start-ups. “There’s a very bifurcated market right now. You’ve got new companies with a lot of buzz and pretty high revenue growth but at very high prices. Some very well established companies—[product development software company] Parametric Technology would be an example—just have been left by the side of the road,” he said.
And it was not all bad news for Spinner last year. The firm nearly doubled its assets, and now manages $384 million across three funds, up from $191 million in Jan. 2011. The Spinner Global Technology Fund declined in assets slightly, while the other two funds—which include a more concentrated technology portfolio and a global equity strategy, respectively—were responsible for the increase in assets.
Related technology stories: Focusing on Kodak, Loeb’s Third Point bets on Yahoo revival, Greenlight’s bet on kiosk king NCR pays off
Five years ago
»» Distressed investor Marc Lasry surveyed the economic landscape at the very beginning of the financial crisis and saw “massive amounts of opportunities.”
As the head of then-$10.4 billion Avenue Capital, he was candid when describing his motivations for a long career in finance. "If you love investing, then running a fund is a great business," he says. "If you're right, you make a huge amount of money. If you're wrong, people will say, 'He used to be very good.'"
Investors seem to think he’s been good for much of the past five years. Avenue continued to grow throughout 2011, managing assets of $18 billion as of Jan. 2011, but then quickly dropped as it began liquidating the Avenue Special Situations Fund V, a private equity vehicle launched in 2007. Lasry and Avenue now manage $12.3 billion, having returned $9 billion in principal and profits over the past year while also taking in new investments to some funds, according to a person familiar with the firm.
Avenue declined to comment.
See also: Hedge funds top list of Obama boosters, No Amazin’ deal for Cohen, Lasry
One year ago
»» QFS Asset Management founder Sanford Grossman donated an unspecified stake of the firm to his alma mater, the University of Chicago. The quantitative investor earned his B.A., M.A. and Ph.D. in economics from the university and was a professor there from 1981 to 1985. He is also a member of the board and its investment committee.
“The success of QFS has been based upon the application of the scientific tools that I was taught as a student at the University of Chicago,“ Grossman said in a statement at the time. “I can think of no better way to express my thanks to the University, than by giving the University an opportunity to benefit from the continued success of QFS.“ In return, Chicago created the new Grossman Institute for Quantitative Biology and Human Behavior.
The donation came as the $1.4 billion Greenwich, Conn. firm began reporting mixed results. The QFS Currency Program, by far the firm’s largest, earned 5.54% in 2011, compared with a 2.98% drop for the AR Managed Futures Index. But the QFS Fixed Income Fund fell 4.52% compared with a 6.17% gain for the AR Fixed Income Index, while the QFS Macro Program gained 0.27% compared with a 1.07% gain for the AR Macro Index.
QFS did not immediately respond to a request for comment.
See also:
QFS picks up AR Award
Five years ago
»» BlackRock chief investment officer Bob Doll predicted the U.S. Federal Reserve would begin cutting interest rates at around midyear 2007 to ease inflation pressure in the face of a slowing housing market. His outlook proved spot-on: The Fed began lowering interest rates in Aug. 2007 and continued slashing them nearly uninterrupted for the next year and a half.
That forecast was part of Doll’s annual “ten predictions” for the year ahead, which the firm has been publishing since 2001. Among this year’s predictions: Slow U.S. growth, but a double-digit return for domestic equities. Doll is also optimistic that the European debt crisis will ease even as the continent slips into a recession.
BlackRock did not respond to a request for comment.
See also:
Decoding BlackRock’s box (the October 2011 AR cover story)
»» New York firm Phoenix Investment Adviser, which managed roughly $90 million at the time, said it was aiming to hit the $200 million mark by the end of 2007.
That goal was reached, as the firm managed $275 million as of Dec. 2007. The event-driven JLP Credit Opportunity Fund was an attractive investment, having produced a gain of 20.32% in 2006. It then produced a 0.06% gain in 2007 and suffered a loss of 42.33% in 2008 but more than recovered with a rise of 158.63% in 2009 followed by another banner year in 2010, gaining 36%. The fund dropped 17.56% in 2011, compared with a 5.21% fall for the AR Event Driven Index. It now manages $304 million.
Phoenix did not respond to a request for comment.
One year ago
»» Bridgewater Associates, the largest hedge fund firm in the Americas, amassed $3 billion from existing investors for a new fund with a strategy similar to that managed by its flagship Bridgewater Pure Alpha fund.
The new fund, Bridgewater Pure Alpha Major Markets Trading, was targeted toward those who wanted to reinvest gains paid out to them from the original Pure Alpha, which had returned 27.39% in 2010. Major Markets has grown quickly from one year ago, and now manages $15 billion.
The original Pure Alpha fund reported a 16.05% gain in 2011, compared with a 0.95% gain for the AR Macro Index.
Bridgewater declined to comment.
See also: The return of the mega launch, Ray Dalio’s radical truth (March 2011 AR cover story)
»» Candlewood Investment Group, the $840 million credit shop that spun out of Credit Suisse’s asset management division in 2010, launched a second fund.
The Candlewood Structured Credit Fund, which invests in various asset-backed securities and collateralized debt obligations, has had a blockbuster first year. Co-managed by Gregory Richter and Brian Herr, the fund was up in every one of its first twelve months to gain 25.66% in 2011 (data here) compared with the 2.18% rise of the AR Credit Index.
Candlewood declined to comment.
Five years ago
»» The bankruptcy trustee for Northwest Airlines shot down a request by Owl Creek Asset Management to create a shareholders’ committee.
The $6.4 billion firm, which then owned 5% of the airline, had been lobbying to have equity investors more fairly represented in the bankruptcy proceedings, alleging that credit holders had been unfairly prioritized. After its demand was denied, Jeff Altman’s fund kept up the pressure with a call for a new board of directors and a public letter to the CEO. Months later, Owl Creek ended its battle, receiving equity in the post-bankrupt carrier.
Owl Creek’s activism has beaten the AR benchmark during the past five years. Its flagship fund has produced a total return 22.64% from January 2007 through yearend 2011 compared with 15.22% for the AR Event-Driven Index during that period.
Owl Creek did not respond to a request for comment.
See also: AR Database listing for Owl Creek funds, Owl Creek's Jeffrey Altman prepares students to think globally
Soros goes solo
Hedge fund legend George Soros, never exactly a quiet force in the industry, was in the spotlight for most of the year. First, he announced in June he was closing his enormous eponymous hedge fund to outside investors and running it as a family office. Two months later, he was slapped with a $50 million lawsuit by his 28-year-old ex-girlfriend for allegedly reneging on a promise to buy her a Manhattan apartment.
And he kept a high profile for other reasons. On top of being named the largest charitable donor in the U.S., according to the Chronicle of Philanthropy, he maintained his famous liberal streak, telling AR he would “wholeheartedly endorse” an Obama administration effort to end the carried interest tax break for hedge fund managers. He also signed an op-ed in the FT warning that the eurozone crisis could lead to the end of the European Union.
Soros’ legacy in the industry continues. Though his most famous protégé, Stanley Druckenmiller, retired in 2010, former employees of Soros’ hedge fund are beginning to ramp up new firms. Most notably, former Soros CIO Keith Anderson is planning to launch his own hedge fund in 2012.
Shumway steps down
Under fire after management changes, Chris Shumway announced he would return all outside capital in Shumway Capital Partners. The move came after he had told investors last December to submit redemptions requests or else tacitly approve the firm’s announced restructuring, in which founder (and Tiger cub) Shumway would step down as chief investment officer.
But when redemption requests came in that totaled 40% of Shumway’s $8 billion in assets, he decided to lay down his sword. Though he continues to run money for himself, Shumway no longer manages a Billion Dollar Club firm.
His former team quickly scattered, with tech chief Naveen Choundary laying plans for Eastwind Global Partners, among other launches.
D.E. Shaw rebounds
The year started with a whimper for the storied quant shop, with assets down nearly 40% from the start of 2010, to $14.23 billion, after major redemptions that followed lagging performance. The firm cut its management fee to 2.5% and performance fee to 25%—still higher than the industry average, but a drop from the 3%/30% breakdown that had helped turned scientist Shaw into a billionaire.
Assets had rebounded to $16.5 billion as of November 1 aided by impressive performance. The firm’s multistrategy Oculus fund was up 18.3% for 2011 through the end of November. Managing director Anoop Prasad credited the gains to a toughened attitude toward the firm’s models. “We understand that alpha decays,” Prasad said. “We are unsentimental about eliminating models that have decayed or died.”
Kovner retires
Caxton Associates’ Bruce Kovner announced he was retiring from the $9.4 billion firm he launched in 1983. He handed the reins to managing director Andrew Law, whose aggressive bet on the credit markets in 2008 had, one insider told AR, “saved the firm.” Law was said to have racked up a better than 100% return in his portfolio by the end of that year, helping Caxton Global Investments, the firm’s flagship fund, finish 2008 up 12.9%
Performance the next two years was not as strong. Caxton returned 5.8% in 2009 when the equity markets raced back up and 9.3% in 2010, compared with respective gains of 23% and 13% for the S&P 500 Index.
This year, the flagship $5.2 billion macro fund was up 1.37% for the year through Dec. 5, compared with a 0.75% rise for the AR Global Macro Index. Caxton is now actively soliciting new investments, an increasingly common move for some Billion Dollar Club firms, including Millennium Management, Third Point and HBK Capital Management.
Hedge funds hitch a ride on the cash cab
Cash was king for the hedge fund elite, as some Billion Dollar Club firms kept more than half of their portfolios out of the markets. Some told investors they wanted to have plenty of money set aside to protect against margin calls, changes in financing terms and severe market movements.
Among the biggest names hoarding cash was King Street Capital Management, which had nearly $10 billion of its $19.5 billion in assets held in cash as of August. Even some pension funds were holding double digit percentages of their portfolios in cash.
Standing pat might not have been a terrible move in a roller coaster year for returns. Six of the 16 strategies of the AR Global Database are negative for 2011, with the most dramatic drops among event-driven, global equity and managed futures funds.
More heartburn for Harbinger
Phil Falcone’s Harbinger Capital Partners’ regulatory problems continued through 2011. Most recently, the firm warned investors in December that it had received Wells notices from the Securities and Exchange Commission and could face charges related to preferential treatment of some clients, reportedly including Goldman Sachs. Those notices followed an earlier ongoing investigation by the SEC into whether Falcone had acted inappropriately in taking personal loans from the firm and whether the firm gave preferential treatment to some of its investors. Falcone had said the loan was disclosed to investors and vetted by Harbinger’s lawyers, and that he has never given any preferential treatment to any investors.
Besides the alleged market manipulation related to shorting stock and initial public offerings, Harbinger and Falcone state in a recent regulatory filing that they “strongly disagree” that there were any violations of securities law.
Harbinger also continues to face pressure on its fledgling wireless broadband network, LightSquared, which represented roughly 80% of the firm’s net asset value earlier this year. LightSquared has been a target of criticism because of possible interference with existing global positioning systems and perceived political favoritism. The company has fought both accusations.
And unhappy investors can’t necessary get out. In June, Falcone told investors who wanted to cash out of his flagship fund that they would receive in-kind payments of the firm’s illiquid holdings in LightSquared. More recently, Harbinger said it would suspend redemptions in several of its funds beginning at the end of 2011. Harbinger managed $6.18 billion on July 1, but the figure has fallen to $5.3 billion today. That’s down from a peak of around $24 billion in mid-2008.
Insider trading fall out
The fallout from the government’s recent slew of insider trading charges continued in 2011.
Notable impacts included the closure of David Ganek’s Level Global, which was shut down in February after being raided by the Federal Bureau of Investigation in November (the firm has not been charged with wrongdoing); Galleon Group founder Raj Rajaratnam was found guilty on 14 counts of securities fraud and conspiracy and was sentenced in October to 11 years in prison; and FrontPoint Partners, the once $11 billion firm, lost most of its assets following charges against one of its portfolio managers, Chip Skowron (the former doctor plead guilty and was sentenced to five years in prison in November).
Tiger re-opens
Julian Robertson’s Tiger Management quickly met its fundraising goal for the Tiger Accelerator Fund, raising $450 million for the seeding vehicle it began marketing earlier this year.
The co-seeding fund, which gives investors a piece of the fee revenue and performance from a group of six hedge funds already seeded with a combined $230 million from Robertson, offered the first opportunity in more than a decade to invest with the legendary Tiger founder.
The firm is reportedly considering a second accelerator fund given the success of the first.
Paulson’s annus horribilis
Hedge funds’ rough year has been synonymous with one name: John Paulson.
Paulson & Co.’s assets fell from $35.2 billion on July 1 to about $28 billion today amid double-digit losses in most of its funds. Paulson’s Advantage fund is down 31% for the year through November; its International fund lost 9% and Advantage Plus is down 47%.
Another blow came when a Paulson holding, Chinese timber company Sino-Forest, was accused of fraud in June (the firm has denied the claims but Ontario Securities Commission and Royal Canadian Mounted Police investigations continue). Paulson received a slew of negative press surrounding the stock’s collapse, but a letter later clarified that the firm’s actual losses from the position were only $107 million.
In October, Paulson was the subject of a protest by Occupy Wall Street demonstrators.
But despite what casual observers or competitors might have expected, Paulson has not suffered a wave of redemptions or an exodus of senior staff. Also, as was the case last year, Paulson’s exposure to gold has boosted his performance: His gold focused fund is up 11% year to date as of mid December and the gold denominated share classes of other funds are also faring better than their dollar-based counterparts.
Bridgewater outperforms, again
Ray Dalio’s Bridgewater Associates continues to shine. Last year was Bridgewater’s best ever, when the firm netted 44.8% in its Pure Alpha 18% volatility fund (“Pure Alpha II”) and 27.4% in the less-levered Pure Alpha 12% volatility fund (“Pure Alpha”). Bridgewater humbly warned investors that the returns were a once-in-20-years event.
Bridgewater’s hedge funds have done almost as well this year: Pure Alpha II is up 25.26% and Pure Alpha is up 15.92% for the year through November. As a result, Bridgewater was named Management Firm of the Year for the second consecutive year at the seventh annual AR Awards, held at the Mandarin Oriental in New York in November to honor the U.S. hedge fund industry’s top-performing managers. Pure Alpha was also named Global Macro Fund of the year.
The firm’s success led it to launch a new version of its leveraged beta All Weather strategy in December – the pension funds are almost certain to stream in.
One year ago
»» Copia Capital, the long/short market-neutral fund spun out of FrontPoint Partners, was profiting from the Deepwater Horizon disaster, having shorted BP after the calamity and then reversed its position near the oil giant’s bottom.
“We tend to do well in disasters, unfortunately,” portfolio manager Tim Flannery told AR as Copia reported a 4.67% return for the year through Oct. 2010. Flannery promised the firm had a cautious, low-leverage strategy, having learned its lesson after a grisly 2008.
Slow and steady seems to be winning the race this year. Though Copia ended 2010 up 4.14% for the year, compared with 7.68% for the AR Global Equity Index, In 2011, it is up 5.02% through the end of November, far exceeding a 3.52% loss for the benchmark. Copia declined to comment.
Five years ago
»» Loomis Sayles prepared to launch a leveraged version of its equities-focused long/short energy hedge fund, with 1.75x leverage compared to the original.
The Boston firm found some success before the market crisis, with the Loomis Sayles Energy Hedge Fund – Enhanced Share Class gaining 21.20% in 2006 and 29.27% in 2007, well above the gains of the AR Equity Index, which rose 12.66% and 11.29% in those years. But the market crisis of 2008 hit the fund hard, and it fell was down 21.29% through the end of November. The funds stopped reporting to the AR database in November 2008 and were liquidated in December 2009.
Loomis Sayles did not immediately respond to a request for comment.