Shumway Steps Down
Chris Shumway announced that in November that he would be stepping down as the chief investment officer of his eponymous fund, Shumway Capital Partners LLC. Shumway’s started his $8 billion hedge fund in 2002 with $70 million. The company has produced average annual returns of 17 percent before fees. Since it’s creation, Shumway’s funds’ average annual performance has beat the S&P 500 Index by 14 percentage points before fees. Shumway had initially planned to continue to oversee the hedge fund when he appointed Tom Wilcox as the sole portfolio manager last year. However, these changes did not rest well among investors, prompting them to ask for $3 billion in redemptions. Shumway said in an interview that “A key to my investment success has been my ability to invest with a long-term focus,” which he said he’ll be freer to do if he isn’t managing client capital. The fund will now focus on managing internal money only.
Chris Shumway, who announced he would step down as chief investment officer of his $8 billion Shumway Capital Partners LLC in November, said he’ll return client capital by March 31, according to a letter sent to investors.
Shumway, 45, who started the Greenwich, Connecticut, firm with $70 million in 2002 and has produced average annual returns of 17 percent before fees, will continue to manage money for himself and his employees.
Investors had asked to redeem $3 billion after Shumway told them of his plan to step down. Last year, Shumway appointed Tom Wilcox to be the sole portfolio manager, while saying he would continue to oversee the hedge fund as chief executive officer and chairman of the management committee. He named Wilcox and three other employees as partners at the firm.
“We changed our operating structure and it created a higher sense of risk for our investors and put greater significance on short-term performance of the fund,” Shumway said in an interview. “A key to my investment success has been my ability to invest with a long-term focus,” which he said he’ll be freer to do if he isn’t managing client capital.
Shumway, an alumnus of Julian Robertson’s Tiger Management LLC, trades stocks worldwide. Shumway’s three funds returned about 2 percent last year. Since inception, the funds’ average annual performance beat the Standard & Poor’s 500 Index by 14 percentage points, before fees, according to the letter. The funds returned 3 percent before fees from October 2007 to March 2009, when the S&P 500 fell about 57 percent, the firm said.
Shumway has 95 employees, including 25 investment professionals. A number of Shumway’s alumni have opened funds in recent years, and Shumway expects other employees to start their own investment firms.
A leveraged-buyout fund run by Goldman Sachs Group Inc. bought an 8 percent stake in Shumway in January 2010.
Harvard Days
Shumway started investing when he was in Harvard Business School, where he earned a master’s in business administration after getting an undergraduate degree from the University of Virginia.
“It was really fun finding the gems and doing the research,” including flying to visit corporate managements, he said.
As chief investment officer, Wilcox would have been responsible for day-to-day management of the portfolio, while Shumway had planned to become a “super analyst” who would focus on finding a few, highly profitable investment ideas each year. He had also planned to manage risk and analyze macroeconomic trends.
“That’s how I started in this business,” he said. “I’m going back to that.”
A legend. Many hedge fund managers seem to be throwing in the ropes. Is Bernanke's QE2 too much to handle? Iridian Capital's most recent letter speaks about the difficulties of stock picking in this environment.
Definitely a tough few years for active managers (especially stat arb), with extremely high correlations and very little by means of differentiation... Purely risk on/off. Didn't matter how good XYZ did if the market was in risk-off mode. I don't think that difficulty or performance is causing Shumway to leave, but I am sure it's having that effect on other funds.
That said, it looks like we are finally finding our way back to the light and focusing on fundamentals for individual investments, rather than broad macroeconomic themes that move entire sectors (if not the entire market as a whole). It should be a much better environment for stat arb and overall stock selection in 2011, and I would look for active managers to produce much more alpha than in the past 2 years.
Nice pull. This was one of the stories scheduled for this Friday's Bonus Bananas. I sure wouldn't want to be a large hedge fund manager in this environment.
Not surprised. A dense foliage of regulation and unusal undulations in solid companies are making everyone think about the curtain call.
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