Looks like 2017 took its first major casualty (as far as I know). I read yesterday that they were looking to return about 40% of their assets but I guess they decided to pull the plug entirely.
Eton Park lost more than 9% last year, investors say, even as the S&P 500 posted a return of nearly 12%, including dividends. So far in 2017, Eton Park is flat, while the S&P is up over 5%. Among the reasons for the recent poor performance: money-losing trades in Japanese stocks. The firm also lost money when Pfizer Inc. and Allergan PLC terminated their planned $150 billion merger last April, though overall it made money from mergers during the year, according to people close to the matter. The decline in returns and investor withdrawals have led to a 50% plunge in the firm’s assets since 2011.Eton Park received about $400 million of withdrawal requests from investors for the first quarter, while others pressed for lower fees, according to a person familiar with the matter. Mr. Mindich moved to close the firm, partly due to concerns declining assets would make it harder to retain employees, according to people close to the situation. The Eton Park closure follows a year when 1,057 hedge funds were liquidated, according to data tracker HFR, the highest number since the 2008 financial crisis.
So who do you think is next? Pershing Square maybe after Bill's phenomenal botch up with Valeant? I'ts funny, I talk to a good few guys at HF and they all seem pretty calm. A few have even gone as far to say that this is great for the industry because the investors are finally realizing that their fund manager's fame doesn't equate to good returns and this way its easier for less recognizable names to attract capital. Anyone else heard this before? any general feelings/insights you're willing to share?
Personally I think it's quite sad, especially for someone like me who grew up always wanting to join a HF and now that I'm in the industry heads are rolling. On the upside it does give me an incentive to work harder and reinforces the fact that even though making Partner at Goldman at 27 is a momentous achievement, it doesn't really mean much in terms of investment performance.
Full article here
A lot (a lot!) of big funds have been completely mediocre for a while. I don't think Eton Park's closure was forced by any means - think the top guys probably had/ have enough money not to care to keep going if they couldn't be a giant 'prestige' fund. If they choose to they could have riden it out, like a lot of guys are doing.
If I had to bet would say Pershing could be in real trouble and Glenview might be on a short leash. Paulson has been meh, but not closing b/c $9B of partner money (guess they could make official conversion to FO at some point). Other guys that have been mediocre (e.g. Maverick) can ride it out due to loyal investors. Balyasny went from like ~$5B to $13B while returning only 2% over 2 years. Would expect withdrawals, but they probably ride it out as well.
"Regular PMs" are screwed bro. We just had a nearly decade long momo bull market - everyone made money. There are so many people out there with strong 5 year track records its insane. YOu need to be really extraordinary to raise money in this environment
There is a huge amount of debate right now over the value of active management, and hedge funds in particular after seeing consistent underperformance to index funds (except for the upper 20% of hedgies of course).
Also quick statistic, as much as people seem to be raving about hedge fund outflows, Hedge Fund aggregate AUM currently stands at 3.1 Trillion dollars at end of 2016. This number was 2.5 Trillion in 2014 and 2.7 Trillion in 2015, so it seems that money is flowing in rather than flowing out; the appeal of hedge funds still persists despite the active coverage of aggregate underperformance. Seeing well-respected funds close down like Eton Park now brings a bit a contradiction here. What do you all think ops for future hedge fund analysts will look like (and those looking to enter the industry)?
Ops have consistently gotten worse and will continue to do so. It used to be a solid analyst at a solid shop was downside protected around $600 - now its more like 300 and the industry is increasingly moving to 'eat what you kill' vehicles (platforms) that provide 0 job security and worse expected value.
The industry has just gotten more crowded and competitive, especially in L/S equity. This makes sense given that L/S equity is a completely undifferentiated skill set (the only strategy a nOOb can pursue from their IBRK account). I think L/S life is great if you join a giant fund and just clip coupons as an analyst for a while (can be making 1-3M a year not working that hard) and don't worry about trying to manage money. Everything else is tough going.
L/S equity and fundamental value - 0 moat business, will only experience more fee pressure, more performance pressure, etc Activist - better, but somewhat capital intensive and a bit niche. If you need to job switch more than once or twice you probably end up in L/S equity Distressed debt, cap-structure arbitrage, event-driven (as long as its not equity only) - lot more specialized skillset, lots more downside protection, and you have parachute to L/S equity should you need to pull it Macro and quant - would be interested in someone's thoughts here. Not really qualified to speak
Upside depends on your performance/ team performance so the comments above are entirely about "moats", the same way you would think about any business. You're better off learning a skill set that every Tom, Dick, and Whitney Tilson can't suck at
What's unbelievable is that with shit returns like that they only had $400MM of withdrawal requests...Although 2% on $7B of assets (for 10+ years) is enough to make up for a lot of public humiliation.
When I pay people, whether it's for a Big Mac or management fees, I expect to get something for my money.
The problem with the hedge fund industry is the managers at large funds are not truly incentivized to produce returns for their LPs. They can get rich off the management fees alone.