Hi all-
Have any of you lived through a fund shutting down? I'm at a L/S single manager and performance hasn't been great last couple of years. My questions are:
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Not personally, but know people whose fund went under.
Only the final blow was sudden. The team had been underperforming for a couple of years and risk limits had been cut twice already, so they always knew it was coming.
One day the PM called for a team meeting and announced that they were going to liquidate their portfolio over the coming weeks. A few days later they started letting go of people in batches. No bonus or severance pay.
1) Show no loyalty. When the ship starts sinking it will be every man for himself and the higher ups will make sure they take all the life boats and leave you screwed (no bonuses or severance as why would they bother given there is no incentive to retain you).
2) Start looking now as it is always easier to find a job when you are in a job.
3) Be prepared for management to say nothing until the very last minute. Keep an eye out for an increase in "closed-door" meetings between higher ups or Board meetings if your fund has a Board.
4) Do not bad mouth your current employer during your job search. This looks bad on you. Just explain that performance has been poor (PM gets the blame as it is their name on the strategy) and that you are worried about AUM outflows. Leave it at that and don't talk about your PM being a bad investor or anything else that might make people reluctant to hire you.
5) Watch out for Hitler syndrome. If the PM's start talking about grand ideas like launching new funds/products or expanding into new markets it is usually a ploy to keep people from jumping ship. Kind of like Hitler sitting in his bunker in Berlin during the final days of the war dreaming up new super weapons when the Russian tanks were breaking into Berlin and all was lost.
This is great advice. SB’d
Thanks. Very helpful. 1) I had assumed because the folks were (still) absurdly wealthy by any reasonable standard + reputation considerations. Maybe that's naive. 2) thanks. that's what i was curious about 3) hard to tell during the pandemic, which adds to my anxiety 4) yeah pretty self-explanatory and people know. 5) that hit close to home...
unless you get actively solicited for a better/more senior role, I feel like people usually get the “code” word when people talk about leaving due to poor performance. usually 9 times out of 10 it’s not voluntary
leave now!
I'm not sure why it would be a surprise? Unless it was a sudden blow-up which should be rare if you are truly in a L/S fund
No. Good note? I hate to tell you this, but the only good note is that you still have a job. Start looking asap.
How well known is your fund? If its big and people on the street have heard about it I wouldn't try to cover up its going down; otherwise just say you're looking for greener pastures and opportunities for growth.
Other important point: are there multiple teams with PMs for specific sectors? If so, this is much easier to navigate.
Pretty reputable and yes sector teams. What do you mean by "easier to navigate"?
I don't want to give too specific advice as it could be counterproductive without knowing the whole situation. But, I can tell you that I interviewed an exec level candidate from a big well known firm and our team was relatively much lesser known. But at that point you have to put food on the table. It was a dramatic fall from grace. So don't expect 'prestige' to save you. In this field people only care about one thing.
First question is, how confident are you that its sinking? If this is temporary or you think they can make back the losses then be more discrete. If its a certainty then pull out all the stops.
If you are on a PM team that's been outperforming then this gives you significant advantages. You can swing this as not something caused by you or your team. Also, reach out to network and start looking now.
Are you based in a city that's a financial center? There are also things you can do to try and look for opportunities on the ground.
I've seen funds shut down before as well as seen funds turn into "zombie" funds which end up just managing a small amount of partner capital (probably due to the partners ego not wanting to shut it down).
There are some tell tale signs which you probably already have noticed
All of the good people are leaving for better opportunities. Especially a red flag if you are at a place that has typically had very low turnover and now all of a sudden has a lot of attrition. Don't be the last one to leave.
Bad performance. You don't need to blow up to get shut down. Look up fund performance at funds that trade similar strategies as yours. Have you consistently been at the bottom of that pool for the last 5 years? Look up your hedge fund's returns in the past. Are you at one of the funds that consistently printed 20% like 20 years ago and now can barely scrape a 5% up year? If answer to any of those questions is yes, you should probably start looking.
Drop in AUM. Look up the trends in AUM of your fund. If you are bleeding AUM like a chicken with it's head cut off it's a bad sign. If you see cost cutting measures taken at your firm that is also a bad sign. No more hippie cold pressed juice in the fridge? Bad sign. Did your fund fly everyone out to the Carribean for the holiday party last year and now your holiday party is in the office (true story)? Bad sign.
Recruiters are calling. Recruiters typically have a good pulse on the market and have their own little birds flying around and gathering information. If recruiters are hitting up your LinkedIn you are likely already the carcass rotting on the side of the road. They know your fund is struggling and have likely already gotten a flood of resumes from people looking to leave.
Thanks. No to 1 but yes to 2 to 4. EDIT. partly number 1 too.
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