Curious what the collective community thinks about funds that were once $1B+, but due to losses and then redemptions are now in the low 100s of AUM, assuming the fund is a going concern at the current point. Chances that the fund grows again? Does the industry ever award 2nd chances? What about thoughts on working in this type of environment...?
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"If they're down by 50%, they're probably going to 0". Remember that in one of the books I read.
I don't have any personal experience here, but it sounds like they just might close up shop soon. The best days are behind them and unless the fund manager is a well-known, very respected guy, then I don't see this fund coming back. Just stay in contact when they launch the next one.
I'd say this one's pretty context-dependent. I wouldn't write off a fund just because it's smaller than it used to be. It makes a very big difference whether the size change is primarily due to losses or primarily due to redemptions. If the former, you're looking at an uphill battle to get back to the high watermark, plus I wouldn't be too excited about working for a PM who just lost a ton of money, both in terms of competence and work environment. On the other hand, an otherwise reasonably performing fund could shrink dramatically with the loss of an anchor investor. There are lots of reasons investors pull money and they don't all have to do with dissatisfaction - it could be they were seeded by a FoF that's winding down, for example. If the fund isn't closing after losing that big a chunk of its assets, presumably the founder likes the job and has some backers. Also, why are they hiring? Normally funds that have shrunk 80% aren't looking to add headcount. Maybe they've got a new capital commitment or things have somehow changed for the better.
The industry inexplicably gives lots of second chances, but the whys and wherefores matter. You should make your own decision about the nature of the losses - how bad are we talking? Was it a short-term mark-to-market thing with impatient capital? Is it a concentrated fund with one bad position? Did they have bad luck or bad analysis? Was there a failure of risk management? Was management irresponsible in some way?
I would echo the previous poster. While the AUM drop is a cause for some concern, everything very much depends on why this occurred.
If the PM had a solid 10 year run, piled up $200mm of his own cash, and just wanted to run his own money it could potentially be a great scenario.
Maybe they got in trouble for insider trading (7 or 8 times) and the gov't couldn't nail the founder/head PM but forced them to return outside money and operate as a family office.
Just to answer everyone, were talking poor relative returns which caused investors to flee. It seems like in that case it's the worst scenario.
If that is the case run and don't look back
I would say it also depends on the duration of the poor returns. If he only screwed up '13 and just has harsh LPs, there's more hope than having poor returns all the way from, say, '07-'13.
Stay away. I can't imagine a scenario where the PM could explain away such poor returns (and client defections) that future potential investors will ask about. Fund raising will be tough.
Plus, the existing AUM could potentially be well under the high water mark leaving performance fees out of the question.
It's all hypothetical, but would you want to work for a fund with $200m AUM that only generates 2% management fees?
it really depends on what your other options are, but I would stay away for obvious reasons unless this is the only meaningful job you get. You would be joining a fund way below high water mark needing to claw its way out, and wont be able to get much capital given the client defection/poor performance. I dont see how it can last.
The comment won't contribute much to the discussion, but I just wanted to say that the pictures attached to the respective front page topics are awesome! That is all.
No chance in hell. Personally, I've been hesitant to pursue anything less than 2bln. A 50mm fund, or even 1bln fund can get wiped out quick just w just normal beta exposure (2008).
Quickest place to trim fat then is the bottom. I've seen it happen to people....
Lets throw ethics out of the window for a second, is it possible to launch a new fund where the older fund invests in the new one thereby reseting the high water mark into a more attainable figure?
It depends if you set the high water mark at the fund or investor level.
Ah ok, I see. Anyway, in this case you'd probably get some angry LPs I reckon and redemptions. Not sure if legal or not, must also depend on the jurisdiction (Caymans, Jersey/Guernsey etc)
Creative idea!! I would think you would be best off by setting up a web of dummy corporations to ensure no one found out.
I don't understand why you feel the need to shit on him. While it won't happen exactly how he described, but how is that from a practical perspective different from creating a sidepocket and moving junk over?
Apologies for staying off-topic, eventually I think this action would probably raise red flags to the custodian bank or the auditors. That being said, there must be a grey area: like launching a new fund marketed with a slightly different investment strategy and a portion of the money of the old fund invested into it.
I think you're right, it would be hard to justify investing a huge chunk of the busted fund into another fund that is also be managed by the same people. However, you may be able to get away with tossing 10%-20% of the portfolio that way. You could also start an Insurance/Reinsurance company and have the busted fund invest in that with the insurance company passing along all those funds to the hedge fund to manage. That would probably fly under the radar. There's also kinds of chicanery that can played here!!
John Meriwether should be your role model.
http://en.m.wikipedia.org/wiki/John_Meriwether
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