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
Hopefully Paulson & Co. his fund is trash.
Don't forget Paulson was one of Trump's backers.
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.
Right, so this begs the question: do you think the big name guys who have underperformed will leave the market or simply convert to FO? I agree that Mindich wasn't really desperate to close so could we see all these big name guys simply start FO in part because they don't want to be bound to investors and in part because they keep losing client money? If this were to happen then you wouldn't really have such a hostile environment around you if you're a regular PM with a solid track record looking to set up his/her own shop no?
"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
Pershing will be fine because of their permanent capital vehicle. Say what you will about Ackman, but PSH was a brilliant move.
Investment performance? What's that? No such thing, unless you are Warren E. Buffett.
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.
So what are the best strategies moving forward doing you think for new analysts looking to join decent sized hedge funds, especially post-banking (800mm-10B)? L/S Equity & fundamental value, distressed debt, activist or event-driven? Using metrics such as future potential upside or some career protection
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
Wait, what? Upon getting a job in L/S equity you're going to make $300k, or $1-3m? Kind of a big difference.
You make your 'luck' by being at 'everyplace(diversification)' and at 'every time(positive skew)'.
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.
Bingo. I have never understood why anyone would pay AUM fees for any fund, with the possible exception of small ones starting out. Its as if no one asks the question: "If you're so confident in your ability to generate alpha, and you will make so much money if you do, why do you need AUM fees? Especially since those fees represent a giant multiple of your operating expenses."
What are the odds that the partners of Eton open another hedge in a few months and closed Eton purely to avoid being under the high watermark?
Somewhere in the range Highly likely to Probable
Would say almost no chance the key partners (Mindich) do this. Wouldn't make sense - investors aren't gong to come back to someone who showed such lack of good faith.
My bet is that some partners start family offices and maybe one or two (not MIndich) try to have another go at it, but there won't be an Eton Park II starting anytime soon (probably never)
Mindich has already had a family office, which is where he'll do his investing going forward. Dazed Monk is right though - the other partners were VERY blindsided by this.
I may not have the whole story, but I actually give Mindich a ton of credit for closing his fund. He has billions in AUM, and unless the lockup/terms are unusually liberal, he could easily hang on for YEARS, pulling well into the 8 figures annually in management fees alone, enough to earn an extremely comfortable living. That's what 99% of GPs would do in the same position. He appears basically to be saying that he does not know how to generate alpha in this market, doesn't see that changing, and isn't going to experiment with his investors' money.
Eton Park closing it’s doors! (Originally Posted: 10/11/2017)
What do you guys think about Eton Park closing down? What are your predictions on the viability of the go hedge fund industry in then coming years? Ol
Bump
The long short equity business model is fucking dead in my book.
Ouch... why do you say that?
No control in the boardroom? No rights in bankruptcy (not really, at least)? Not getting paid for complexity? What value are people adding by picking stocks over a 'smart ETF'? Especially after a 2/20 fee structure???
Not seeing it. At all.
Stocks are liquid enough that they can be handled in daily liquid mutual fund format. Maybe that is a better structure and we can do without the carry?
The main point is value-oriented funds tends to underperform during a long bull market, but throughout a crisis they've proven pretty useful to preserve capital. Yes, some of them might fail due to underperformance, but there will always exists HFs capable of generating alpha returns with the value mindset during a whole market cycle. The question is can other investment strategies survive throughout a bear market without getting too damaged?
Meanwhile, quantitative funds are doing much better (eg. Two Sigma, Renaissance Technologies). Quant funds are likely (and perhaps unfortunately for Ibankers and traditional finance majors) to become the kings of HF when it comes to markets where there is plentiful data and have high liquidity (eg. US Equity Markets) b/c they essential bank on analyzing data to identify patterns and statistical probabilities much better than a person can.
I still think there is a strong future for discretionary investing in markets where securities are more obscure. John Paulson's infamous 2008 CDO bet is a good example b/c there isn't sufficient data for Quants to analyze historical statistical probabilities of different variables (moreover, quant-driven strategies rarely touch illiquid markets). A similar is a guy from Och-Ziff made $7 billion structured credit bet that netted $2billion few yrs ago. Basically, any investment that lacks data and thus requires a high level of judgement by experts will likely be the future for discretionary investing. I also think niches like activist investing or distressed debt investing will still have an appeal. I personally believe there is a lot of opportunities untapped in lesser-known, obscure, and volatile markets in emerging market economies. Market inefficiencies have been incredibly profitable in the past (think Soros betting on the Thai Baht's decline and 'breaking the pound') - these investments are unique to discretionary HF's that analyze policy makers, social tensions, economic changes etc. and make 'bets' regardless of the "lack of information". HF guys that have a really sharp intuition with these types of 'bets' will do very well. Again this will be an area difficult for quants to mimic with their data-intensive strategies. I think discretionary investing will turn more so into opportunistic investing whereby HF managers identify rare/unique opportunities that arise. However, this has historically been unreliable b/c these opportunities are really once in a lifetime like John Paulson's CDO bet.
Discretionary long/short is not going anywhere because long term value is still driven by social things - consumer tastes, management decisions, etc. Most of what drives long-term value is not available in the 'data' quants are good at crunching (basically basics of company financials and historical price data).
The frustrating / stupid thing is that instead of moving towards the medium/long time frames over which humans continue to have massive advantages, a lot of shops are trying to get human traders to replicate what is best done by computers (fast short term momentum trading) and then levering up the mediocre returns from that.
Some things will give, but when the dust clears most of the money will still be made by fundamental guys. Remember that computers compete each other's advantages down much faster than humans too....
I wouldn't say that that quants are only good in the "short-term". Although, the nature of quantitative-driven trades may be shorter term in nature, in the long-run quant funds still have outperformed discretionary funds. Renaissance tech reigns supreme in terms of returns over 10-20 years for a giant billion+ fund (beating even Soros's historical performance).
What none of these monkeys somehow understand is that hedge funds are a zero sum game. For one to win, one has to lose.
The average will always perform worse than the market but the top 5-10% of hedge funds will always beat the market.
On the other hand, with 10,000 hedge funds out there picking a good hedge fund might be as hard as picking a good stock.
Meh, I'll take the 20% BRK.B has to offer without any fees.
I really hate when people adhere to the fallacy that investing is a zero sum game. It isn't.
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