US hedge fund Perry Capital is shutting down its flagship fund after 28 years in business, one of the biggest names to cut its losses as the industry struggles to make money.
“Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable,” Richard Perry, co-founder, wrote in a letter to investors.
Investors have pulled more than $50bn from the sector this year, according to eVestment data. On average, hedge funds have struggled to generate returns in 2016’s choppy markets, with Hedge Fund Research’s HFRI Asset Weighted Composite index generating just 0.5 per cent through to the end of August. That has stoked investor ire over high fees, especially among public pension groups.
Sir Chris Hohn, who worked for Richard Perry from 1996 to 2003 in European special situations and now runs The Children’s Investment Fund, a hedge fund with more than $10bn under management, said: “Perry Capital made some of the most exciting and profitable investments of my career during this time . . . He was a great mentor to me over this period and an excellent investor.”
Perry’s assets under management peaked at $15.5bn in October 2007 but had fallen to $10bn in 2015 and then to $4bn this year, according to people familiar with the hedge fund.
Since inception in 1988, the flagship fund has returned 10.68 per cent annually.
A flurry of hedge funds shut down late last year and early this year, as managers decided the market was too difficult to make money. Assets have dropped among many of the biggest funds and industry veterans. John Paulson’s fund has fallen to $12bn from a peak of $38bn and Leon Cooperman’s Omega Advisors, now the subject of an insider trading probe by the Securities and Exchange Commission, has shrunk to $5.4bn in assets from $10.7bn in 2014.
Declining assets have spurred rumours that many would convert to family offices, like Michael Platt did with BlueCrest last year.
Perry has been raising cash and plans to give investors back a “substantial amount of the fund’s capital” at the start of October, Mr Perry wrote. The group would sell down the rest of its holdings “prudently” and “in an orderly fashion”, and return money to investors on a quarterly basis, he wrote.
Investors flee multi-strategy hedge funds
About $10bn was pulled in the quarter amid volatile markets
Mr Perry founded the company with Paul Leff in 1988, and expanded its assets under management to about $10bn by the start of 2015. Mr Leff departed in 2014, and then David Russekoff, the chief investment officer, left last year.
It was one of a handful of funds hit when the New York City Employees’ Retirement System cut its $1.5bn hedge fund programme in April.
Perry has been stuck in a battle with the US government over Fannie Mae and Freddie Mac, appealing against a US district court ruling that the Treasury had the right to seize the mortgage companies’ profits. Perry owns preferred shares in Fannie and Freddie, which guarantee US mortgages and invest in mortgage-backed securities.
Investments like those “will take time and energy to successfully realise an appropriate result. Our core team remains in place so that no effort or diligence will be compromised,” Mr Perry wrote.
“I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans,” Mr Perry wrote. “Our interests are aligned — the Perry funds represent almost all of my liquid capital.”