Bailout

Hedge Fund Losses, Layoffs, Closures, and Fee Cuts

By Admin

Hedge funds, like other market participants, are both victim and, to some, creators, of the current market crisis. In September, hedge fund investors redeemed an estimated $43 billion of approximately $1.5 trillion of assets under management (TrimTabs Investment Research). The average fund was down 17.6 percent through this week (Hedge Fund Research). Earlier reports indicate that only one in ten hedge fund managers are above their high-water marks and therefore curent earning incentive fees. The industry has already eliminated 3,000 to 5,000 jobs, out of an estimated 150,000 worldwide, and will probably at least double that number of lay-offs by year end.

A sampling of recent hedge fund news paints a picture of how the industry is fairing:

Closures

• Highland Capital Management, James Dondero and Mark Okada, closing its flagship Highland Crusader Fund and the Highland Credit Strategies Fund, comprised primarily distressed loans and other debt with combined value of approximately $1.5 billion (Crusader had ~$3 billion earlier this year). In addition to margin seizure by Barclay’s, 40 percent of Crusader’s portfolio will reportedly be liquidated in the next 12 months with the remainder possibly taking several years given it’s illiquidity.
• Ospraie Fund, managed to 18% annual returns from 1999-2006 by Dwight Anderson (Tiger Management and Tudor Investment alum), failed on the back of bad bets in copper and natural gas., Lehman Brothers
• Sailfish Capital Partners (Stamford, CT) and Peloton Partners (London) are among countless other fund closures.

Losses

• Ken Griffin’s Citadel Investment Group’s biggest fund down nearly 30 percent on year.
• Bain Capital credit-investment funds managed by Jonathan Lavine’s Sankaty Advisors lost close to 50% in two secured loan funds (Special Situations and Prospect Harbor) which were recently marked at a combined $4 billion.

Layoffs

• Reported last week that Ramius Capital cut 40 of 200 employees and Perry Capital laid-off up to 20 stock traders.

Fee Cuts

• Ramius Capital, former Shearson Lehman Brothers Chairman Peter Cohen?s $11 billion hedge fund firm, which is down 11 percent on the year through September, has offered to reduce its incentive fee from the typical 20% to 15% for current investors who agree not to redeem their current investment before the end of 2010 and to waive an incentive fee entirely on the additional funds through the beginning of 2010 when the fee would increase to 10% and then 15% until the end of 2011.
• Centaurus Capital has offered to allow it’s Alpha Fund investors to redeem 30% of their investments in return for a two year lock with reduced fees. In the meantime, withdrawals are restricted to 10% of assets.

As if this these high profile events weren’t enough, The House Committee on Oversight and Government Reform is scheduled to hold a hearing about hedge fund regulation next month with five of last year’s billion dollar plus hedge fund earners including Ken Griffin, Philip Falcone, John Paulson, George Soros and James Simons. One wouldn’t expect they’ll be proposing any bailout plans for this mighty band of merrymen.

Full post as published by Bailout Report on October 23, 2008 (boomark / email).