Another Hedge Fund Shuts Down: SAB Capital Returns All Outside Money

Tyler Durden's picture




 

Two days, ago we noted that hedge funds are now dropping like flies in a year in which generating alpha has become virtually impossible for the majority of the vastly overpaid 2 and 20 "smart money" out there (and where levered beta is no longer the "sure thing" it used to be when the Fed was pumping trillions into stocks) when we reported that Seneca Capital, the $500 million multi-strat hedge fund belonging to Doug Hirsh (of Sohn Investment Conference fame), is shutting down.

Then, in keeping with what has become a daily tradition, we asked a simple question: who's next:

It turns out that despite our intention, the question was not rhetorical because just a few hours later Bloomberg answered when it reported that the latest hedge fund shutdown casualty was another iconic, long-term investor: Scott Bommer's SAB Capital, which as of a year ago managed $1.1 billion, and which after 17 years of managing money and after dropping roughly 11% in the first eight month of 2015, has decided to return all outside client money, and converting the hedge fund into a family office (after all one has to preserve one's offshore tax benefits).

According to Bloomberg, SAB Capital will return most money before mid January, Bommer said in an investor letter Tuesday, a copy of which was obtained by Bloomberg. The firm posted a 10.6 percent loss in the first eight months of the year in its SAB Overseas Fund, according to an investor document. Bommer started New York-based SAB Capital in 1998, and oversaw $1.1 billion as of the end of last year, according to a government filing.

“Over that time I’ve often thought this was one of the best professional opportunities one could imagine,” Bommer, who is a regular on the New York and Hamptons social scene with his wife Donya, said in the Dec. 29 letter. He didn’t give a reason for his decision.

As a reminder, Bommer is at least the third hedge-fund manager to announce plans this month to give back money to clients and focus on investing his own wealth after the previously noted Doug Hirsch said he’s returning money to investors of his Seneca Capital Investments after almost 20 years, a few months prior billionaire Michael Platt also said he was ending his 15-year career of managing client money, saying earlier this month that he wants to focus on trading his own capital and that of employees at his BlueCrest Capital Management. Joining them are Fortress Investment Group LLC, BlackRock Inc. and LionEye Capital Management among the firms who have shuttered hedge funds.

Bloomberg adds that SAB Capital’s move adds to a roster of hedge funds, both large and small, that have shuttered this year as managers struggled to navigate markets roiled by the Swiss franc’s unexpected surge, the devaluation of the Chinese yuan and declines in oil prices. According to data from Hedge Fund Research Inc., 674 hedge funds liquidated in the first nine months of the year, compared with 661 in the same period during 2014.

Hedge funds on average have returned 0.4 percent this year through November, according to data compiled by Bloomberg. Long-short equity hedge funds have gained 2 percent.

Patrick Clifford, a spokesman for SAB Capital at Abernathy MacGregor, declined to comment on the changes.

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Thu, 12/31/2015 - 09:32 | 6981330 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

Now that the bonuses have been paid out...

Thu, 12/31/2015 - 09:34 | 6981332 aliki
aliki's picture

these are the sorts of things that happen @ capitulation tops. started last year when calpers i think it was cutting off all ties with alternative asset managers, hedge funds; basically taking off their long hedges. now additional follow-thru pain in more hedge funds. just like in 2007 leading into 2008, when there is nobody left to short the market, thats when it fades. getting close, every 8 years since we've been off the gold standard we have a crash. by my clock, we are right in the middle of years 7-8.

Thu, 12/31/2015 - 09:37 | 6981338 Yellen's_Boytoy
Yellen's_Boytoy's picture

"The fund stated, we sucked enough money out for ourselves, now we found another way to suck even more out"

Thu, 12/31/2015 - 09:52 | 6981370 g speed
g speed's picture

typical insurance scam--collect premiums during fat times and then cancel the "policy" when its needed---

Thu, 12/31/2015 - 11:26 | 6981678 Seasmoke
Seasmoke's picture

+Exactly!!

Thu, 12/31/2015 - 09:54 | 6981375 Mark Mywords
Mark Mywords's picture

Another job creator throws in the towel.

Thu, 12/31/2015 - 09:59 | 6981390 Ward cleaver
Ward cleaver's picture

Could never understand why a large investor didn't negotiate away the 2% part of the fee structure. Hey if you can beat the 10 year treasury yield I'm OK with giving you the 20% over the benchmark but F you on 2%.

Thu, 12/31/2015 - 09:59 | 6981391 Ward cleaver
Ward cleaver's picture

Could never understand why a large investor didn't negotiate away the 2% part of the fee structure. Hey if you can beat the 10 year treasury yield I'm OK with giving you the 20% over the benchmark but F you on 2%.

Thu, 12/31/2015 - 10:01 | 6981398 asteroids
asteroids's picture

The hedge funds are sending the FED and the "boyz" a message. To emphasize it, the boyz gotta buy back all that inventory they are selling. Notice that even with all that selling the market hasn't fallen much if at all.

Thu, 12/31/2015 - 10:05 | 6981408 Mark Mywords
Mark Mywords's picture

Yet.

Thin trading over the past month has made it easier to keep stawks levitated. It won't be until at least mid-January before the selling pressure becomes too much to overcome, even for the machines.

Machines giveth, but can also taketh.

Thu, 12/31/2015 - 10:05 | 6981406 buzzsaw99
buzzsaw99's picture

manage their own money. lulz. previously "client money". nobody is worth 2% in this environment.

Thu, 12/31/2015 - 10:16 | 6981428 Max Cynical
Max Cynical's picture

According to data from Hedge Fund Research Inc., 674 hedge funds liquidated in the first nine months of the year, compared with 661 in the same period during 2014.

This is the answer to my question from yesterday. Hedge funds seemingly close their doors on a regular basis. So why is ZH bringing this to our attention? Are we going to hear about all 600 closures in 2016?

Thu, 12/31/2015 - 11:24 | 6981670 Bangin7GramRocks
Bangin7GramRocks's picture

SAB Capital. Is that like JT Marlin?

Thu, 12/31/2015 - 13:18 | 6982232 Magooo
Magooo's picture

Hedge funds on average have returned 0.4 percent this year through November, according to data compiled by Bloomberg.

 

I am not clear why the industry still exists after this ---  of course they won't let you take your money out when you want....

Thu, 12/31/2015 - 13:24 | 6982272 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

returning investor capital means they can lever up and trade only when they see an opportunity

 

from what i understand, alot of these funds have agreements where they have to have X% invested in the market at all times.

 

If you see no reason to trade..why trade?

what we will see is a consolidation of these funds into a group of 'mega prop firms'

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