"We Decided To Close Our Firm" - A Hedge Fund's Lament

Tyler Durden's picture

Several astute observations on the ongoing transition from active to passive management in general, and what is shaping up as the worst year for hedge funds since the financial crisis in particular, that are sure to resonate among our hedge fund readers courtesy of Eric Peters, CIO of One River Asset Management.

“We decided to close our firm,” read the email from a friend.

I moved it to a folder that’s filling up fast. Been a brutal year in an unforgiving industry. Change is in the air. It usually arrives slowly, quietly, fog. But sometimes change is a hurricane.

Today’s tempest is snapping saplings, uprooting oaks. A large state pension just announced a “Back to Basics” investment strategy; the commission voted unanimously to fully redeem from seven of the industry’s most prestigious hedge funds. They’re not the only ones heading Back to Basics.

Industry redemptions this year are $60bln; on track to match the 2009 record. Back then outflows were driven by losses. Now they’re driven by insufficient profits, high fees, and a general aversion by hedge fund managers to take enough risk to earn 8% annual returns.

Because that’s what investors must generate to meet long-term retiree obligations.

And if states can’t meet those obligations they’ll raise taxes, reduce investments, or cut pensions - leaving broke Baby Boomers diaper-less.

But raising taxes and reducing investment is self-defeating; slowing growth, reducing productivity.

So how will “Back to Basics” solve America’s intractable pension problem? With bond yields at 5,000 year lows, and stocks at valuations exceeded only during the 1929 and dotcom bubbles, a Back to Basics solution is an oxymoron.

Back to Basics is the exact opposite of what’s needed. Unless of course it means liquidating your portfolio and going short because everything’s overvalued. Or unless Back to Basics means market timing, because overvalued assets can still rally, just not indefinitely. And of course, shorting and market-timing are things that hedge funds do uniquely well.

Which is why we’re not the problem, we’re part of the solution. That’s why today’s hedge fund tempest presents extraordinary opportunity. For those who evolve, bend, and survive this storm.

* * *

“My company is in structural decline,” he said gazing across Gotham, high in the corner office.

“Made it through denial, anger, bargaining, and given that we’re having this conversation, I suppose I’m mostly through depression.” Which leaves the final stage of grief and loss; acceptance.

The transition from active management to passive has been devastating for those who’ve devoted their lives to the former.

“I wonder whether the deep pessimism that we confront every day in our own businesses helps explain why we’re so skeptical of all time S&P highs.”

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Ol Man's picture

Welcome to the real world...

NoDebt's picture

If this guy ran a hedge fund that simply "bought the fucking dip" he wouldn't be in this sorry state.  

yippee kiyay's picture
yippee kiyay (not verified) NoDebt Oct 31, 2016 7:22 AM

Greed has met its match. https://goo.gl/IoiSjv

philipat's picture

 SPAM ALERT: Serial spammer DO NOT click on his fake links which are completely unconnected to his comments. Current names: Yippee Kiyay, lonnng and letsit


Previous names include: mofio, santafe, Aristotle of Greece,  Gargoyle, bleu, oops,     lance-a-lot, Loftie, toro.

Yippee Kiyay, lonnng and letsit; the Holy Trinity of Spammers. All for one, one for all. Shortly YK will be banned and the other two will take over the work, to be supplemented by other pseudonyms.

LetThemEatRand's picture

I don't need to pay anyone 2 and 20 to tell me to either BTFD or fight the Fed.   

BabaLooey's picture

Glad I do not have any AUM anymore.

The last entrails of it was "lost" to greedy kids, who drained the parents accounts as they were broke/bought houses stupidly/had legal troubles/got greedy.

It gives me no solace to see many other advisors struggling, or hedge funds going bust.

Misery does NOT love company - in my world - as to this.

I AM eternally pissed off over;

The hi-jacking of the "markets" by the Federal Reserve

The OVER-regulation by the government, under Barry Soetero and particularly Crusty Dodd and Blowjob Frank

The cabal of banks, that have sucked the life out of millions.

I will never forget or forgive any of the above cunts.


LetThemEatRand's picture

There are some good people who are asset managers/financial advisors (I've known some), and who have been royally fucked by what you describe.   As it always does, Wall Street fucked those guys along with their clients by being too greedy.

roddcarlson's picture

The last lemon squeeze yet to come, when investing in the S&P "Long Term" creates consistent losses. The bubble must test all the die hards with an extreme awakening that sometimes things go up, go down and then never come back up again.

NoDebt's picture

I'm just glad you're not bitter about any of that.


Archibald Buttle's picture

he should be rejoicing. the ongoing disintermediation proceeds apace, and looks to claim a new and higher player as it's next victim. this is one step closer to his "fuck you" moment, and the resultant satisfaction gained thereby. for what it will be worth.

c0nan's picture

"I will never forget or forgive any of the above ..." Well said. We must not forget, and we must not let out kids forget, or the cycle will keep repeating.

BabaLooey's picture

Hedge Fund..........

Dead Fund


Number 156's picture

Their timeline came to an end, at Zero.

LetThemEatRand's picture

I'd give this guy the world's smallest violin, but I'd need to get it back from Huma (and she swears she doesn't have it).

navy62802's picture

Who cares? Another loser hedge fund bites the dust. These fucks are scum.

scofflaw's picture

Any correlation between the shift to passive investing and the rise of the HFT parasites?

Yen Cross's picture

   Awe... You lost your FREE 2-20??? I feel so bad for you.

 Now you can focus on this think/thing called hedging, you fucking pussy!

hedgiex's picture

Quote: Which is why we’re not the problem, we’re part of the solution. That’s why today’s hedge fund tempest presents extraordinary opportunity. For those who evolve, bend, and survive this storm. Unquote


buzzsaw99's picture

those clueless bastards don't have any idea how to earn their clients any money much less how to earn their 2% on top of that.

What I mean is, you don't seem to be a very good thief, maybe you should try something else. [/Andy Dufresne, The Shawshank Redemption]

scofflaw's picture

What I mean is, you don't seem to be a very good thief, maybe you should try something else.

Right, which is why he said he's closing his firm. So, I'm pretty sure that is exactly what he's doing.

Archibald Buttle's picture

so, um..... any tips on what that something else is?

scofflaw's picture

Maybe he'll work at a car wash?

Government needs you to pay taxes's picture

Having worked the sellside for ~20 years, I can confidently say there are very hardworking, intelligent, and professionally law-abiding active investment professionals who are watching their careers wither due to the lunacy that is QE and central bank intervention.  That said, most of these people have >$5 million tucked away, so I'm not shedding too many tears, as I know their talents will help society more when redirected. And then there are the criminals.  The crooks are still active, they just dont have 'SAC' and 'Diamondback' on their business cards.  

fellatio is not fattening's picture

I've always loved the selling point of "market neutral" hedge funds, we go short some shres and go long others in an attempt to essentially break even,  LOL  I know, how about I save the 2/20 and stay in cash where I KNOW I'll be market neutral without the risk

RaceToTheBottom's picture

If the Asshole feels so bad, he can take all of the profits his firm made in the duration and donate it to some charity that benefits all of the people in the US.


Otherwise, unless you are going to get your entire firm to commit suicide, STFU!

Lost in translation's picture

"Shoot zem. Shoot zem both..."

tropicthunder's picture

"any year you don't lose money is a winning year"

gregga777's picture

Hedge funds are unproductive parasites that exist solely because of the Goldman Sachs Feral Reserve System and it's credit boom-bust-boom and free money for billionaires policies.

uhland62's picture

The economy is not about paper shuffling. Invest in something productive. Interesting: If the Chinese can invest in a 99 year port and upgrade lease (Darwin, Australia) why can't the American corporations? They just don't like the real economy, only paper shuffling. But what they can do is criticize that the Marines now have Chinese neighbours. America is the richest and most powerful country on earth, but the Philippines also talk to China when they want something in the real economy done, not paper shuffling.

mary mary's picture

Over the last 28 years, a 50/50 mix of VUSTX and VFINX has returned 9.86% annual. 

John Bogle has been predicting an exit from hedge funds.

Heroic Couplet's picture

Good riddance. If the Cayman Islands blow up in a volcano, how many on the US continent will care?