Hedge Funds Slammed: Tudor Hit With $1BN In Redemptions; NYC Pensions To Pull $1.5BN From Key Names

In a world in which the average hedge fund has failed to outperform the stock market for 8 years running, many have asked themselves what is the point of paying 2 and (not so much 20) to consistently underperform a global asset class which is now actively micromanaged by central banks themselves. And while redemptions from hedge funds have been growing in recent months, coupled with the first year since the crisis in which more hedge funds shut down than were created, it all culminated moments ago when Bloomberg reported that clients of none other than hedge fund legend Paul Tudor Jones have asked to pull more than $1 billion after three years of lackluster returns.

As Bloomberg reports, "the investor redemption requests were made in recent weeks, according to two people with knowledge of the matter, and follow the exit of several money managers, some of whom spent decades at the firm. Another senior executive,Richard Puma, Tudor’s deputy chief operating officer, is planning to leave, the people said."

The withdrawals mark a setback for the $13 billion firm, one of the oldest and well regarded in the industry. BVI Global, Tudor’s main fund, which makes wagers on macroeconomic events, added to losses in March, pushing its decline to 2.8 percent in the first quarter, according to an investor document. What is surprising is that PTJ's returns have not been too bad: gains of 1.4 percent in 2015 and 3.5 percent in 2014.

Still that was not enough for his clients used to seeing double digit returns every year.

As Bloomberg reports, PTJ's bets during the financial crisis helped investors dodge damage. Tudor’s Tensor Fund gained 36 percent in 2008, and BVI lost just 4.5 percent while stock markets plunged by 37 percent, including reinvested dividends.

Snidely, Bloomberg notes that like most hedge fund firms that make investments based on macroeconomic events, Tudor has had difficulty matching those outsized returns in the years since. The Tensor fund returned cash to investors in 2014 after three years of losses.

Thank the central banks for turning every the logic of finance on its head.

More troubling are the departures: Puma, who reported to Tudor Co-President Michael Riccardi, is leaving after three years, people said. He previously worked at Tudor from 1995 to 2003 as head of U.S. operations, according to his LinkedIn.com profile. Money managers Spencer Lampert and John De Palma left earlier this year, months after the retirement of Mark Heffernan, another money manager who’d spent decades at the firm.

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Tudor is not alone. As Bloomberg also reported last night, New York City’s pension fund for civil employees is weighing exiting its $1.5 billion portfolio of hedge fund investments because of lagging performance, high fees and the riskiness of the asset class. The vote to terminate the funds may come as soon as today. Hedge funds make up 3 percent of the civil employees’ fund’s $51 billion portfolio. 

Among the names who will be forced to liquidate are D.E. Shaw & Co., Brevan Howard and Perry Capital. 

"Hedge funds are charging exorbitant fees for high-risk and opaque investments” said New York City Public Advocate Tish James. ”Our public employees work hard for their money, and they deserve to know their investments are secure. We can and must invest responsibly and also honor our fiduciary responsibility."

New York City may follow a September 2014 move by the California Public Employees’ Retirement System, the largest U.S. pension. Calpers divested its $4 billion portfolio saying the asset class was too expensive and complex.

So as even the marquee hedge funds gradually all are converted into family offices as outside money departs, one wonders if investors will seek to park even more money into the one asset class that is rapidly becoming the most dangerous instrument of investing in capital markets, namely ETFs. For a quick reminder of what happens when the ETF class malfunctions, look no further than August 24, 2015.