Folger Hill hedge fund stumbles after pedigreed start

August 22, 2016 1:52 PM EDT

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By Svea Herbst-Bayliss and Lawrence Delevingne

BOSTON/NEW YORK (Reuters) - Folger Hill Asset Management has suffered through investor redemptions and losses that have cut the hedge fund firm's assets by nearly one-third from its 2015 peak, people familiar with the situation told Reuters.

Launched in 2014 by an acolyte of SAC Capital Advisors founder Steven A. Cohen, Folger Hill was one of the most prominent hedge funds to come on the scene. Its founder, Solomon Kumin wanted it to be similar to SAC in that it would have many portfolio managers pursuing a variety of strategies for high returns.

Kumin raised about $1.1 billion by telling investors its diverse array of stock market bets through talented managers meant Folger Hill would perform well in good markets and bad.

But through mid-August, its main fund was down about 5 percent, having recovered from more severe losses earlier in the year, said the sources. They were not authorized to publicly disclose performance information, which is closely guarded in the secretive $3 trillion hedge fund industry.

Recent declines have occurred after a 3.2 percent drop in 2015. As of mid-August, Folger Hill's assets had fallen to about $750 million from its post-funding peak as some investors who were able to redeem their funds lost patience.

Brad Balter, managing partner at hedge fund investment firm Balter Capital, said the drop was consistent in the industry with people leaving funds with high fees that do not perform quickly.

"That's not a plus for high-fee models," Balter said.

Folger Hill is far from being the only struggling hedge fund.

The industry's performance has suffered in recent years, because of factors ranging from low interest rates to subdued volatility to bad bets on individual stocks. Hedge funds have also taken a reputational hit as a small but highly publicized group of big investors have abandoned them.

But Folger Hill's decline is notable because of the high hopes that accompanied its launch.

Kumin had been chief operating officer at Cohen's SAC, which generated annual returns of 30 percent, on average.

SAC pleaded guilty in 2013 to civil charges of insider trading, agreed to stop managing funds for outside investors and paid a $1.8 billion fine. Cohen settled with the U.S. Securities and Exchange Commission this year and was barred from managing outside investor money until 2018.

Soon after SAC's plea deal, Kumin started raising money for his own fund.

Kumin told potential investors he expected to deliver strong returns in all markets and that there would be tight risk controls, according to marketing material viewed by Reuters.

Folger Hill required a steep $5 million minimum for the privilege of being an investor. It charged performance fees of up to 20 percent, in addition to expenses, for those who could redeem their money the most easily.

Kumin, 41, is a horseracing fan who named his fund after a place in Nantucket for sentimental reasons. He located Folger Hill's offices in New York and Boston, where he owns a townhouse in the exclusive Beacon Hill neighborhood.

One of the horses he has an ownership stake in, Wavell Avenue, won the Breeders' Cup Filly and Mare Sprint last year. Another, Exaggerator, won the Preakness Stakes and placed second at the Kentucky Derby this year.


Kumin scored a big win when Jefferies Group parent Leucadia National Corp provided an anchor investment of $400 million. The firm committed its capital for five years ending in August 2019. Leucadia Chief Executive Richard Handler and President Brian Friedman joined the Folger Hill's board.

Some investor share classes required commitments of as much as three years, according to fund materials seen by Reuters. Other investors who agreed to pay hefty fees have no lockup period.

In an emailed statement, Handler said Leucadia stands behind Folger Hill.

"Folger Hill has recently gained some positive momentum with their performance and new portfolio hires over the past 3-4 months," Handler said. "We look forward to helping them continue to build their firm."

Balter Capital's Balter said multi-manager hedge funds in particular are falling out of favor given their relatively high fees. Losing bets can easily cancel out winners because their investments are so diversified.

Although Folger Hill's losses in 2015 happened as rival multi-managers posted some of the best returns in the hedge fund industry, it has more company in losing this year.

Some multi-manager funds are doing poorly. (story

Blackstone Group's Senfina Advisors has lost roughly 20 percent in the first seven months of 2016 and Citadel's Global Equities fund is off 2.5 percent through late August, people familiar with the numbers said.

Big-name funds with other strategies, like Pershing Square Capital Management, Brevan Howard Asset Management and Tudor Investment Corp are also struggling.

During his time at SAC, Kumin built a reputation as one of Wall Street's best talent scouts.

He stacked his own firm with people who had worked at places such as Highfields, D.E. Shaw & Co, PointState Capital and BlueCrest Capital Management. An important condition of employment: managers who lost 10 percent peak to trough could be fired.

Folger Hill let a handful of managers go earlier this year as losses mounted, one person familiar with the firm said. Its main fund lost 13 percent in the first quarter, largely because of an 8 percent drop in February.

Folger Hill in the past few months hired new portfolio managers, including two analysts from Citadel. It now employs 17 portfolio managers in total.

Despite its troubles, the firm is moving ahead with plans to launch an Asia-focused strategy in October, according to a person familiar with the situation. The person said the firm has already raised hundreds of millions of dollars for the strategy.

(Reporting by Svea Herbst-Bayliss and Lawrence Delevingne; Editing by Lauren Tara LaCapra and Grant McCool)

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