Big losers mask net gains in hedge fund assets

By Lawrence Delevingne

NEW YORK (Reuters) - Hedge funds have had a lousy 2015 on average, but investors are little fazed by the meager returns.

The funds globally have taken in more than $45 billion of new money from clients this year, despite losing more than $100 billion on bad market bets and frequently reporting gains near zero.

Pension funds, endowments, wealthy individuals and other investors are not giving up, and instead are looking for funds that will provide better returns, or help cushion their portfolios from losses.

Unsurprisingly, fund managers that have performed well this year, including Millennium Management and Two Sigma, have attracted more money. Each has returned more than 10 percent in 2015, compared with gains of 0.3 percent for hedge funds on average, according to industry data tracker Hedge Fund Research. In turn, investors have poured billions of dollars into each, people with knowledge of the funds told Reuters.

But those gains belie asset declines elsewhere: Funds managed by P. Schoenfeld Asset Management, Litespeed Partners, JANA Partners, Perry Capital, Brevan Howard Asset Management, Och-Ziff Capital Management Group and Atlantic Investment Management have reported losses or meager gains year to date, apparently spurring investors to take money out, according to asset and performance information seen by Reuters.

"Without question, there have been some pretty sizeable losers this year,” said Rick Teisch, who heads up a group that picks hedge funds for institutional investors at Principal Global Investors in New York.

“There appears to be a rotation out of these weaker performers and into stronger ones. That's a tough game to play, as many of this year's losers have been among the strongest performers in years past.”

Growth of hedge fund assets has been relatively steady for decades. Investors added more money every year from 1995 to 2007, when assets reached $1.8 trillion before the financial crisis, according to HFR. Investors pulled money in 2008 and 2009, only to return the following year. Total hedge fund assets now stand at nearly $3 trillion.

Managers that Reuters reached out to either did not respond to requests for comment or would not speak on the record.

EVENT DRIVEN LOSSES

Many of the funds experiencing big client withdrawals are "event driven," meaning they bet on acquisitions, restructurings, dividend changes and other major corporate actions. It has been a tough year for these funds thanks to a series of popular wagers that went wrong, including ones on drug company Valeant Pharmaceuticals, whose shares have fallen more than 55 percent since August after questions arose about its accounting and drug pricing practices.

Event-driven hedge funds globally are on average down about 2.2 percent for the year through November, according to data tracked by HedgeFund Intelligence.

At Peter Schoenfeld’s PSAM, for example, assets under management have fallen nearly 25 percent to $2.8 billion, from $3.7 billion in January, according to a person familiar with the situation. That drop is much higher than the investment declines in its funds, suggesting that investors are taking their money out. PSAM's main fund, PSAM World Arb Partners, is down about 6 percent this year through November.

Another event-driven manager, Jamie Zimmerman’s Litespeed, has seen its overall assets decline by about 40 percent this year, to $1.93 billion in October from $3.24 billion around the new year, according to public filings and investor information seen by Reuters. Litespeed’s main Partners fund is down about 9 percent in 2015 through November, the second consecutive negative year and third overall since launching in 2000.

JANA, an event-driven manager led by Barry Rosenstein and best known for corporate activism, faces a more than 9 percent decline in overall assets to $9.9 billion at yearend from $10.9 billion as of Nov. 30, according to investor information seen by Reuters. Its largest fund, JANA Partners, is down an estimated 6.3 percent for 2015 through November.

A final example is Richard Perry’s Perry Capital, whose overall assets have fallen nearly 22 percent to about $7.9 billion as of Nov. 30, from $10.1 billion at yearend 2014, according to public filings and investor information seen by Reuters. Its International fund is down about 9.7 percent for 2015 through November.

“It’s definitely been a tough year for event,” said Jonathan Lubert, managing member of JL Squared Group, an investment adviser that allocates to hedge funds on behalf clients. “Given high volatility and underperformance, it wouldn’t be surprising to see even more outflows in 2016.”

OTHER MAJOR WITHDRAWALS

Capital at Alan Howard’s Brevan Howard is down nearly 11 percent to $24.8 billion despite small gains by its main multi-strategy funds this year through November, according to information obtained by Reuters.

Assets at publicly traded Och-Ziff, led by Dan Och, have fallen about 6 percent from yearend to $44.6 billion as of Dec. 1, according to public filings. That is also in spite of relatively positive performance by its hedge funds for the year, the filings show. Investors took out $4.18 billion from Och-Ziff’s multi-strategy hedge funds over the first nine months of the year, according to another filing. When inflows into credit and real estate funds are included, overall assets fell $1.71 billion this year through September.

A last example is Alexander Roepers’ Atlantic, whose assets have fallen nearly 29 percent since late February, to $1.5 billion, according to information obtained by Reuters. Its largest fund, which focuses on bets that stocks will appreciate in value, is down nearly 15 percent in 2015 through November. Smaller European and Asian focused funds are up between 11 percent and 21 percent for the year.

SOME BIG WINNERS

Predictably, hedge funds with strong performance had more money come in.

Israel Englander’s Millennium, for example, is up nearly 11 percent this year through November in its multi-strategy International fund, according to performance obtained by Reuters. Assets have risen nearly 26 percent from March to $34 billion as of Dec. 1.

Two Sigma, the data and technology-driven investment firm led by David Siegel and John Overdeck, has produced positive returns of 13 percent and 14.5 percent in two of its funds through November, according to return information see by Reuters. Firm assets are up more than 29 percent to $31 billion year to date as of Nov. 30.

(Reporting by Lawrence Delevingne; Editing by Steve Orlofsky)

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