Monday, April 18, 2011

Hedge Fund Snapshots: Surviving the Financial Crisis

Hedge Fund Snapshots: Surviving the Financial Crisis

  • A New Era for Hedge Funds
The hedge-fund business suffered mightily during the financial crisis and its aftermath.
With hundreds of funds having shuttered, the survivors are slowly returning to health. What's happened to them from before the crisis until today?
The Wall Street Journal spoke to a number of leading managers about the journey from late 2007 to early 2010.
—Jenny Strasburg
Raymond Dalio
Bridgewater Associates
[DALIO]
Raymond Dalio
Westport, Conn.
Then: $58 billion
Now: $92 billion
Firm founded in 1975. Made money across the board in 2008. Uses fundamental macroeconomic research in computer-driven trading models. Known for Mr. Dalio's "Bridgewater Principles" on life and work such as "Don't confuse checklists with personal responsibility" and "Be extremely open." "I think everybody is sort of shell-shocked, and they say, 'We have to be more careful,'" Mr. Dalio says. "But in terms of their gaining real understanding of what happened and how to prevent it in the future, I don't think there was much. While the financial crisis will have an effect in producing caution-altering behaviors, that effect will wear off in time."
Lawrence Robbins
Glenview Capital Management
[ROBBINS]
Lawrence Robbins
New York
Then: $9 billion
Now: $5.1 billion
Stock-picker suffered bruising losses in 2008, didn't limit withdrawals and bottomed out at $3 billion in assets. Funds recovered losses by early 2010, have brought in more than $1 billion from clients. Fond of sports analogies. Firm turned 10 years old in December. "The depth of our research process allowed us to have confidence in our investments, even though nobody else did," Mr. Robbins says. "It felt like being in a 50-round boxing bout with Mike Tyson. While we're thrilled to remain standing after the bout, we definitely don't want to do that again."
Thomas Steyer
Farallon Capital Management
[STEYER]
Thomas Steyer
San Francisco
Then: $36 billion
Now: $21 billion
West Coast giant is 25 years old. First-ever negative year in 2008 prompted client withdrawals and firm-wide restructuring. Primary investment focus shifted back to core strategies in credit and arbitrage. Positive returns have made majority of investors whole from 2008. Mr. Steyer held firstever investor conference in late 2009, as clients demanded more transparency. Investors also can choose how much in so-called illiquid assets they want to hold. Fund raising is on hold in biggest funds. "I think the most important lesson from 2008 for us and for the industry is humility," Mr. Steyer says. "We exist to do a good job for our investors. That's a detail-oriented, daily job which requires us to watch our risk-reward profile obsessively. Tough times remind us of our basic responsibility."
Kenneth Griffin
Citadel
[CITADEL]
Kenneth Griffin
Chicago
Then: $20 billion
Now: $11 billion
High-profile 2008 losses shrank biggest hedge funds, and firm limited withdrawals. Strong performance has helped investors recoup bulk of losses, boosting executives' hopes of bringing in new money. Investment bank, started in 2009, stabilizing after string of high-level departures. Successful high-frequency trading business continues profit run. "While our boldness has served us well, we are not blind to the lessons of 2008. We were overly confident that we could weather any financial storm. Now, we are firmly grounded in the understanding that even the best-run firms ... can face almost unimaginable market forces," Mr. Griffin wrote in a Dec. 2010 client letter.
David Haley
HBK Investments
[HALEY]
David Haley
Dallas
Then: $14 billion
Now: $5.6 billion
Below-the-radar multistrategy firm founded in 1991 lagged peers and suffered redemptions after misjudging subprime market in 2007. Had first negative year in 2008, prompting redemptions to pick up. Had plan in place to pay out withdrawals steadily. Strong recovery in returns helped reverse tide, and firm has attracted new money, including $500 million in the first quarter of this year. Firm has returned to its more traditional bets including in structured credit, emerging markets and equities. "We've been through crises before, in 1994, and then the fall of 1998. This one feels different. The changes to the industry are in some ways more impactful than from past crises. The regulatory fallout is much greater," Mr. Haley says.
James Pallotta
Raptor Group
[TUDOR]
James Pallotta
Boston
Then: $10 billion (as part of Tudor Investment Corp.)
Now: More than $200 million (at Raptor Evolution)
Stock-picker in 2008 left Tudor Investment Corp. (still run by Paul Tudor Jones) amid losses and client redemptions after making some of industry's biggest profits over 15 years. Continued his Raptor stock fund as smaller pool before returning client money in 2009. Now runs newer Raptor Evolution stock fund and invests separately through private-equity-style strategy in technology and digital-media companies. Minority owner of Boston Celtics just bought part of Italian soccer team. "I'm going to manage my money and my business the way I think they should be, rather than how others think they should be," Mr. Pallotta says.

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