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Hedge Fund Investors Regain ‘Whip Hand’ After 2008’s Losses

Date: Thursday, June 18, 2009
Author: Tom Cahill, Bloomberg

Hedge fund managers gathering in Monaco this week said they have work to do to regain investors’ confidence after the industry’s record losses last year.

“We have to prove as an industry that we can provide absolute returns again,” Pierre Lagrange, co-founder of hedge fund GLG Partners Inc., told some of the 750 delegates at the GAIM International hedge fund conference in Monte Carlo. “We have to show that in the next year or two we can strike back.”

Hedge funds tumbled 19 percent in 2008, the worst year since Chicago-based Hedge Fund Research Inc. began keeping records almost two decades ago, prompting investors to pull money, and funds to shut or impose limits on withdrawals. Funds have started to rebound this year, rising 9.4 percent through May, according to the HFRI Fund Weighted Composite Index.

Investors said hedge fund firms should cut their usual fee of 2 percent of assets under management and 20 percent of profits. Some investors said they want to claw back losses from fees or spread payments out over a longer time period.

“We’ve had a decimating year, so naturally fees should come down,” said Yaser Abu Shaban, who works for Abu Dhabi Commercial Bank PJSC, the United Arab Emirates’ third-biggest bank by assets.

Brevan Howard Asset Management, Europe’s largest hedge fund firm with $24 billion, created a separate share class with a “concession on the management fee” for investors who agreed not to withdraw money from the fund for three years, Philippe Lespinard, a partner at Brevan Howard, told the conference.

‘Whip Hand’

“The pendulum is swinging back to investors,” said Stephen Ziff of London-based Coller Capital Ltd., which buys stakes in private equity and hedge funds. “Who holds the whip hand? Investors.”

Managers who stopped investors from pulling their money may feel that lash in particular, said Randall Dillard, who runs London-based fund of hedge funds Liongate Capital Management LLP.

“It’s not their money,” said Dillard. “Those who broke the core promise to give money back when asked will be sanctioned appropriately.”

Still, hedge fund managers at the conference said investors are showing signs of resuming commitments to hedge funds. Tony Gannon, chief executive officer of Abbey Capital Ltd., a $1.1 billion hedge fund manager based in Dublin, said investors added more money into his fund in May than withdrew it, the first month of so-called net inflows since October.

“Finally, I hear a heart beat coming back into this business,” Gannon said.

Some managers are turning away funds, after even the most popular managers opened their funds to new investors last year, executives said.

‘Back To Where We Were’

“The cream is starting to say we’re back to where we were,” said Barrie Duerden, a director at Corazon Capital, which invests about $1 billion including a fund of hedge funds. “In the last two weeks I’d say three or four managers have indicated they’re going to close again” to new investors.

For now, hedge fund managers are putting the parties on hold. Gone were the rows of presentation booths at Monaco’s Grimaldi Forum this year, along with the cocktail receptions paid for by prime brokerages and other service providers.

“They’ve got absolutely no budget,” said Jenny Adams, who’s organized the annual gathering for the past 15 years. “Everyone’s being circumspect and ascetic when it comes to parties.”

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net