Hedge Fund Managers Split Over Strategy

Date: Tuesday, August 18, 2009
Author: Zachery Kouwe, The New York Times

Russell Herman, the chief executive of the hedge fund firm Dawson-Herman Capital Management, is the latest manager to shutter his fund after heavy losses last year and differences with the firm’s founder, Jonathan Dawson.

Mr. Herman told clients in a letter last week that he was shutting the Southport Millennium Funds and returning capital to investors. The move was first reported by Dealbreaker.com on Friday. The firm currently has about $902 million of capital under management after reaching a height of $3.2 billion at the beginning of 2008.

Like many in the hedge fund industry, Dawson-Herman suffered big losses last year. The main Southport fund was down more than 35 percent and has failed to make up for the losses this year. “We have not been able to build the portfolios with high conviction ideas and themes to the degree that is satisfactory to me and in line with our historical standards,” Mr. Herman said in the letter.

He noted that the Southport funds had a net annualized rate of return of 5.9 percent after fees since its inception through the second quarter of 2009. But Mr. Dawson disputed that number, saying the domestic fund was up 12.3 percent for as of June 30 and the offshore version, started at a later date, was up 6.8 percent since inception.

Mr. Dawson plans to continue managing money for his clients, but will split from Mr. Herman at the end of the year. The remaining capital in the Southport funds is expected to be liquidated by the end of September, Mr. Herman said. The firm will lay off six employees and have 26 remaining.

Mr. Herman’s departure marks the third partner in a decade who has decided to part ways with Mr. Dawson. In 1999, Arthur J. Samberg, the legendary hedge fund manager now under investigation by the Securities and Exchange Commission, spun out Pequot Capital Management from what was then known as Dawson-Samberg Capital Management. Following that split, Mr. Dawson became a partner with Anthony Giammalva to form a new firm but the name was changed again in 2004.

–Zachery Kouwe