Caxton Outsources Assets to Commodity Shop

In an unusual move, Caxton Associates, the behemoth hedge fund shop founded by Bruce Kovner, will outsource some of its assets to a commodity trading adviser.

Optimation Investment Management of Potomac Falls, Va., says it signed an agreement with Caxton to manage a "significant" allocation of the global macro manager's funds.

Why would Caxton, one of the largest U.S. hedge funds, cede oversight of client assets to an outside entity? The main reason is capacity constraint, which, over time, can kill healthy returns.

Peter Matthews, Optimation's managing partner, declined to specify the amount of the allocation he brought in from Caxton last month, other than to say that it is below $1 billion. But he said that Caxton's decision was prompted by its size. The fund manager has about $10 billion under management.

"They're looking for someone to trade these large amounts of assets," he said. At a later stage, Caxton may open a new fund and give Matthews the responsibility to manage it, he said.

"I have not really seen those types of deals," said Chris Jackson, president of a $110 million fund-of-funds in San Francisco. "Lots of funds that have outgrown their initial strategy have become multi-strategy funds."

At Caxton, just under $9 billion is invested in the Caxton International fund, which pursues a global macro strategy. So the move may also be a way for Caxton to broaden its scope, especially in relation to funds-of-funds that fight with hedge funds for the same assets. "It is getting very competitive out there," said Matthews. Funds-of-funds invest in a diversified pool of underlying hedge funds. They typically appeal to institutions and high-net-worth investors for their diversified structure.

"I have heard that it is happening at some of the bigger funds," said Matthews. "Because they've reached their own limits, their own staff, they have to find talent in a way that they become more like a fund of funds."