It didn't take long for someone to set a new record for the biggest hedge fund launch. Jack Meyer, the former manager of Harvard's endowment, raised $6 billion for his new fixed-income fund, Convexity Capital.
Meyer beats Eric Mindich, the former
luminary, who raised $3 billion for his Eton Park fund last year. During his 15 years at Harvard's $26 billion endowment, Meyer gained a reputation as one of the best hedge fund investors in the country. He dragged 30 people from Harvard along with him to Convexity.
Tremont Capital Management reported that three strategies -- global macro (bets based on macroeconomics views), emerging market and dedicated short bias -- attracted the greatest amount of net assets in the fourth quarter.
The Tremont study found inflows of $1.2 billion for global macro; $600 million for emerging markets and $30 million for short-bias in the three months to Dec. 31. Event-driven, long/short equity, managed futures and multi-strategies remained flat while convertible arbitrage and equity market neutral continued to lose assets.
The global equity market is good, so when you are a top-notch stock picker, why not create a long-only fund, call it a hedge fund, and cash in? It makes sense, even if some purists argue that a hedge fund manager by definition should hedge his buys with shorts. But Okumus Capital Management has nothing to prove to anyone and is jumping into the bullish fray, as first reported by hedge fund publication
What this $750 million hedge fund manager is doing now is taking the long component of its hedge fund and selling it as a separate vehicle to investors. The domestic, or "on-shore," class launched earlier this month.
Investors insisted that they wanted a long-only vehicle, says Ibrahim Okumus, cousin and partner of founder Ahmet Okumus. The other solution was to offer them managed accounts, but the firm did not want to bother with extra back-office work, he says.
Okumus picks have a hit ratio is 90, meaning that 90 trades out of 100 are profitable. The firm's flagship Okumus Opportunity Fund generated a 29% net annualized return since inception in 1997 with no down years, according to Okumus.
But investing in the new long-only fund has a catch: investors will have to choose between different liquidity options. And the more liquid the class, the more expensive it is.
A detailed look at the three share classes is instructive. Class 1 charges the usual 1.50% management fee and 20% performance fee with a straightforward one-year lock-up. The hurdle rate is the
benchmark, meaning that the performance fee kicks in only when the manager beats the index.
Class 2 is cheaper. The management fee is 1%; the performance fee is 17.5%; and the hurdle remains the S&P 500. This time, though, there is a three-year lock-up, hence, the lower cost.
With class 3, which has a one-year lockup, the management fee drops to 0.75%, but the investor faces a 50% performance fee. The 50% fee works as a so-called "hard hurdle," meaning it is paid on the difference between the fund's return and the S&P 500 benchmark, not as a percentage of overall performance. It looks like a good deal, but if the manager is good and consistently consistently beats the S&P (which this manager has since 1997), class 3 winds up being more expensive than class 2.
For example, in class 2, if the S&P 500 yields 5% and the fund returns 10%, the investor would pay 17.5% of 10%, or 1.75%. In the case of class 3, his performance fee would be 50% of 5%, or 2.50%.
It was a good week for
American International Group
. The company agreed to a $1.64 billion settlement, lifting a cloud on its past as well as its shares.
Another development garnered less attention, although it reflects a growing trend among large financial institutions. The insurance company is making a push into hedge funds. One of its subsidiaries, AIG Financial Products, a derivative and currency trader, bought 4.3% equity stake in British hedge fund Aspect Capital. AIG will retain an option to acquire an additional 8% stake in Aspect and to provide $125 million in additional seed capital for Aspect, a quantitative hedge fund shop.
Sol Waksman, founder of the Barclay Group, a hedge fund index provider, doesn't buy all that talk about hedge funds dropping their fees under market pressure. "I had been reading so many things about this that I was wondering if it was correct. But it's not based on reality," he said.
Waksman did a study based on a population of new funds for each year from 2001 to 2005. "Managers don't raise their fees on existing funds. They close to new investors and start a new fund. So the cleanest way to get a measurement on whether the fees are going up or down was to look at new vehicles," he said. What he found is that fees remain higher across the board.
For domestic funds, incentive fees rose from 19% to 19.6% from 2001 to 2005. For offshore funds, the increase during the same period was from 18.5% to 19.6%. The same applied to funds of funds with incentive fees up from 7% to 8.85%. Only management fees for funds of funds tend to decrease slightly.
A mob of 1,200 hedgies gathered in New York last week for a fund-raising event organized by Hedge Fund Care, a business group devoted to fight child abuse. Price for a table: from $10,000 to $25,000. Amount of money raised: $1.7 million.
The fun part was to walk among the crowd, glass of Champagne in hand, pen in the other, and check the sports and show business memorabilia and goodies on display for the silent auction.
A Pele signed jersey was offered at an initial price of $1,500. A ticket for the 2007 Grammy Awards had a $10,000 price tag. A Johnny-Damon-signed Yankees jersey traded at an initial bid of $1,500 (sorry, Red Sox fans). And Sylvester Stallone's signed red gloves were a bargain at an initial $1,200 price.
Hedge fund biggies from Amaranth, Moore Capital Management and SAC Capital Advisors were spotted here and there, near the bar.
Established in 1998, the Hedge Fund Care raised over $15 million to support grants and programs fighting child abuse and neglect. Its executive director, Rob Davis, is a former Banc of America's prime broker.