The Curse of the Bambino lives!It's been 2 ½ years since the Boston Red Sox finally exorcised their famous demons. But ever since the World Series victory of 2004, something weird has been going on. Maybe the bad luck that had haunted the team for 86 years didn't go away ... it just transferred itself to the team's owners. Both John W. Henry, the principal owner, and New York Times ( NYT), his partner, have suffered an astonishing string of bad news ever since that famous moment. And there are some very eerie coincidences. Henry's business is now in a deep crisis. Long-standing client Merrill Lynch ( MER) is yanking $500 million from his commodities and futures trading company, according to reports published Tuesday in The Wall Street Journal. Merrill, as usual these days, declined to comment. Ken Webster, president of John W. Henry & Co., did not return calls either. Can't say I blame them. The move would send Henry's assets under management plunging to barely $500 million. That compares with a peak of $3.3 billion at the end of 2004. They're down 70% this year alone. The move leaves Henry's firm just a couple of banana-skins from disaster, according to one longtime observer. "If the performance doesn't recover, and continues as it has for the past three years, he'll experience further withdrawals and it would be very difficult for him to continue," warns industry veteran Perry Jonkheer, president of Illinois-based Institutional Advisory Services Group.
You can see why the clients are fleeing. Henry had a magical touch in the markets throughout the '80s and '90s. But ever since the late fall of 2004, it has all turned to ashes. Has anyone seen Bill Buckner? Since Nov. 1, 2004, Henry's main fund, Strategic Allocation, has plunged by nearly a third. If you'd invested $1,000 at that moment you'd have watched in horror since as it shrank to just $670, according to the company's own Web site. The figure for the Standard & Poor's 500 index: Nearly $1,400. Twice as much. Over the same period, Henry's GlobalAnalytics fund has turned $1,000 into just $800, compared to $1,700 and change in the MSCI EAFE international equities index. And his financials and metals portfolio has also lost a fifth of its value. Henry even closed his original investment fund, which he had traded successfully since the early 1980s, after it suffered three years of heavy losses. To be fair, he's not alone. Like most traders, Henry and his firm are basically chartists ... trying to divine trends from financial charts so they can jump on board. "Eighty percent of the world's traders are probably trend followers," says Jonkheel. The problem, he says, is that prices have been whipsawing around instead of moving in longer trends. Suddenly, the charts don't work the way they used to.
Look at gold: soaring towards $700, then plunging down towards $600, and now back around $650 an ounce. It's almost as if ... it's haunted. Babe? Are you there? There's no way of knowing for sure how much this is costing John Henry personally. His Boca Raton, Fla.-based company is private and does not reveal its accounts. However, it does post some numbers on assets under management, fees schedules and investment returns. In 2004, his assets under management soared from $2.1 billion to $3.3 billion. Eight of his 11 funds made profits, including 13.7%, after fees, for the Strategic Allocation plan. Henry charges most clients 2%, payable monthly, to manage their money. He also charges 20% of the trading profits each quarter, so long as the client is in the black overall. Using some rough estimates and the back of an envelope, this suggests his firm could easily have earned about $130 million in fees during 2004. OK, it's only a ballpark figure -- but why not? The guy owns a ballpark. Today, at 2%, $500 million in assets would generate just $10 million or so in management fees. As for performance fees: good luck. So far his funds are all down for the year. But even if Henry somehow turns around and posts, say, an average 10% return for his clients this year, he won't be pocketing much. Do the math. That's only $50 million in investment profits.
And at last count, half of Henry's clients were in the red, and he won't collect his 20% cut until they have erased their losses. Twenty percent of the rest could be as little as $5 million. It's not a lot. Add in the management fees you're only looking at $15 million all-in. Meanwhile, as Henry's fortunes have slumped, so have those of New York Times, parent of The Boston Globe and minority owner of the Sox. It was The Globe's baseball columnist, Dan Shaughnessy, who first popularized the idea of the Curse of the Bambino with his 1990 book of that name. If he wants to write a sequel, he could write about his own company. Since Game Four -- October 27, 2004 -- The Globe has been hit by plummeting circulation and losses. The New York Times Co., which in the past paid a total of $1.4 billion to acquire The Globe and another newspaper in Massachusetts, recently wrote down their value by $814 million. Newspaper troubles are hardly restricted to The Globe, of course. The rival Boston Herald newspaper -- where I used to work, and where I continue to write occasional local columns -- has also been hit by falling circulation. But nonetheless, over the past two and a half years the Times -- as measured, for example, by share price -- has managed to fare worse than most comparable big newspaper companies, including Gannett ( GCI), Dow Jones ( DJ) and even Tribune ( TRB). And there have been other setbacks for the Times during that time, including an astonishing, unprecedented and humiliating public row over corporate governance between the papers' controlling Sulzberger dynasty and Wall Street bank Morgan Stanley ( MWD). For two years running, the Gray Lady has been embarrassed at the annual stockholders' meeting by substantial protest abstentions. And coincidences continue. Henry's biggest fund has lost a third of its money since the Sox won the World Series. When you include dividends, guess how much the Sulzbergers, and other New York Times shareholders, lost over the same period? Five percent? Ten percent? Nope. A third.