Hedge funds do not seem to be supporting Trump in anything like the ways it was predicted it would. Filings made with the Federal Election Commission for donations made in July show that the Donald Trump campaign raised a little bit over $2 million from hedge fund industry members, and most of that coming from just one source: co-head of Renaissance Technologies Robert Mercer.
Executive director of the Center for Responsive Politics, Sheila Krumholz, said that although the totals for July appear anemic, the trend for Trump is still positive.
“We can see that it has gone from a pittance — a mere thousands of dollars — to millions, but it’s impossible for us to say at this point what the final figure is for July,” said Krumholz. “It’s possible we’ll see, if not a sea change, then a big leap forward for Trump.”
The sums are especially disappointing in light of Anthony Scaramucci’s claim that about 20 percent of the approximately $70 million the Trump campaign raised in July was from hedge funds. According to Sacaramucci’s equation that would mean hedge funds had contributed a juicy $14 million, which seems to be not even close.
Paul Tudor Jones, manager of Tudor Investment, fired about 60 of his employees, or 15 percent of his workers. Poor returns and investor redemptions are said to have been behind the move.
Tudor manages about $11 billion for high net-worth investors, sovereign wealth funds, and pension funds. It is also one of the oldest hedge fund firms still in business.
The company’s flagship fund, Tudor BVI Global makes bets on international trends such as currencies and interest rates, has grown by 18 percent on average per year since its inception in 1986. This year is not one of its better years, however, with a down turn of about 2.5 percent as of late July.
The company’s other funds are all losing money this year, after making a profit last year, a year when the average hedge fund was in the red.
Several global macro funds are also losing money this year, and the average hedge fund this year has grown by a meager 3 percent. Layoffs are becoming a common site in the hedge fund industry as investors are demanding fee cuts and even their money back as they see poor returns on their investments. This summer Pershing Square Capital Management, another hedge fund giant, laid off about 10 percent of its workforce.
A report published by Barclays Bank shows that the number of hedge funds is shrinking for the first time since the 2008 economic crisis.
Poor earnings are forcing the funds to close, and bad returns are discouraging managers from taking the risk of opening new hedge funds.
The Barclays report predicted that by the end of this year there will be a net loss of 340 funds around the world, a 4 percent decrease from last year. In 2009 the industry also saw a 4 percent shrinkage on the heels of an 11 percent contraction during the height of the financial crisis in 2008.
Hedge Fund Research, a hedge fund research company, reported that today there are 10,007 hedge funds globally, as of July.
“Based on recent HF (hedge fund) performance and the increased challenges to launching an HF (hedge fund), we estimate that there would be a net decrease in the number of funds by YE (year end) 2016,” the Barclays report said.
Agile Fund Solutions, a money management firm based in California, announced that Greg Gleeson and Andrea Schweikert will be joining the company as hedge fund specialists.
Vincent Calcagno, CEO of Agile, explained the move to hire hedge fund specialists:
“Southern California presents a major opportunity for Agile. Greg is a veteran player in the SoCal market and has overseen hedge funds and family offices across all size scales.”
Concerning Schweikert, Calcagno added: “Coupled with Andi’s experience serving hedge funds, private equity and venture capital funds while at Rothstein Kass it gives Agile the ability to deliver on our mission of enabling managers to scale their business by having them focus on the portfolio while we focus on everything else.”
Gleeson had this to say about his new employment:
“I’m thrilled to be joining the Agile team. Agile’s “best-in-class” outsourcing model allows portfolio managers to utilize us for the aspects of their business we’re best at, allowing them to focus on making money for their investors, which is what they are best at. For many strategies and firms outsourcing is the future. This is evident from Agile’s rapid growth and I’m thankful that I have the ability to be a part of the evolution Agile is leading for our industry.”
“As Greg alluded to, the hedge fund managers I’m working with are really excited about Agile’s forward-thinking approach towards the traditional finance, operations and compliance functions,” Schweikart added. “I couldn’t be happier to be able to be a part of this dynamic team that operates in such a supportive family culture.”
Agile’s founder Nick Castoria added:
“To think that a year ago we had 11 team members and now we stand at 22 is both humbling and exhilarating all at the same time. I couldn’t be more excited about where Agile, our managers and the team are heading.”
Running a hedge fund is not easy, especially these days when one after another fund seems to be shutting down. Yet, there are still die-hard managers that want to take the risk of opening up their own fund in the hopes of success.
Attracting new money isn’t easy for anyone in today’s financial climate. For new, unknown funds without a history of success to point to, it can be almost impossible. New funds with new managers often highlight their past experience with big names in the hedge fund world. Lets take a look at some new managers who are branching out on their own, and what they have to offer their prospective investors.
• Margate Capital with Samantha Greenberg. Greenberg is a former employee of Paulson & Co., and one of the most senior women in this heavily male-weighted profession. Margate will be a long/short equity fund, and with the help of her newly hired partner Jared Weisfeld from Balyasny Asset Management, she hope to begin her new fund with $500 million later this year.
• Ravi Chopra will be starting Azora Capital. Until this past April Chopra worked at Samlyn Capital, and before that Sigma Capital, a SAC Capital subsidiary. Azora will focus on financial stocks with his New York-based fun which will make long and short bets.
• Black and White Capital will be run by Seth Wunder, the founder of the $1.4 billion Contour Asset Management. His new fund, Black and White, will be headquartered in Los Angeles. Not much else is known about the new fund, but Contour was focused on stocks representing the technology, media and telecom sectors.
Just like any other industry, competition combined with poor results is forcing hedge funds to charge less for their services to entice customers.
The current fee structure, known as 2-and-20, for the 2 percent fee charged on the total number of assets managed, and for the 20 percent of return managers take as their share of the profits. These high fees have long been a bone of contention between managers and their clients, but as more funds close and performance of these funds is in the doghouse, many investors are demanding more reasonable fees.
“Looking forward, you’ve seen this huge trend on average fee-collecting for hedge funds declining. That trend is strong and it’s going to continue going forward,” said Donald Steinbrugge, managing partner of Agecroft Partners, an industry marketing firm. “There’s going to be pressure on new funds coming out to be in line more with a 1½-and-20 model than a 2-and-20 model.”
The National Pension Service of South Korea, the third-largest pension fund in the world, chose to US-based funds to invest their money. The funds are BlackRock Inc and Grosvenor Capital Management, to manage investments in funds of hedge funds this year.
NPS will give each firm as much as $500 million, according to the pensions fund’s investment management office.
“The upcoming hedge fund investment is expected to contribute to the generation of stable profits by diversifying risk for the fund’s entire portfolio,” NPS Chief Investment Officer Kang Myoun-wook said.
The NPS is valued at about $415 billion in AUM as of December, 2015.
The decision of Britain to leave the EU has left uncertainty and confusion in its wake. This is especially true of financial firms, such as hedge funds, which rely heavily on the opportunities investing in the unified marketplace of Europe afford.
A survey done by the research group Preqin tried to gauge the reaction of alternate asset managers to the British decision to exit the EU. They asked 142 such firms and found that 7 percent are considering a move out of Britain. An additional 17 percent have not yet decided if a move would be a good idea or not.
London has always been a popular city to headquarter hedge funds and private equity groups interested in trading in the European marketplace. Managers are worried that if the UK ends up leaving the EU without making a deal in which they can easily participate in the single market of Europe, that they will have compromised their businesses.
Head of executive reward for Europe at Hay Group Carl Sjostrom, said a large number of alternative asset managers were thinking about expanding their presence in the EU so that they can continue distributing funds in Europe.
“It is probably healthy for asset managers to be broader in their marketing efforts. They have relied too much on [investors] coming to London with their money. I think Brexit will dampen the London marketplace so British firms need to become more agile and innovative,” Sjostrom said.
Putting his money where his outspoken mouth was, British hedge fund manager Crispin Odey reaped the benefits of his lonely position when his compatriots voted to leave the European Union.
“I feel fantastic. It’s a fantastic decision by the electorate,” Odey said when he heard the news that the UK voted to exit the EU.
Odey was not shy about his support for the Leave campaign, and he backed up his opinion with many short positions. Those positions paid off quite well as the markets began falling in response to the news.
His most important shorts were intu Properties and Berkeley Group, which fell by 11 percent and 27 percent, respectively on the day of the vote, profiting Odey with a nice payoff of £220 million, and including a 30 percent fall in his fund, leading up to the vote.
He had a clear strategy in mind: He put about 65 percent of his funds assets into gold, which rose after the vote when investors took to safety in the storm. He put the rest of his fund into shorting sterling and Japanese bonds.
“This is a good day for me. I was brave. I had a lot of clients who were angry with me but they won’t be quite so angry this morning. Life is not about being un-brave at the right time. We in the City have certain skills,” Odey added.
Today’s graduates of MBA programs are avoiding hedge funds as their next step. Instead they are choosing private equity firms and startups to make their mark on the business world.
In a survey conducted by Training the Street, a company that gives technical training to Wall Street firms and business schools, startups and private equity firms are seeing a larger number of MBA students naming them as their preferred work choices upon graduation. There is a simultaneous decline in MBA grads choosing hedge funds as their go-to work destinations.
Part of the decline could be due to less aggressive recruitment of MBAs by hedge funds. The survey showed that there was a 3 percent decline in hedge fund recruitment from the previous year. Recruitment by private equity and startups increased by 4 percent and 6 percent respectively.
In general, the newly minted students seem to feel confident that their futures are bright. Over 85 percent said they were at least a little bit optimistic about job prospects when they were finished with school. Since the majority said that they had more than one job offer with starting salaries at six figures, it is easy to see why they are feeling happy.