Why Is This Big Hedge Fund Returning All Its Clients' Money?
BlueCrest Capital Management, a large European-based hedge fund, will return all $7 billion of its clients' money. Why? Here's what the guy who runs it had to say:
As for the 20% performance fee, the article notes that gains this year averaged around 3.5%. Again, the math: 3.5% X $7 billion = $245,000,000 or gain. 20% of $245,000,000 (the performance fee) = $49,000,000. Adding the $70 million to the $49 million we get $119 million. That means these guys throw away $119 million (as per this year's performance numbers) when they jettison $7 billion of client money. Why would they do this? Can't they focus just as well with $8 billion as with $1 billion?
Maybe this explanation makes more sense:
None of this makes any sense. The firm has performed poorly and has lost assets before this announcement. These reasons are just made up for the media. Maybe they're just accelerating the existing outflow to save face. Maybe they've lost their ability to produce results commensurate with the fees they charge. Maybe, they're joining a number of large hedge funds who have closed their doors over the past couple of years. Whatever the reasons for this decision, it's likely not what's being seeded in the media here.
Maybe this will make some sense:
None of this adds up. A number of big hedge funds have closed their doors in the last couple of years. It's usually because they've lost so much that they can never make up enough to be able to get back to the level where they'll be able to collect that 20% fee on gains. Without that incentive, it's not worth the effort. So they return their money to their clients. Some of them then simply start up a new fund where they get to charge that 20%.
That makes sense.
Now, if you're an investor, why you would put money with a guy who lost big time, closed his fund, and then started a new fund so he could collect a 20% is beyond me. But it happens.
As for Bluecrest, I think I'll contact them and and find out where they find employees who can bring significant assets into their fund. My plan would then be hire such employees who bring funds to the firm, invest the funds, have the employees manage the assets, then collect fees off any gains. If the rich employees are amenable to the idea, I'm in business.
What am I missing here?
Michael Platt, who runs the $8 billion BlueCrest Capital Management, will return all client money and instead focus on managing his own wealth and that of his partners and employees......which totals around $1 billion. Sounds like a big deal, no? The way it's reported, it's all rather hum-drum no big deal, right?...until you consider how much money hedge fund managers charge in fees. While we don't know BlueCrest's fee schedule, a typical arrangement would be a management fee based on the size of the assets, with a "performance" fee added on top. While such fees have descended from the lofty heights of of 2% on assets, plus 20% on any gains for the year, it shouldn't surprise us if they charge something like 1% plus 20%. Now even someone with modest math skills can figure out that 1% of $7 billion comes to $70 million. So the manager will just forego $70 million in order to focus on his own wealth...etc.?
As for the 20% performance fee, the article notes that gains this year averaged around 3.5%. Again, the math: 3.5% X $7 billion = $245,000,000 or gain. 20% of $245,000,000 (the performance fee) = $49,000,000. Adding the $70 million to the $49 million we get $119 million. That means these guys throw away $119 million (as per this year's performance numbers) when they jettison $7 billion of client money. Why would they do this? Can't they focus just as well with $8 billion as with $1 billion?
Maybe this explanation makes more sense:
“Everyone knows the landscape has changed,” Platt said in an interview. “We want to position ourselves to be free to adapt to the environment such as it exists.”But isn't that what any investment manager would do - adopt to the environment such as it exists?
None of this makes any sense. The firm has performed poorly and has lost assets before this announcement. These reasons are just made up for the media. Maybe they're just accelerating the existing outflow to save face. Maybe they've lost their ability to produce results commensurate with the fees they charge. Maybe, they're joining a number of large hedge funds who have closed their doors over the past couple of years. Whatever the reasons for this decision, it's likely not what's being seeded in the media here.
Maybe this will make some sense:
BlueCrest will retain all of its offices, according to the press release. The firm, which currently has about 250 employees, said it “anticipates strong growth” in assets and employees over the next years under the new business model. Since the firm opened in 2000, it’s produced more than $22 billion in trading profits for investors, according to the statement.What doesn't really add up is where the "strong growth in assets" will come from. If they're thinking they'll be so successful in their investing that assets will grow strongly, bully for them. But why would they need to add employees just because they have a good year or two? Does managing a few billion require a lot more employees if you add a billion or so more? Maybe they're saying that the employees they'll add will bring lots of investment assets into their fund. They did say they'll manage their own money, and that of employees. But what sort of employees bring lots of investment assets with them?
None of this adds up. A number of big hedge funds have closed their doors in the last couple of years. It's usually because they've lost so much that they can never make up enough to be able to get back to the level where they'll be able to collect that 20% fee on gains. Without that incentive, it's not worth the effort. So they return their money to their clients. Some of them then simply start up a new fund where they get to charge that 20%.
That makes sense.
Now, if you're an investor, why you would put money with a guy who lost big time, closed his fund, and then started a new fund so he could collect a 20% is beyond me. But it happens.
As for Bluecrest, I think I'll contact them and and find out where they find employees who can bring significant assets into their fund. My plan would then be hire such employees who bring funds to the firm, invest the funds, have the employees manage the assets, then collect fees off any gains. If the rich employees are amenable to the idea, I'm in business.
What am I missing here?
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