A pair of unrelated Boston-based hedge funds managing a total of more than $1.3 billion separately told investors today they're shutting down and returning investor cash because of recent disappointing performance.
Letters from Raptor Capital Management and Noble Partners LP that were obtained by The Associated Press say both firms plan to revamp their investment strategies and eventually offer new funds.
Noble Partners' George Noble told investors in his $550 billion Gyrfalcon QP and Offshore Funds that "my performance over the past several months of 2009 has been the most professionally disappointing and personally frustrating" of his nearly 30-year career.
"Whatever the reasons for our poor performance, the numbers speak for themselves and are simply unacceptable," Noble said in a letter to investors about the funds' 30 percent loss this year.
The closures were also confirmed to the AP by two people familiar with the situations. The persons spoke on condition of anonymity because they were not authorized to speak publicly on the matters. The Wall Street Journal first reported the closures online Tuesday afternoon.
James Pallotta, who heads the $800 billion Raptor Funds, told investors in a letter that his firm has returned an average of nearly 13.9 percent per year since the funds' inception in October 1993 through the end of last month. That compares with a 6.5 percent return over that period for the Standard & Poor's 500 index.
But the funds' performance this year has been "roughly flat," he said.
Pallotta became a minority owner of the Boston Celtics professional basketball team, and split several months ago with longtime
hedge fund partner Paul Tudor Jones of Tudor Investment Corp.
Pallotta said his Raptor Capital Management is suspending investor withdrawals and will begin returning investor cash in early July, starting with a cash payment of about 75 percent, followed by a process to eventually return the remainder.
Noble told his investors to expect 95 percent of their remaining capital returned by July 1. Meanwhile, an audit will be conducted so that the remaining cash can be returned "as soon as expeditiously as possible thereafter."
In his letter, Pallotta didn't offer details of the shortcomings that recent market volatility has exposed in his fund's investment strategy. But he wrote that in recent years he's become skeptical "regarding the sustainability of certain aspects of the industry's structure and short-term focus."
Noble said that "the dynamics of the past year dictated a far shorter-term, more tactical approach.
"Although we managed to preserve capital in 2008, as the new year unfolded we became increasingly aware of the unsustainable nature of our overall investment process."
The new strategy that his company hopes to devise "will seek greater return consistency by reducing downside volatility, without eroding our core investment approach."
The process will "take at least several months," Noble wrote, adding that "it is not appropriate or consistent with our fiduciary duties to retain outside capital during this time."
The moves follow the closures of a record 1,471 hedge funds — or nearly 15 percent of the industry — in 2008, with half of them vanishing in the fourth quarter alone, according to Hedge Fund Research. The average
hedge fund lost 18 percent last year, although not all hedge funds fared poorly.
Hedge funds, which are coming under increasing scrutiny because they are largely unregulated, are vast pools of capital that operate secretively and traditionally cater to institutional investors and very wealthy individuals. Hedge funds have grown explosively in recent years, luring an increasing number of ordinary investors, pension funds and university endowments.
Hedge funds can invest in nearly anything: commodities, real estate, complex derivative securities as well as ordinary stocks, assets of companies. Unlike government-regulated mutual funds — the primary vehicle for retirement savings for tens of millions of Americans — hedge funds can use techniques such as short-selling, or betting on falling stocks or markets to make a profit from downturns.
