Investors Redeem Half Of Paul Tudor Jones' Main Fund In Past Year

The woes for hedge funds continued in the second quarter, and nowhere more so than among the macro fund community, which posted its worst first half since 2013, losing 0.7% , and according to Hedge Fund Research have returned just 1% annually in the past five years, in an investing world which no longer makes much sense courtesy of central bank intervention. Most impacted by this revulsion against the active investing community has been none other than Paul Tudor Jones, whose investors are increasingly deserting him according to Bloomberg, which reports today that clients yanked 15% of their assets from his main BVI fund in the second quarter, leaving AUM at just $3.6 billion, roughly half from a year ago.

Jones, whose BVI Global Fund is down 1.9% through July 21, has been taking aggressive steps to revive his firm, including reducing fees and headcount. As revenue at Tudor declined, Jones last month sold the firm’s 43-acre Greenwich, Connecticut, headquarters’ property. Tudor then said it plans to move to a location in lower Fairfield County that’s more convenient to New York City, where the firm has offices. It is probably also cheaper. One year ago, Jones also dismissed 15% of his employees. He has told clients he will manage a larger chunk of their money and has encouraged his portfolio managers to take more risk. Jones has also leaned on quantitative tools to help with trading, including introducing technology that replicates the bets of his best managers.

Finally, Tudor has this year reduced its management fee to between 1.75% and 2.25% while taking a 20% cut in profits, after decades of being one of the most expensive hedge funds. The firm had once charged management fees as high as 4% for some clients, and a performance fee of as much as 27% for others, Bloomberg reports.

Alas, so far these "aggressive steps" have failed to yield results. Jones, 62, and his peers including Brevan Howard"s Alan Howard and, of course, John Paulson, are experiencing a "punishing shift":

The old guard who shot to fame in the 1980s and 1990s are foundering, while a younger set of managers are making money, hiring and attracting new investments. The veterans are finding it’s no easy feat to replicate stand-out profits of yesteryear, when markets were more opaque and less efficient.

One can debate whether markets were less efficient then compared to now, but one thing is certain: icons such as PTJ have failed to find their groove in a world where central banks have injected $15 trillion in liquidity. Aside from BVI Global, Tudor also manages a fund tied to the performance of multiple teams of managers, an event-driven portfolio, and individual accounts. In total, the firm now has just under $8 billion in assets, compared with $14 billion in June 2015 according to Bloomberg.

Meanwhile, Tudor employees have also defected along with clients.

Global rates money manager Adam Grunfeld quit in May after nine years and is set to join Element Capital, the macro fund run by 42-year-old Jeff Talpins. Zorin Finkelsen and Dudley Hoskin left to join Balyasny Asset Management. Other departures have included risk-management chief Joanna Welsh, who departed for Ken Griffin’s hedge fund Citadel last year. Separately, money manager Dan Pelletier took a sabbatical to design quantitative tools for trading, people with knowledge of the firm said. Pelletier, who had worked at Tudor for nine years, couldn’t be reached for comment.

Jones" recent troubles are a humiliating fall from grace for the once-storied investor, whose main BVI Global Fund produced average annual gains of about 26% from 1987 through 2007. However, since 2008 his annual average return has slid to about 4.7% with results turning increasingly more negative in recent years.

In his biggest losing bet - so far - Jones banked on macro making a comeback. Last year he said central bank policies, which have suppressed volatility and encouraged more government debt, will backfire and macro strategies will profit when the debt bubble bursts. So far that hasn’t materialized.

Hedge Fund Traders Return To Banking As Trump Promises To 'Make Prop Trading Great Again'

The hedge fund industry is finding itself in increasingly dire straits as persistently weak returns and the advent of low-cost investing have forced more and more funds to shut down. So, it"s unsurprising that, amid this steadily worsening backdrop, more traders are heading for the exits. But where are the heading? Increasingly, more traders are moving back from where they came - i.e. the big banks, which expect to see a boost in trading revenue as President Donald Trump has vowed to dial back postcrisis regulations that forced banks to wind down their prop desks.

In recent months, a number of high-profile hedge fund names have made the leap back to banking, according to Bloomberg.

“This month, Barclays Plc hired Chris Leonard, a founder of two hedge funds in the decade since he left JPMorgan Chase & Co., to turn around U.S. rates trading. At the end of last year, ex-bankers Roberto Hoornweg and Chris Rivelli, both of Brevan Howard Asset Management, left that London hedge fund for banks.

Recruiters say these moves and others aren’t just the usual attrition: banks in New York and London are interesting employers again a decade after the financial crisis, and may get involved in more proprietary trading if President Trump eases regulatory burdens. There’s also another factor: many macro funds just don’t make money anymore.

One recruiter says he expects defections to increase over the next nine months.

“In the last quarter of the year or first quarter of 2018, you will find more people leaving the hedge funds to join banks to run proprietary money,” said Jason Kennedy, chief executive officer of the Kennedy Group in London, which hires for banks and hedge funds. “The banks will become more attractive in terms of jobs and pay.”

The Trump administration has struggled to pass elements of its agenda - most notable its plan to repeal and replace Obamacare. And it only recently scored a partial victory on its immigration ban. Yet financial deregulation is one area where the Trump agenda is moving inexorably forward. On June 13, Treasury Secretary Steven Mnuchin issued a report – the first in a series that will detail how the administration plans to proceed with paring back post-crisis regulations.  Some of the more notable proposals in the highly-anticipated report include: adjusting the annual stress tests, easing trading rules (i.e., gutting the Volcker Rule), and paring back the power of the watchdogs - like the Consumer Financial Protection Bureau. Unlike the administration’s health-care plans, these measures enjoy broad support among Republicans.

Meanwhile, hedge funds are finding it increasingly difficult to compete for top talent.

"...the bar within the hedge-fund world has increased dramatically over the last year,” Kennedy said.

Hedge funds, stung by years of underperformance and revolts from investors, are increasingly under pressure to dump their traditional 2 percent management and 20 percent performance-fee model, curtailing their ability to hire and retain talent. Louis Bacon’s Moore Capital Management, Tudor Investment Corp., Och-Ziff Capital Management Group LLC, Canyon Capital Advisors and Brevan Howard were among money managers who cut fees last year. More hedge funds shuttered last year than started, a trend that continued in the first quarter of 2017, according to data from Hedge Fund Research Inc.

“It is not surprising that traders are looking for a safe haven, and if banks have more room to operate these moves could make sense,” said John Purcell of Purcell & Co., a London-based executive recruitment firm."

The unprecedented easy money policies adopted by the world"s largest central banks in the aftermath of the crisis have hurt macro funds" profits by suppressing two-way volatility.

“Tim Sharp made the move back to the sell side even earlier, and says banks now have attractive niche trading businesses and many are nearly done downsizing. He joined Credit Suisse Group AG in July 2015 after less than a year running money at BlueCrest Capital Management LLP, the firm led by Michael Platt. At the end of that year, Platt’s firm, once among Europe’s largest hedge funds, announced it would return about $7 billion of the $8 billion it managed.

“It’s very difficult for macro funds," Sharp said in an interview. “Central bank policies have crushed volatility and reduced opportunities, and also it’s survival of the fittest.”

Sharp, who is now a director at Credit Suisse, left BlueCrest a few months after the Swiss central bank’s shock decision to remove its currency cap, which caused losses at several firms.

"Macro as an overall strategy has recently experienced a prolonged phase of lackluster returns, triggering a number of unwinds at big shops," said Nicolas Roth, co-head of alternative assets at Geneva-based Reyl & Cie.”

As Bloomberg explains, the flow of traders back into banking is a reversal of a trend that began in 2008, when banks, reelingfrom the crisis, saw an exodus of traders move to the buy side as many hoped to cash in on the postcrisis recovery. The advent of the Volcker rule forced banks to wind down their prop trading desks, spurring even more defections. Another factor: the rising cost of regulatory compliance is making it increasingly expensive to start a hedge fund.

"Hedge funds were booming. In 2009, hedge funds gained almost 20 percent, their best yearly performance since 1999, according to the HFRI Fund Weighted Composite Index; a year later, they returned 10.3 percent.

While macro strategies raised $13.8 billion in the first five months of this year, the most of any trading strategy tracked by eVestment, investors are disappointed by their returns. Traders wagering on currencies and rates continue to struggle, even as peers are showing signs of recovering from their multi-year funk.

Andrew Law’s Caxton Associates lost 8 percent this year through May and told clients that it’s slashing performance and management fees. Paul Brewer’s hedge fund Rubicon Global Fund plunged about 27 percent this year, hurt by wrong-way currency wagers, people said earlier this month.

It’s also more expensive to start a hedge fund than it was, because of the difficult capital raising environment and rising cost of regulatory compliance.

“Some macro traders are returning to the sell side, maybe in a hope that a Dodd-Frank rollback will re-open proprietary trading activity,” Roth said."

Here’s a breakdown of other personnel moves, courtesy of Bloomberg.

• Anthony Kemp returned to Morgan Stanley at the beginning of May from Stone Milliner Asset Management, which he joined in summer 2015


• Alex Silverman left Citadel to join Morgan Stanley in New York at the end of March 2017


• Dipak Shah joined Citigroup Inc. as director in October 2016 from Capula Investment Services after previously working at Goldman Sachs Group Inc.