Hedge Fund Investor Liongate Capital Management to Shut Down Liongate’s assets have fallen to less than $500 million.
"I never understood the need of "Fund of Funds" . Yet another layer of fees above an already "over expensed" model.
Given the fees , and the ancillary friction, associated with the Hedge Fund asset class it is no longer a competitive proposition. Hedge Funds cannot compete effectively against ETF's when one considers liquidity and cost .It really is "no contest" .ES
Liongate Capital Management LLP, one of London’s best-known hedge-fund investors, which ran billions of dollars at its peak, is to shut down, according to a person familiar with the matter.
Liongate at one time managed $3.4 billion and advised clients on billions of dollars more, the person said. But its assets have fallen to less than $500 million after investor outflows in recent years, the person said.
It comes as the $3 trillion hedge fund industry struggles to make money for investors, and big name funds including Fortress Investment Group LLC and Renaissance Technologies LLC shutter funds.
A spokesman for Principal Global Investors LLC, the U.S. asset manager that bought a 55% stake in Liongate in 2013, said in an emailed statement to The Wall Street Journal that the firm has started the process of returning cash to investors and of scaling back the firm’s operations.
He said that Liongate, set up by Randall Dillard and Jeff Holland in 2003 had been subject to “a number of headwinds” from the loss of clients over the past two years. “This has placed the business under significant pressure,” he said. He added that Liongate was running $1.4 billion when Principal made its investment.
Liongate gathered a net $800 million from investors in 2008, which helped its flagship Multi-Strategy fund of funds grow to around $1.75 billion. Funds of funds such as Liongate select a range of hedge funds on behalf of investors. Liongate’s offices displayed some of the trappings of success, with items including a stuffed lion, and a mock-ancient map depicting one of the firm’s partners lifting the whole world.
But like many of its peers, Liongate suffered in recent years. The fund of hedge funds sector saw $118 billion of outflows in 2009, according to Hedge Fund Research, and further withdrawals after that, due to poor returns and questions over the extra layer of fees that such funds charge.
“If you’re in a high-fee business, it’s very, very competitive,” saidPeter Borish, a co-founder of hedge fund Tudor Investment Corp. and now chief strategist at Quad Capital. “You need to perform to justify the fees and if you don’t perform then investors are going to shift assets elsewhere.”
Investors pulled assets from Liongate following a loss of around 8% in 2011, and withdrew further assets following the departures of Mr. Dillard and Mr. Holland earlier this year. The firm has more recently been led by Tim Stumpff, the firm’s president, who previously worked at Principal.
The acquisition by Principal, which runs $346 billion in assets for retirement plans and other institutions, of a stake in Liongate in 2013 had valued the firm at around $150 million, said the person. The spokesman for Principal said the firm had never disclosed the terms of the deal but said Principal wrote-off the value of its Liongate investment late last year at $45 million.
Write to Laurence Fletcher at laurence.fletcher@wsj.com
Here is a commentary and my reply on LinkedIn:
Comment by TVB:
I agree that there really is little need for funds of funds, at least with the traditional fee structure. There are too many ways to provide manager selection without the FoF layer of fees. I disagree that ETFs will obsolete the entire hedge fund industry, because ETFs can't duplicate all HF strategies, and that will be even more the case if/when we return to less correlation between assets. Recent high-profile HF closures were global macro funds that made bad bets; more HFs have logged recent returns that aren't great in absolute terms, but are OK on a relative basis. So as a diversifier and a source of absolute return, the case can still be made for HFs; just look at how they benefit the Yale and Harvard endowments. That said, where ETFs can effectively compete against HFs - i.e. where there is liquidity - HFs may find themselves at a competitive disadvantage in some cases, until returns on individual assets begin to differentiate again. This, plus the ill will towards the 2-20 traditional fee structure probably mean that HF fees will have to come down. This has already happened, as institutions demand separate accounts and firms hire managers to run strategies in house. But there are no absolutes - HFs aren't all dead.
My reply:
Here is a commentary and my reply on LinkedIn:
Comment by TVB:
I agree that there really is little need for funds of funds, at least with the traditional fee structure. There are too many ways to provide manager selection without the FoF layer of fees. I disagree that ETFs will obsolete the entire hedge fund industry, because ETFs can't duplicate all HF strategies, and that will be even more the case if/when we return to less correlation between assets. Recent high-profile HF closures were global macro funds that made bad bets; more HFs have logged recent returns that aren't great in absolute terms, but are OK on a relative basis. So as a diversifier and a source of absolute return, the case can still be made for HFs; just look at how they benefit the Yale and Harvard endowments. That said, where ETFs can effectively compete against HFs - i.e. where there is liquidity - HFs may find themselves at a competitive disadvantage in some cases, until returns on individual assets begin to differentiate again. This, plus the ill will towards the 2-20 traditional fee structure probably mean that HF fees will have to come down. This has already happened, as institutions demand separate accounts and firms hire managers to run strategies in house. But there are no absolutes - HFs aren't all dead.
My reply:
Edward Strafaci YOU
