Hedge fund shut down?
Robert Merton is shutting down his new credit hedge fund because it "only" raised $30 million. An AUM of $30 million is more than enough to get a hedge fund started and build a track record. Most PROVEN hedge fund managers began with MUCH less. At fees of 2 and 20 that gives him a certain $600,000 each year plus more incentive fees assuming the fund performs which, admittedly, is a very optimistic assumption given his 40 year track record of being consistently WRONG.
Much bigger credit hedge funds have been launched recently. So? The fund would have been nimbler, able to get in and out of positions quicker and act on smaller credit inefficiencies. It is easier to make 20% on $30 million than to make 20% on $3 billion. A smaller credit hedge fund should be able to run rings around the billion dollar behemoths in performance terms. That other funds operate in the space is irrelevant; if his fund does better than the larger ones, investors will redeem from those and allocate to his. At least that is what investors should do.
Considering the total "return" of MINUS 89% that Long-Term Capital Management generated for investors using his models and theories, it is astonishing he could raise any money at all. People do get second chances even when they get it woefully wrong the first time and rightly so. But it is an insult to the investors that put up the $30 million to return it because it is supposedly not enough.
Robert Merton should be delighted he was able to raise such a large amount. Instead of quitting, he could give up his other duties, mail the "Nobel" back to Stockholm so it can instead be given to someone whose work actually deserves it and start focusing on generating returns. He should trade that $30 million - it might EDUCATE him on how markets actually function rather than how they theoretically operate.
Much bigger credit hedge funds have been launched recently. So? The fund would have been nimbler, able to get in and out of positions quicker and act on smaller credit inefficiencies. It is easier to make 20% on $30 million than to make 20% on $3 billion. A smaller credit hedge fund should be able to run rings around the billion dollar behemoths in performance terms. That other funds operate in the space is irrelevant; if his fund does better than the larger ones, investors will redeem from those and allocate to his. At least that is what investors should do.
Considering the total "return" of MINUS 89% that Long-Term Capital Management generated for investors using his models and theories, it is astonishing he could raise any money at all. People do get second chances even when they get it woefully wrong the first time and rightly so. But it is an insult to the investors that put up the $30 million to return it because it is supposedly not enough.
Robert Merton should be delighted he was able to raise such a large amount. Instead of quitting, he could give up his other duties, mail the "Nobel" back to Stockholm so it can instead be given to someone whose work actually deserves it and start focusing on generating returns. He should trade that $30 million - it might EDUCATE him on how markets actually function rather than how they theoretically operate.
© posted by Hedge Fund on 8:09 PM
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