Posted by on September 18, 2017 4:38 pm
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Categories: Alternative investment management companies Business China Economy Equity securities Finance Financial markets fixed Hedge fund Housing Market Institutional Investors Investment Latin America Mark Nordlicht money Pine River Capital Management Private Equity Real estate Reuters S&P 500 Steve Kuhn

Back in January 2016, we reported that Pine River Capital Management, then run by noted hedge fund investor Steve Kuhn, was shuttering its Fixed Income fund, and returning roughly $1.6 billion to investors. The wind down was surprising for one of the industry’s most prominent names: Kuhn was one of four managers who helped the Pine River Fixed Income Fund score some of the industry’s biggest gains. They included a 93% return in 2009, fueled largely by bets on the housing market.

Unfortunately, the hedge fund had remained unable to replicate its profitable ways in recent years, and according to both Reuters and Bloomberg, Pine River is closing its master fund following a wave of client withdrawals that would bring assets below $300 million.

The fund, which started in 2002, had about $1 billion in assets prior to the latest redemption schedule. Because the withdrawals would cause the portion of illiquid assets to increase relative to the overall fund, the managers discussed placing those investments in a segregated account called a side pocket.

As Reuters adds, clients said the request was a response to a move by investors to pull more money than Pine River expected from its $1 billion flagship fund, which has significantly lagged behind the S&P 500 the past two years. As a result, Pine River had asked fund investors in recent weeks if it could segregate roughly $90 million in illiquid assets to sell them off over time instead of immediately. The assets Pine River wanted to place in a side pocket included equity and debt in Africa and Latin America, according to Reuters sources, and equity in and loans made by online lending firm CircleBack Lending.

And while investors approved of that plan, the firm’s managers ultimately decided instead to close.

The reason for the untimely death of the fund is familiar: the multi-strat master fund suffered from years of lackluster performance against a backdrop of rising investor discontent with hedge funds’ high fees. According to investor documents, the fund gained 1.7% this year through August, and was up 1.4$ last year after dropping 2.75 percent the year prior. That compares with 11.9% and 12% in total returns by the S&P 500 for the YTD and 2016 periods. The fund’s average annualized return is 9% since its 2002 inception through August.

The redemptions in its flagship fund add to recent challenges for Pine River. Its assets under management dropped by more than 40% since a 2015 peak of about $15 billion and there has been turnover among its investment professionals, including the departure last year of key portfolio manager Steve Kuhn.

Steve Kuhn

As Bloomberg adds, the decision marks another turn for the Minnetonka, Minnesota-based hedge fund firm, which has closed a handful of funds and seen staff departures over the last year or so. In addition to the liquidation of its fixed income fund, Pine River is also closing its $560 million China hedge fund and ending long-short equity trading amid a shift toward event-driven strategies, Bloomberg reported this June and July. Additionally, the firm’s money manager Renos Dimitriou is planning on spinning out his $1.7 billion government bond-trading fund into a standalone company.

Pine River still oversees $1.5 billion in customized accounts and $4.1 billion across two real estate investment trusts according to Bloomberg. That’s a fall of nearly two-thirds from $15 billion in assets under management in 2015. Pine River is hardly alone: “since 2015, the hedge fund industry has lost more money than it’s attracted from investors in every quarter but one, according to Hedge Fund Research Inc. More hedge funds have closed than opened for the last two years.”

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