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How to quit your hedge fund

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Quitting is never easy — especially for the alpha types who make up the $3 trillion hedge fund industry. Yet some of the best-known founders have thrown in the towel this year after fortune-making decades in the business.

These traders all had their own reasons to hang it up. But there were some common factors behind the decisions: the challenge of competing with an ever-rising stock market, the difficulty of raising enough assets and, for many, the march of time.

David Tepper, 62, decided this year to kick out all but 15 clients from his $13 billion Appaloosa Management.
David Tepper, 62, decided this year to kick out all but 15 clients out of his $13 billion Appaloosa Management.

As 63-year-old Jonathan Kolatch told investors earlier this month when announcing his retirement: “If I don’t step away now, it’s not clear I will ever get away from my desk.”

But while the reasons are few, the ways to leave, as Paul Simon knows, are many. In an industry built on the cult of the successful money manager, stepping away isn’t always straightforward.

Below, we take a look at the various methods some of Wall Street’s biggest names — from David Tepper to Louis Bacon — have chosen to say `goodbye’ this year.

As the hedge fund industry slowly becomes more institutionalized, some founders have created succession plans to keep their firms going after they leave the stage.

Kolatch, who ran Redwood Capital Management for two decades, is leaving the firm to his lieutenants. Ruben Kliksberg and Sean Sauler already managed funds at the firm and are well known to his clients. “Hedge fund managers are a bit like professional athletes,” Kolatch wrote in his farewell letter. “They both have limited shelf lives.”

King Street Capital Management surprised investors in October with the news that Fran Biondi, 55, who co-founded the firm in 1995 with Brian Higgins, would be retiring next year. The move leaves Higgins in charge along with two other long-term employees who were promoted as co-chief investment officers alongside him, David Walch and Paul Goldschmid.

Some clients, taken aback by the move, have asked to pull money from the firm, according to people familiar with the matter.

While 77-year-old Willem Kooyker decided to shutter his Blenheim Capital Management (once the world’s largest commodity fund) he’s keeping things going in one way: Most of his clients transferred their investments to a new firm managed by his son Terence.

For those not happy entrusting the firms they have built to others, the traditional way to leave the industry is to kick clients out and become a family office. It’s a path trodden by some of the all-time greats, including George Soros, Stan Druckenmiller and Leon Cooperman.

John Lykouretzos, 46, who started the stock hedge fund Hoplite Capital Management 16 years ago, did just that in August. He wrote to clients that while he was proud to have made money in several years when his peers did not, “the alpha we generated has been overshadowed by underperformance in other periods.”

Another fund-to-family office conversion this year was Sandell Asset Management, an activist shop founded in 1998 by Thomas Sandell.

Other managers decided on a hybrid approach, keeping a few clients but giving themselves room to pursue other interests.

Louis Bacon, 63, told investors in his Moore Capital Management that he was stepping back from trading and returning money in his main hedge funds. He will keep his firm open as a prop trading group managing his own and employee money, and a few star managers will run funds open to outside clients. “Time will tell how eagerly I pry myself away from daily markets, or return if I do,” Bacon wrote to clients.

David Tepper, 62, decided this year to kick out all but 15 clients out of his $13 billion Appaloosa Management. That will give him time to focus on turning around the struggling Carolina Panthers, the professional football team he bought last year.

Samantha Greenberg, 44, who spent almost seven years at John Paulson’s hedge fund before going out on her own, gave up on her $215 million Margate Capital Management just three years after it opened. The reason, she said, was an inability to grow the business. After closing her own shop, Greenberg joined Ken Griffin’s $32 billion Citadel. “I have come to believe that the hedge fund industry requires far greater scale than in the past,” she told her clients.

Former star mutual fund manager Jeff Vinik, 60, made a splash in the 1990s when he raised $800 million to start a hedge fund, then one of the largest launches on record. Since then he’s stopped and started another two times. His latest attempt was short-lived: Eight months after opening, he decided to close down Vinik Asset Management in October after failing to raise the $3 billion he was targeting.

“There’s less performance chasing than you saw in the past, and that’s a positive thing,” an expert says.
December 4

“Simply put, it has been much harder to raise money over the last several months than I anticipated,” he told clients, adding that he very much doubts he’ll try again.

Several hedge funds shut down altogether in 2019, the fifth year in a row with more closures than fund launches. Stone Milliner Asset Management, founded by three Moore Capital alums, told investors in November that it was winding down, with all assets being returned by the end of the year. Peace Bridge Partners also ceased operations, with the two-year-old firm’s founders saying in an investor letter they had "underestimated how difficult the fundraising environment would be."

And Duane Park Capital Management said a final farewell, a little more than two years after it started with the help of $200 million from JPMorgan Chase.

Among the departures, BlueMountain Capital Management was perhaps the most unusual: selling itself to an insurer, with the deal seeing founder Andrew Feldstein working in-house at Assured Guaranty. As 2019 draws to a close, there’s still a little time for another one of the industry’s pioneers to take Paul Simon’s advice and ``get yourself free.’’ — Additional reporting by Hema Parmar and David Gillen

Bloomberg News