Jeffrey Vinik said he plans to close his hedge fund after having difficulty raising money from investors.
“Simply put, it has been much harder to raise money over the last several months than I anticipated,” Vinik, who rose to fame as manager of the Fidelity Magellan fund, said in a letter to investors seen by Bloomberg.
While Vinik Asset Management has gained about 5% since it started trading March 1, beating the average equity hedge fund, performance hasn’t been sufficient to bring in new investors, the letter said. Vinik had said in February that he would fall short of his $3 billion fundraising target, Bloomberg reported at the time. Even now the firm has “little visibility on bringing in assets to reach the $2-3 billion level,” the letter said.
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Following criticism for its faulty 2016 election algorithms, the firm appointed a new research director to collaborate with its quants and money managers.
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The recent plunge raised suspicions that quants had caused or exacerbated the sell-off.
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Despite returns of about 8% last year, the products lagged behind the S&P 500’s 22% climb.
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The firm, which was meant to use “old fashioned bottom-up stock picking,” expects to return 95% of investors’ capital by Dec. 15, and the remainder following an audit in the beginning of next year, Vinik said.
Vinik’s struggle illustrates how the appetite for hedge funds has changed since he first got into the business in 1996 after leaving Fidelity. At the time, he raised $800 million, then one of the biggest startups. Investors have pulled back from hedge funds after years of poor performance that failed to justify their relatively high costs.
“With institutions, the process and the amount of due diligence is multiples of what it used to be,” Vinik said in an interview with Bloomberg Wednesday. He also cited the challenge of trying to succeed at a time when long-short equity strategy has disappointed investors.
“But ultimately this is simply a failure to raise the assets to run the business,” he said.
Hedge fund clients have yanked $64 billion this year — almost twice as much as in all of last year — and about a quarter of which has been from equity managers, according to eVestment. So far this year, about 400 hedge funds have shuttered, according to Hedge Fund Research. Closures have outpaced startups by almost 20% since 2015, and those that do launch are typically far smaller than funds born before the financial crisis.
Since leaving Fidelity, this is the third time Vinik has stepped back from managing hedge funds. He gave back most of about $4.2 billion to investors in late 2000 after generating a 46% return during the first nine months of that year. After a four-year break, and after purchasing the Tampa Bay Lightning NHL team in 2010 for as much as $170 million, Vinik began accepting capital again, mainly to invest his own money along with cash from friends, family and a few outside clients. He then returned capital to investors again in 2013, at which point his firm was overseeing about $6 billion.
Deviation from the broader market has left more than half of these products with losses during a time the Dow and S&P 500 each posted double-digit gains.
“I’m not thinking ahead but I very much doubt I will go back into the hedge fund business,” he said. “I’d be shocked, but I’ve shocked myself before.”
The Wall Street Journal earlier reported on Vinik’s closing.
Looking beyond hedge funds, Vinik said he’s optimistic about the U.S. economy.
“We have reasonable economic growth, the consumer is strong and we have low inflation,” he said. While manufacturing is a slowdown, in part due to uncertainty about tariffs, Vinik said he expects that to pass in about six months.
On the presidential election, Vinik said that if Democratic Senator Elizabeth Warren’s candidacy keeps gaining momentum it could unsettle the markets.
“If she starts to look like the nominee, the market is going to have a lot of agita over the next year,” Vinik said. “It will be under pressure” and maybe that will be a buying opportunity, he said.
Bloomberg News
