Credit Suisse Asset Management has filed a proxy with the SEC to close its CS Warburg Pincus Long-Short Market Neutral Fund. While the firm filed the proxy just recently, the liquidation comes as no surprise, because the firm decided this summer to reassess its fund offerings.
The fund, with a quant-based strategy designed to minimize investment risk, did not fit the firms goals. It took its first steps to transition the fund on July 30, when it closed the fund to new investors and switched all of its positions to cash. The three portfolio managers, Eric Remole, Marc Bothwell, and Michael Welhoelter, have been terminated but will continue with the product transition through the end of October.
While the failure of a market-neutral type of fund in the current market environment may seem counterintuitive, this type of fund has not seen much recent success.
"With regard to long-short strategies, I think they make a lot of sense," Smith said. "The marketing challenge is to get people interested in strategies that have a high degree of novelty and complexity but are also cash-plus. I would imagine thats what the problem was." One of those funds was Undiscovered Managers Behavioral Long-Short Fund, shuttered in March. While Mark Hurley, CEO of the Dallas-based firm, had asserted that the funds performance did not suffer, the offering never garnered enough assets to justify its existence. Skye Investment Advisors BearGuard Fund, also liquidated in March, suffered from poor marketing, not lagging performance. Earlier this year, Wiesenberger reported a 47% drop in the number of market-neutral funds, through 2000 and Q1 of 2001. With a total of 17 such funds at the start of 2000, that leaves the ranks considerably thinned. "Instead of having low-risk strategies, were more in the solidly active management strategies," said Larry Smith, CIO for CSAM. "This product line was a purely quantitatively based set of strategies and targeted a much lower tracking error. Thats in a nutshell why this fund, as well as other products, were closed."
A special dividend of $.26 per common class share and $.28 per institutional class share issued on October 5 prevented savvy shareholders from dumping their shares before liquidating and thereby avoiding some of the tax consequences of liquidation.
Although Smith said that the liquidation results from a management decision by CSAM, the proxy cites both lagging assets and the departure of the funds three managers as reasons for the move. Indeed, assets in the fund were minimal: just under $6 million for both asset classes as of Sept. 30.