Wealthy Investors and Dismal Hedge Fund Results

(Last Updated On: March 19, 2017)

Periodically I read of a hedge fund “hitting it out of the park” and wish I could have been one of the fortunate investors. Lately, however, I have read several articles about wealthy investors and dismal hedge fund results.

eVestment Alliance, LLC, a firm founded in 2000, which “provides a flexible suite of easy-to-use, cloud-based solutions to help the institutional investing community identify and capitalize on global investment trends, better select and monitor investment managers and more successfully enable asset managers to market their funds worldwide” reported on November 22, 2016 that October’s USD$14.2 billion outflow of funds marked the fourth month of redemptions in the last five months October Sees More Hedge Fund Asset Outflows. In addition, hedge fund assets are down USD $77 billion year to date. I recognize this figure pales in comparison to the USD$3.03 TRILLION overall industry Assets Under Management (AUM) but to me, USD $77 billion is a lot of money.

One such hedge fund that has not done well is Tyrian Investments, a New York firm launched in 2010 with seed money from investing legend Julian Robertson, chairman of Tiger Management. The firm’s strategy, according to its website, is to “utilize a fundamental research process and to take a value-oriented approach toward finding investment opportunities characterized by change. The investment team seeks to identify significant mispricing and market inefficiencies to build a concentrated, bottom-up portfolio of “best ideas”.”

According to a September 16, 2014 Bloomberg article Tiger’s Chopra Stumbles in Rise to Top Robertson Empire, Tyrian had raised USD $1 billion. Clearly some investors were sold on Tyrian’s investment strategy.

Fast forward to November 17, 2016. In a letter to investors, Tyrian informed its investors of the closure of the Tyrian Global Opportunities Fund LP. A copy of the letter obtained by Business Insider is reflected below.

“Dear Investor:

“After careful consideration, we have decided to wind down the Tyrian Global Opportunities Fund LP (the ‘Fund’) and compulsorily withdraw all investors as of November 18, 2016. In anticipation of winding down the Fund, we have liquidated almost all of the Fund’s assets.

“One position, which currently constitutes approximately 2.2% of the portfolio (the ‘Specified Position’), may take longer to sell, but we will seek to sell this position before the end of the year. We expect to distribute to each investor in the Fund by the end of this month approximately 93% of the net asset value of each investor’s interest, and, pursuant to the Fund’s offering documents, we will hold back approximately 5% of the net asset value which will be distributed no later than 30 days following the completion of the Fund’s final audit for 2016.

“We will also distribute to you the proceeds from the Specified Position after it is sold. We greatly appreciate the trust that you placed in us when you invested with us, and we are grateful for your continued faith and support over the years.

“Please contact me if you have any questions.”

I am not the most astute investor but I know this is not good. A fund generally does not wind up if the performance is strong.

Tyrian indicates it will return approximately 93% of the net asset value of each investor’s interest and that has to hold back a portion for distribution after the completion of the 2016 audit! Furthermore, a component of the portfolio is difficult to liquidate.

These investors no doubt paid fees to Tyrian to manage this wonderfully successful Fund.

These investors are very likely in an entirely different league than me. Perhaps the money invested in this Fund constituted only a small portion of their overall investment portfolio. Losses could be attributed to “You win some, you lose some”.

I know my personality and would be extremely unhappy to receive that letter. I would definitely raise with Tyrian the subject of being reimbursed for the fees I paid.

I don’t like losing money. That is why posts on this site will address reasonably conservative investments.