Times are getting tough for hedge fund managers. So tough that, according to BlueCrest Capital Management, Europe’s third-largest hedge fund manager, there’s no point being in the business at all. The company has just told all its investors that it is sending them all their money back.
It turns out that “recent developments” in the industry have led to “downward pressure on fees levels, the increasing cost of hiring the best portfolio management talent and the difficulty in tailoring investment products to meet the individual needs of a large number of diverse investors have significantly reduced industry profitability and flexibility.” Or so says its founder, Michael Platt.
These aren’t ludicrous points – if seen from the hedge fund manager’s point of view, at least. Big institutional investors have been working to push down fees. They don’t want to pay “two and 20” to managers anymore (2% of assets under management and 20% of any profits made).
As the FT points out, the firm’s largest fund, the BlueCrest International Fund (it’s oldest), has either lost money or barely broken even for the last three years. The All Blue Fund has done a little better – making an average of 4% over the last three years. That’s not really enough to justify either the fees or the clever clogs grandstanding that go with big name hedge funds. Which is why the funds have recently “suffered large redemptions”.
Investors started jumping long before Platt decided to push them. BlueCrest has made $22bn in trading profits in the last 15 years, and Platt is worth some $3.5bn. Last year, he earned $800m. Look at those numbers and it’s hard to escape the conclusion that Bluecrest has been part of one of the greatest financial scams of all time.
Hedge funds have, generally, massively overcharged and massively under-delivered on their promises. Too many people have fallen for it. And that’s made a lot of founders stupidly rich. Platt may not be impressed to find that investors are beginning to refuse to pay for his gravy train. The rest of us should see it as a sign of major progress.