Five years ago, the magazine cover curse hit bill ackman hard, when forbes put the silver-haired hedge fund manager on the front, arms crossed and looking regal, with the fate-tempting headline: baby buffett.
In the annals of badly-timed cover stories, it quickly became a classic. that year ended up an annus horribilis for mr ackman, with pershing losing more than 20 per cent in 2015. the following years brought little respite but plenty of schadenfreude on wall street.
However, last year pershing square returned 58 per cent and a series of savvy trades through the coronavirus crisis netting $2.6bn by betting on the pandemic rattling markets, and then amassing big stakes in the likes of hilton, starbucks and berkshire in time for the rebound confirmed mr ackmans revival. as a result, pershing was up 44 per cent in the year to august 25.
As intriguing as any redemption story is, the reality is that the renaissance enjoyed by mr ackman remains more an exception than the rule in modern investing. the sun has set on the era of brilliant, iconoclastic hedge fund managers that make the huge, bold bets that initially made them famous.
Look at the best-performing hedge fund strategies this year for a clue as to where the industry is heading. diverse, multi-strategy vehicles run by the likes of citadel, millennium, balyasny and point72, which marshal an army of fund managers, traders, analysts and risk managers, have been the big winners. they have returned more than 10 per cent on average in the year to end-august, according to industry data firm hfr.
Dmitry balyasnys atlas enhanced fund is the leader, notching up a gain of almost 23 per cent up to the end of august, according to an investor document seen by the financial times. sculptor capital management formerly och-ziff has also managed to dust itself off after a period of disappointing returns, the retirement of its founder daniel och and a scrape with the department of justice. it clocked a 12.5 per cent return in its flagship fund.
In contrast, the hedge fund industry as a whole is up only 2 per cent. although vanguards balanced index fund a decent proxy for the classic 60-40 stocks-bond portfolio favoured by many institutional investors is up just over 9 per cent in 2020, its returns have been more volatile.
Investors have taken note. while the hedge fund industry as a whole suffered outflows of $63bn in the first half of the year, according to data provider preqin, multi-strategy firms were the only major category to essentially stay flat.
That is not to say that multi-strategy hedge funds dont have talented starlets that are lusted after by rivals. indeed, these multi-manager platform-like firms constantly poach from their competitors, leading to a merry-go-round of talent among them. nor has every multi-strategy hedge fund done well lately, with the best results increasingly coming from the biggest firms, which are better able to invest in faster computers, more data and the best staff.
But the reality is that investment management has become such a wildly complex, difficult profession that teams, technology and process today make up the secret sauce of consistent success, not solitary iconoclastic geniuses.this may sound like a mckinsey talking point, but it doesnt make it any less true.
Man groups chief executive luke ellis nodded to this earlier this year, when he warned that the traditional master-of-the-universe type that once populated the hedge fund industry was slowly going extinct. you can be brilliant, but youre not going to be someone who every newspaper wants to write an article about, he said.
The reality is that as enticing as the occasional massive haul can be and the headlines they inevitably generate most institutional investors that make up the biggest hedge fund backers are nervous about firms driven by the brilliance of a single founder or solitary investment chief. they naturally fret what might happen if the magic touch deserts them, and care more about the wider support system.this makes the more finely-engineered, generally smoother returns of multi-strategy hedge funds more attractive.
This explains why citadel is more eager to show off its futuristic risk management control room in its chicago headquarters than its portfolio managers, knowing that pension plans and sovereign wealth funds dont invest in its funds for the investment acumen of its founder ken griffin. steadiness matters more than the fickle brilliance of the likes of mr ackman.