Rather than align firms’ incentives with those of their clients, the current fee structure -- with a management fee plus a charge based on performance -- too often means managers make money, while investors bear all the risk, he said.
Funds of all stripes were undone by the precipitous decline in stocks and extreme instability in credit, currencies and U.S. Treasuries. Wall Street’s fear gauge, the CBOE Volatility Index, soared to all-time high and sparked sharp losses for funds betting on calm to prevail in the market.
Equity hedge funds suffered their second-biggest slump since Hedge Fund Research Inc. started compiling the data three decades ago. One such firm, New Jersey-based Crawford Lake Capital Management, saw its funds lose as much as 35.6% in the first quarter, prompting the firm to apologize to its clients.
“In all, there was a 28-day period in which the market could not muster even a two-day bounce,” the firm wrote in an April 7 letter to investors seen by Bloomberg. “This is a streak that counts as one of the most extreme in memory.”
Crawford Lake said it expects assets to slide to $600 million by June 1. It managed about $1 billion at the start of the year.
Benjamin Fuchs’s multistrategy firm BFAM Partners in Hong Kong was hit with losses of 17% in March.
Spokespeople for BFAM and Crawford Lake declined to comment.
As liquidity vanished from credit markets, nine out of 10 credit hedge funds lost money, according to the preliminary data compiled by Bloomberg. Losses also mounted for some of the world’s biggest activist hedge funds, which make concentrated wagers on share prices to rise.
Still, some hedge funds managed to make money amid the turmoil, including Brevan Howard Asset Management’s flagship, which posted its best monthly gain in March, jumping about 18%, according to people familiar with the performance. Billionaire Chris Rokos’s macro hedge fund had its best month ever, gaining 14% in March.
--With assistance from Marion Dakers and Melissa Karsh.