Like Maraviglia, LMR Partners LLP benefited from being nimble. Its $750 million LMR Fund gained 38.7 percent last year after rising 30.4 percent in 2010, according to investors. The firm takes positions in currencies, bonds, stocks and commodities for time horizons as short as a day, based on economic data and price discrepancies spotted by computers.
Former UBS AG traders Benjamin Levine and Stefan Renold and ex-Goldman Sachs Group Inc. trader Andrew Manuel kept size in mind when they started London-based LMR in 2010. They stopped taking money in April as assets grew to about $600 million, with the majority of the firm's capital coming from Donald Sussman's Paloma Partners LLC, said two people familiar with the matter. They declined to be identified because the firm is private.
OVS Switches Tactics
When LMR decided in November to accept more money at a higher performance fee of 30 percent, rather than the 20 percent they had been charging, clients sought to invest $300 million, the people said. LMR accepted about $150 million and closed the fund. It's now raising assets for a new hedge fund.
OVS Capital Management LLP has increased its assets to more than $300 million from $18 million in January 2011 after making profitable trades from a strategy that proved challenging for hedge funds last year: betting on European companies they thought were likely to be taken over.
When mergers dried up amid uncertainty over Europe's debt crisis, OVS switched tack into so-called relative-value trades that try to benefit from small price differences in related securities, according to a Jan. 12 note sent to clients. OVS plans to close its hedge fund to new investors in April.
London-based OVS, led by ex-HBK Investments LP trader Sam Morland, rose 7.8 percent last year and gained about 2 percent in January. Other so-called event-driven hedge funds with a European focus fell 5.4 percent in 2011, according to Singapore- based data firm Eurekahedge Pte.
Executives at LMR and OVS declined to comment.
Data from Barclays Capital shows that modestly sized hedge funds are both the industry's best and worst performers. Worldwide, funds with less than $100 million of assets reaped an annualized average gain of 10.1 percent from 2001 through 2010, according to an April study published by the London-based securities firm. Firms managing between $100 million and $500 million returned 8.3 percent a year over the same period, and those with more than $500 million of assets returned 8 percent.
The outperformance was more pronounced when Barclays limited its study to firms with the best returns. The top quartile of small hedge funds generated annual average returns of 99 percent, while mid-sized firms rose 71 percent and the biggest funds gained 60 percent.