You can't expect a long-short hedge fund to make money every day. Nor every quarter. A prudent investor might even accept a bad year if the long-run returns are decent. But two years running? That's when investors start getting that distant look and fantasizing about other managers. That's when it's time for bold action:
Lee Ainslie’s $10 billion Maverick Capital Ltd. is offering 0% performance fees to some investors, the latest big-name hedge fund to debut lower fees after posting continued losses...Maverick’s new “recovery share” class would let existing clients invest more money in its hedge funds at 1% management fees and no performance fees, compared with the 1.75% and 17.5% fees, respectively, its clients most often pay.
Following a 10 percent loss in 2016 and YTD returns in the negative-two territory, it's understandable that Maverick would see fit to extend a little courtesy to its investors. The only unfortunate side-effect (other than the smaller future bonus checks in Dallas) is the fact that the offer happens to be a reminder of the problem itself. “We won't charge you the fee we're currently doing too poorly to charge anyway” is not necessarily what investors want to hear.
But it's something! Which is more than you can say of Maverick's returns in the past 20 or so months:
Mr. Ainslie said his flagship fund had been hurt by poor stock picking, with its wagers on companies lagging behind the market and bets against companies losing money. The hedge fund’s defensive positioning, partly reflecting concerns about high valuations, also contributed to Maverick’s missing out on the rally. Mr. Ainslie described the new share class as a way to thank clients for their loyalty, according to people at the Plaza Hotel event.
Loyalty is something Ainslie hasn't always had to fret about. He closed his core fund to outside investors in 1997 and didn't have to worry about them for more than a decade. But 2008 stung, naturally, and so did 2013, when the Texas fund lost nearly 15 percent. Back then he blamed excess volatility. These days it's the opposite. From August:
"The proliferation of capital focused on non-fundamental factors confuses short-term stock price responses, causing investors to question links between price and fundamentals," Ainslie wrote. "Flows into instruments that allocate capital through predetermined ratios without regard to current or future fundamentals distort prices in the short term, but such distortions create wonderful opportunities that fundamental investors should be able capitalize upon over a longer-term timeframe."
But investors thinking about fleeing Maverick's flagship don't have to look very far for the brightest shiniest new thing around. The Maverick Fundamental Quant Funds begin accepting new investments in the new year. What could go wrong?