Nevsky Capital, successful manager with a good track record, has announced the liquidation and closing of their $1.5 billion hedge fund. In a detailed letter, Nevsky makes the case that the current market environment is not conducive to investors who do research and depend on clean data to make decisions.
It’s an interesting argument – and one that we’re hearing more and more these days as hundreds of funds close down every quarter and the money stops pouring in (Hedge Fund Flows Have Collapsed).
Some in the industry will nod their heads in agreement with the frustration on display here. Others will say that the game is always changing and that it is the player’s job to keep up with it, not whine about the twists and turns.
For those of us keeping it simple, the market doesn’t seem overly difficult right now, just maybe a little bit boring. For those who must layer on a 2-and-20 fee structure and earn higher returns than what the markets offer to justify it, year in and year out, you can see why it’s a tough time.
And, in my view, this letter reads like a laundry list as to why most macro-driven strategies are bullsh*t to begin with. The idea that more than a handful of brilliant hedge fund managers can divine the thoughts and future deeds of international central bankers, military dictators and parliamentary bodies in real-time has always been a colossal joke to me. There aren’t ten George Soroses, there’s the one guy, and he’s magical. And 85 years old. And uninterested in taking outside capital.
We don’t allocate to macro geniuses because we can’t find any who will be right enough to offset the times they’ll be wrong, net of fees and illiquidity and nonsense. Nor do we think we can guess at which ones will stay right over long stretches of time. If any.
Thankfully, successful investing doesn’t require the ability to predict the spread between Indonesian sovereign bonds and the Chinese deutschemark interbank swap convexity. I just made up stuff to concoct that sentence but if I put it in a brochure there are more than a few “sophisticated” investors who would gladly hand over capital to prove that they understand it and are part of the club.
But I digress…
I’ll send you over for the full letter and let you judge for yourself…
The decision to stop managing the Fund, after just over fifteen years, has been a very difficult one. This decision has been driven by a growing recent awareness that certain features of the current market environment, which we believe might persist for a considerable period of time, are inconsistent with the achievement of our goal of producing satisfactory risk adjusted absolute returns for you, our clients.