Two days ago, we learned that one of the most iconic names in the hedge fund business, macro investor Louis Bacon’s 30-year-old Moore Capital had called it quits with his decision to return outside money.
What we found odd is that despite having some of the year’s best performing stocks in his top 5 holdings…
… the fund – which made 86% in 1990 thanks to successful bets against Japanese markets, and 45% in 1992 when Bacon, like Soros, profited from the collapse of the European Exchange Rate Mechanism – suffered from poor performance both in 2019 and in recent years, and saw its AUM drop to $8.9 billion, the lowest level in years following consistent client redemptions.
Another irony: after president Donald Trump’s election in 2016, Bacon sent a rare letter to investors predicting macro trading would flourish under the new administration. The letter said Mr Trump’s victory would lead to higher interest rates, increased corporate spending and a stronger dollar, creating trading opportunities in commodities and emerging markets.
In retrospect, Bacon, 63, was dead wrong as macro trading suffered its worst stretch in history in the past three years. Bacon later expressed doubts about Trump, telling the hedge fund publication Absolute Return he had misjudged the president’s ability to govern.
Then again, Moore is hardly an outlier – in a year in which the vast majority of hedge funds underperformed both the market and their benchmark, hedge funds have suffered a near record 8 consecutive months of outflows – the longest stretch since the financial crisis.
For those who say Moore’s clients may have been spoiled, you are right: through last year, Moore Capital had generated a total of $19 billion in profits for investors since the firm’s inception, making it the 15th most profitable hedge fund of all time, according to LCH data.
As for Bacon himself, he’ll be fine too – over the course of his career he earned over $1.5 billion.
For those interesting in Bacon’s parting words, below is the “final” letter Moore Capital sent to its outside investors.
As Moore Capital Management (MCM) approaches its 30th year at the end of this decade, the time is propitious to take a step I have eyed for some time and “privatize” our three multi manager flag ship funds– that is to say returning client assets and funding the multi-manager program with private capital from the principals at MCM. These three funds –MGI (Moore Global Investments), RIS (Remington Investment Strategies) and MMM (Moore Macro Advisors)–will (post the return of investor funds) be consolidated into one proprietary fund which will continue to trade and invest with the same line-up of Portfolio Managers, but with less participation from me.
Although this has not been an easy decision given the loyalty of Moore’s macro investors over the decades to whom I am forever grateful, it will allow me the space to step away for significant periods of time when my other interests abound without the ongoing weight and responsibility of looking after public investors’ capital on a continual basis.
Disappointing results of these funds of the last few years obviously inform this decision but our long term record is one we remain proud of having delivered a net annualized return of 17.6% and a cumulative return of over 21,000% since inception for our original flagship Remington funds; annualized return of 15% for MGI and a cumulative return of 61 times original investors capital. MMM has returned 11% over its shorter lifespan. All three of the funds have returned low single digits year to date in 2019.
Intense competition for trading talent coupled with client pressure on fees has led to a challenging business model for multi manager funds such as ours. Our move to a proprietary funded asset base will allow us to be more opportunistic in acquiring investment talent and more competitive with those whom have a ‘pass through’ structure.
While privatizing the multi-manager funds we intend to launch individual funds managed by our best performing portfolio managers from both our Macro and our Long/Short Equity platform. This is something we have done successfully in the past—often resulting in spin-outs from MCM of those managers. These individual manager offerings will remain inside of Moore, such as our most recent successes with funds run by Joeri Jacobs (Inflation and Fixed Income) and Erik Siegel (MABF–Moore Asset Backed Fund I and II).
Reducing our asset base with this return of client Capital will obviate the necessity for my taking on the lion share of the risk of the firm on a daily basis–Moore’s strong trading platform with our current roster of Portfolio Managers will do well on its own.
This privatisation of MCM’s macro funds will allow me more personal time for a large family, philanthropic pursuits and to continue to develop a number of sports oriented properties—all with the flexibility to ‘stay in the picture’ or not as things develop. Time will tell how eagerly I pry myself away from daily markets, or return if do.
For me this new arrangement is in some ways a to return to my market origins in that my original pre-hedge fund track record was generated off of my own proprietary capital while overseeing a financial business devoted to commissions. And now I am once again concentrating on my personal investment account while overseeing a large multi asset alternatives platform.
Challenging trading conditions and muted returns for our macro multimanager funds of late masks a vibrant success at Moore in our Long/Short Equity platform, our Private Equity and Venture group, our Real Estate and our Speciality Lending businesses. Moore is not morphing into a family office as some others have done of late. We have maintained a private investment office for 20 years as we realized some attractive assets such as private equity and real estate did not fit into quarterly redeemable funds. As MCM enters our fourth decade, our expertise in non-macro asset classes has evolved and we will be offering non-macro alternative asset products (as we have recently done with MABF) under its own purview.
Moore has returned profits to investors on numerous occasions from its macro platform for a total of $3.2 billion returned in six separate dividends due to our endeavour to match our asset base to the opportunities at hand rather than maximize the management fee income.
We have closed down a number of funds before in our 34 years of managing client assets so this wrapping up of client investment programs is not new ground for us and we expect the large majority of the invested capital to be returned early in the first quarter of the coming year. With this final installment of capital return we will have over time returned approximately $19bln in profits to our investors in the multi-manager macro program encompassed by these three funds.
I want to thank those clients who have been with us, some since the early 90’s, whose counsel and patience have kept us in good standing and we will endeavour to have as seamless a transition of the funds from one client to the next.
Louis Moore Bacon