Cantillon Closing: William von Mueffling's Hedge Fund Converting to Long Only ~ market folly

Thursday, June 18, 2009

Cantillon Closing: William von Mueffling's Hedge Fund Converting to Long Only

William von Mueffling's Cantillon Capital Management will be closing down the hedge fund portion of their business. They will wind down their positions except for $1 billion worth of long positions as they revert to a long-only shop. We've not covered Cantillon in our portfolio tracking series before, but von Mueffling is quite a prominent name in the industry. His firm had $10 billion assets at their peak and more recently had around $3.5 billion assets under management. He founded the firm in 2003 after leaving Lazard, where he helped build up their hedge fund business. Like many of the long/short equity hedge funds we track, Cantillon is a stock picking firm.

However, their picking has clearly not been at its best recently. While von Mueffling outperformed other hedge fund managers on a relative basis in 2008, his results were still poor on an absolute return basis. For 2009 they are reportedly down 7-8% through May. Yet, despite his recent hiccup in performance, he certainly carries with him a solid background and performance record. As such, we may consider tracking his long only investments from here on out, as this could potentially be an ideal type of hedge fund to track via 13F filing. We could then create a portfolio based on their holdings with Alphaclone and not have to pay any management fees. After all, we like straight up stock pickers and we won't have to worry about the short side of the portfolio.

As for the rationale behind closing up the hedge fund portion of the firm, von Mueffling had this to offer in the letter to investors, "Firstly, in recent weeks, we have found ourselves covering a large number of shorts in the Cantillon World and Cantillon Europe hedge funds (the "Funds"). This is likely to continue and therefore the Funds' portfolios in the future are not likely to exhibit the characteristics that we have always targeted for the Funds. Secondly, we want to focus on our long-only strategy which we launched in 2005. Today, the stocks that we own in this strategy have the best characteristics that we have seen in a decade." They expect the liquidation to take three months and will do so in an orderly fashion, while leaving the option for investors to transfer their investments into the Global Equity funds.

William von Mueffling is intriguing as a manager because NY Magazine had previously labeled him a 'whippersnapper' in the hedge fund industry as a legend in the making. He was in good company on that list, as out of the funds we cover, Chase Coleman of Tiger Global, Peter Thiel of Clarium Capital, and Eric Mindich of Eton Park Capital were all also on the list. Also included were John Arnold of Centaurus Energy and David Ganek of Level Global.

Cantillon now joins an ever-growing list of hedge funds to shut down amid the crisis. So far, we've already seen Jeffrey Gendell's Tontine Associates close 2 funds, Art Samburg's Pequot Capital shut down, James Pallotta's Raptor Capital close for re-evaluation, while Satellite Capital Management and Okumus Capital have closed too. As time goes on, we're sure more closings will undoubtedly emerge from the woodwork. We've postulated all along that the hedge fund industry will weed out the weak in a Darwinian process, where only the strong few will survive the crisis. And with that, we'll conclude this piece with a list of further 2008 closures.

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