Hedge Fund Atticus Capital Shutting Down

Big news out of hedge fund land as manager Timothy Barakett has decided to close his Atticus Capital funds. To be honest, this didn't surprise us too much. After all, we have been covering Atticus' portfolio for some time now and it has been a ridiculous rollercoaster of a ride. We'd been postulating that Atticus' ship was never truly stabilized after they survived a scare in 2008. Barakett says in his farewell letter that he wants to spend more time with family and on philanthropic efforts but it's hard not to wonder if the hellish 2008 for them made his decision that much easier. While redemption issues are not to blame here, it's almost as if they've had trouble recuperating and adjusting to the volatility and wild swings of a bear market.

Let's quickly walk through the timeline of Atticus' portfolio we've covered here on Market Folly. Back in September of 2008 we saw that their European fund was -42.5% for the year and their Global fund was -27.2%, thus subjecting them to liquidation rumors. While those rumors proved to be untrue, the poor performance and mass of investors heading for the exits was certainly the first (and largest) warning sign that things were not necessarily well at the firm. As such, Atticus found themselves ranked #2 on a list of the Top 10 Asset Losers in hedge fund land.

The massive deleveraging that went on at their hedge fund was evident in their SEC filings as they went from reporting a portfolio worth billions of dollars down to reporting only $500 million. This was the first drastic turn on the rollercoaster known as Atticus' portfolio. Then from Q3 of 2008 to Q4 of 2008, Atticus' reported assets rose from $500 million back up to $1.9 billion. It was evident that they liquidated positions the quarter prior in an effort to stop the bleeding and to meet any redemptions. The following quarter, they then ramped their portfolio back up. However, the vast majority of their positions were bought via Call options, something we hadn't seen from them before. (We detailed the portfolio changes in their entirety here). What's even more intriguing is that for the most part, they bought the exact same positions they held previously. Except, instead of buying common stock like last time, they were now almost exclusively using Call options. This was the second major peculiar act we took note of.

Then, when we examined their first quarter 2009 portfolio, we saw that they held a mere five long equity positions. While Atticus typically ran a concentrated portfolio, they by no means ran a book as small as this prior to that particular filing. Yet again, we wondered what exactly they were doing over there. In early August they started to sell shares of Sotheby's and Transatlantic Holdings. Then just last week we covered the fact that Atticus was selling shares of their only holding in UK markets. And below, we learn that Barakett has been selling the rest of his portfolio as he winds down his funds.

Here is the letter Barakett sent out to investors announcing the closure, posted up by FT Alphaville:

"
August 11, 2009

Dear Investor in Atticus Global, Ltd. and Atticus Global, LP:

I am writing to inform you of my decision to close the funds I manage, including Atticus Global, Ltd. and Atticus Global, LP (together, the “Atticus Global Fund”). This decision will come as a surprise to most of you, especially given that we have received redemptions of less than 5% of capital and your loyal support over the past 15 years.

I have used the market’s recent strength to begin liquidating a significant amount of our holdings. We currently expect that the portfolio will be fully liquidated by September 30th and that we will be in a position to return approximately 95% of your capital in early October. The balance of investor capital will be returned after the final audit is completed, which should be later this year.

My decision is solely a personal one. After fifteen years of being singularly focused on building and managing Atticus, I believe it is time to reassess my future. I intend to spend more time with my family, pursue my philanthropic interests and establish a family office to manage my own capital and charitable foundation.

Atticus (the management company) will continue to operate, and the Atticus partnership will remain intact. In addition, it is my partner David Slager’s intention to continue to manage the Atticus European Fund.

I founded Atticus in 1995 and launched our first fund in January 1996 with less than $6 million under management. The Atticus Global strategy was launched in December 1996 and has compounded investor’s capital at over 19% net annually since inception.1 I am very proud of the Atticus Global track record and our net returns through July 2009 are shown below:

Atticus Global S&P 500
1 year -13.3% -20.0%
3 year 0.8% -6.2%
5 year 9.3% -0.1%
10 year 13.6% -1.2%
Inception 19.3% 3.9%
Cumulative 835.3% 62.3%

I am also very proud of Atticus’ overall investment results: from the inception of our first fund in January 1996 through July 2009, funds managed by Atticus have generated
almost $7 billion of profits for our investors.

I have been blessed with great investors, partners, employees, and a lot of good luck. I am thankful and sincerely appreciative of the trust and confidence you have placed in me and our organization.

Sincerely,

/s/ Timothy R. Barakett

Timothy R. Barakett
Founder, Chairman & CEO
"

It's sad to see Barakett go because he truly did have a solid track record minus the bump encountered over the past year or so. But that just goes to show you how hard bear markets can be to adapt to. We now add Atticus to an ever-growing list of hedge fund closures throughout this crisis. And while Atticus did not truly implode like many other funds on the list, they have still closed nonetheless. This is another major fund closing that we've covered on the blog, as we've previously detailed the closure of James Pallotta's Raptor Capital, William von Mueffling's Cantillon Capital, and Art Samberg's Pequot Capital among many other major names.

We'll end this piece re-emphasizing this interesting statistic that Barakett noted: "from the inception of our first fund in January 1996 through July 2009, funds managed by Atticus have generated almost $7 billion in profits for our investors." Now that is simply astonishing. To see the positions they hold/held/are liquidating, head to their hot-off-the-press 13F filing for Q2 2009 which was just released. Ironically, they finally now disclose a healthy & normal $4.5 billion worth of long positions. Imagine that.

R.I.P. Atticus, we'll miss tracking your rollercoaster of a portfolio.

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.

James Pallotta's Hedge Fund Raptor Capital Winds Down

In quite an interesting development, James Pallotta's hedge fund Raptor Capital Management will shut down for the time being. Readers will be familiar with Raptor because we had just started tracking them in our hedge fund portfolio series. Unfortunately, their spot on our list will be vacated for the time being until they decide to return. Pallotta sent out a letter to investors where he suspended redemptions and said they will be winding down the funds as they return capital to investors starting in July. Pallotta said, "I intend to step back from day-to-day investing for a few months to spend valuable time crafting an optimal investment strategy in order to capitalize fully on the next several years' developing investment opportunity set."

So, while Pallotta may be closing shop for now, it does sound like he has intentions to return fresh and with a solid game plan. He continued, "Consistently, in recent years, I have conveyed my skepticism regarding the sustainability of certain aspects of the industry's structure and short term focus. (There is) a place for a model which aligns the interests of investors and managers toward the goal of truly-shared compounding of superior risk-adjusted returns over time." It sounds as if in addition to crafting a new investment strategy, that Pallotta is crafting a new fund structure as well. He wants investors to keep money in place for multiple years, a setup used in many private equity funds.

He must feel that this would allow him to make long-term investment decisions, rather than worrying about near-term performance. Additionally, he wouldn't have to worry as much about redemption requests, a fear that was realized in the hectic year of 2008 as investors demanded their money back. This will be interesting to monitor whenever he decides to return.

Additionally, we found it interesting to note that Pallotta will apparently provide seed capital to a few analysts who will be starting their own hedge funds, in a move similar to that of hedge fund legend Julian Robertson (who did so with the Tiger Cubs).

Raptor's funds were pretty much flat for the year through May in terms of performance, according to the letter. Our only look at Raptor's performance was included in our March hedge fund numbers, where we saw Raptor -1.34% for the year at that time. We began tracking Raptor because it was being spun-off from Paul Tudor Jones global macro fund Tudor Investment Corp. Pallotta was responsible for all of the solid performance in their equities fund (called Raptor there as well). Pallotta spun off the fund and we followed him due to his solid track record of returning 13.85% a year from 1993 until 2008 while at Tudor. Raptor managed $9 billion in its peak at Tudor and currently manages around $800 million. You can view some of Raptor's portfolio here.

Raptor joins the growing list of prominent hedge funds to shut down amid the crazy markets of 2008 and 2009. Just last week we detailed the closure of Art Samburg's hedge fund Pequot Capital. Overall, 2008 was definitely a bleak year in hedge fund land. A few other notable closures we've covered on the blog include Satellite Asset Management and Okumus Capital. (See the list of other 2008 closures here).

Here is James Pallotta's letter to Raptor investors (RSS & Email readers will need to come to the blog to view it):

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Art Samberg's Hedge Fund Pequot Capital Shuts Down

Well known hedge fund Pequot Capital Management is shutting down. Prominent investor and fund manager Art Samberg wrote in a letter to investors that, "Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction ... I have concluded that Pequot can no longer stay in business." Pequot was under SEC investigation regarding an insider trading allegation with Microsoft (MSFT). The incident has dragged on and on and has hung a dark cloud over Pequot's door. As such, investors became spooked and potential investors weren't arriving in the droves that they used to. And, as we all know, assets under management (AUM) are key to survival in hedge fund land. A tarnished image certainly does not help that.

This brings a sad end to Pequot's illustrious run where they managed $15 billion at their peak, but more recently managed around $3 billion. Samberg and Pequot have seen annualized gains of 16.8% after fees over a 22 year timespan; a record that speaks for itself and more than doubles that of the S&P 500. We had covered Pequot's portfolio in the past as part of our hedge fund portfolio tracking series, where we are currently in the midst of examining their Q1 2009 holdings. Additionally, we also presented the March commentary from Byron Wien of Pequot. However, it doesn't look like we'll be covering Pequot this time around.

Unfortunately for the investing world, Samberg has now decided to hang it up and retire. We ponder though, whether Samberg would have the desire to start new and afresh after dissolving the fund that was causing him headaches. But, after the overhang of ongoing investigations and distractions, it appears that Samberg has had enough and is ready to relax. Pequot still has $1 billion tied up within their Special Opportunities fund and their Matawin fund, which will continue to exist with their current managers.

Pequot is yet another fund on a growing list of prominent names that have been forced to close their doors. We previously covered Jeffrey Gendell's Tontine Associates blowup. Gendell had been a highly regarded and respected investor, but the crisis of 2008 became too much for 2 of his funds as illiquid positions and mounting losses overcame him. His firm still remains alive for the time being, managing the remainder of their funds.

Further back in time, we also noted that Dwight Anderson's Ospraie hedge fund blew up. Anderson is well known for his time both at Tiger Management and Tudor Investment Corp. But, just recently, we learned that Anderson will be back with 2 new Ospraie funds, which prompted us to wonder when investors will ever learn.

Overall, 2008 was definitely a bleak year in hedge fund land. A few other notable closures we've covered on the blog include Satellite Asset Management and Okumus Capital. (See the list of other 2008 closures here).

The prime distinction here between Pequot and the others is that Ospraie and Tontine closed due to large losses, while Samberg felt that Pequot would never be able to overcome their now tarnished image. In the end, such an image became equatable to large losses, as his fund has suffered the same fate as countless other funds. The hedge fund graveyard continues to expand.

This only goes to show that 2008/09 and beyond will be humbling for many fund managers out there. Many previously prominent names have been brought to their knees. After all, they're untouchable... until they're not.

Here's Samberg's letter to investors:
(RSS & Email readers will need to come to the blog to view the slidedeck)

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Satellite Closes Hedge Funds

The painful year of 2008 was too much for Satellite Asset Management as they are set to shut down their flagship Credit Opportunities Fund which was down around 35% during the mayhem of 2008. They will also be closing their Overseas Fund and their Satellite Fund II. Their poor performance triggered a series of investor withdrawal requests and they were forced to suspend redemptions. Apparently they could not stop the hemorrhaging, as redemption requests simply overwhelmed them. Chalk up another victory for Ms. Market, as we add another name to the hedge fund graveyard of 2008.

The interesting thing to note here is that the fund was run by three veterans of Soros Fund Management. This is an example of another fund that was spun-off/started after managers left a big global macro style hedge fund. Just yesterday, we covered how Dwight Anderson blew up his Ospraie fund after leaving Tudor Investment Corp. However, Anderson is right back to the same tricks as he has started two new hedge funds. We'll have to see if the trio of ex-Soros managers will garner new capital to start yet another fund after already failing once. Satellite was run by Mark Sonnino, Lief Rosenblatt, and Gabe Nechamkin and they managed $7 billion around its peak and over $2 billion more recently.

Hedge Fund Okumus Capital Shuts Down

One of the funds we had planned on covering in our hedge fund portfolio tracking series has unfortunately shut down. Okumus Capital, the $990 million group of hedge funds founded by Ahmet Okumus in 1997 has confirmed it is shutting down its funds, as reported by FinAlternatives. Okumus' Opportunity fund had seen 35% gains net per year since inception, but came upon rough waters this year, being down 42.8% as of October. Ahmet was the largest investors in the funds, as he was over 20% of firm assets. His deep value, security analysis stock picking style had gained him much notoriety due to his solid performance and he was featured in Jack Schwager's book Market Wizards.