The American private equity group, KKR, has recently closed its equities hedge fund only three years after launch. Valued at 510 million dollars, it is the latest venture by the private group to shut down. Originally launched with former Goldman Sachs elite traders in a management role, KKR has said that due to the lack of scale, the fund was shut down with plans to return capital to its investors. KKR will also use the closure of the fund to redistribute resources to other business within the buyout group.
Managed by Bob Howard, former manager of Goldman Sachs’ US equities and credit proprietary trading unit, the hedge failed to garner enough assets to become a profitable force in the industry. Since its original launch the hedge fund underperformed significantly in the US S&P index, generating only five percent a year. Howard and the rest of his team were hired back in 2010, following a bidding war between Avenue Capital, another hedge fund group, and investment bank Perella Weinberg. The founders of the private equity groups, George Roberts and Henry Kravis, stated that the deal was, “A strategic build-out of our asset management platform.”
Since recent recession legislation that has banned large financial groups, such as Goldman Sachs, from trading with their own capital, the institution closed its Principal Strategies Unit, causing many of its staff to relocate to hedge fund management. Many of these relocated staff members have hit-and-miss stories with their new positions as hedge fund managers. For example, Pierre Henri-Flamand, former head of Goldman Sachs’ European prop desk, lost his investor’s money after launching the Edoma Partners hedge fund. Conversely, Morgan Sze, a former manager of proprietary trading with Goldman Sachs, has grown more than 1.5 billion dollars in assets with his Asian-based Azentus Capital.
Many hedge fund tactics that performed well before the worldwide recession, such as currencies and interest rates, have struggled in the following years. But while older strategies have become cumbersome or unprofitable, newer strategies since the removal of proprietary traders have begun to take hold. Specialized traders, using such strategies as trading in less fixed income and derivatives, now have much greater opportunities to generate money.