BOSTON (Reuters) – Activist hedge fund Marcato Capital Management, backed by Blackstone Group and billionaire William Ackman, is shutting down as assets have shriveled after two years of poor returns, sources stated on Sunday.
FILE PHOTO: Blackstone Group CEO and Co-Founder Steve Schwarzman speaks at a Reuters Newsmaker occasion in New York, U.S., November 6, 2019. REUTERS/Gary He/File Photo
Richard McGuire, the agency’s founder and portfolio supervisor, started telling buyers of his determination to return outdoors capital late final week, and expects to ship the cash again shortly as a result of the portfolio is now largely in money, the sources stated on situation of anonymity.
McGuire had been promoting positions during the last months to meet redemption requests.
A spokesman for Marcato declined to touch upon Sunday.
The determination marks the top of a nine-year run for one of many hedge fund business’s most celebrated newcomers who launched in 2010 with the backing of Blackstone Group, the world’s largest hedge fund investor, and Ackman, his former boss at Pershing Square Capital Management. McGuire was the primary former associate to depart Ackman, adopted by Scott Ferguson, Roy Katzovicz and Paul Hilal, who’ve all arrange their very own companies.
McGuire through the years pressed corporations starting from DineFairness, now Dine Brands Global, which runs quick meals restaurant Applebees, Bank of New York Mellon, public sale home Sotheby’s, to footwear firm Deckers Outdoor Corp for modifications and gained a fiercely contested proxy contest at Buffalo Wild Wings.
At its peak, Marcato managed roughly $three billion in assets, however assets have now shriveled to a couple of hundred million, one of many sources stated.
Returns tumbled late final yr, leaving the fund with a large loss for 2018, an investor stated. This yr, whereas robust initially, will even finish in the purple after a few of the agency’s investments which are weak to the consequences of the U.S.-China commerce warfare, like Terex Corp, took successful.
From its launch via September 2018, Marcato International returned a mean 10.7% a yr, roughly double the 5.5% achieve posted by its HFRI Event Driven: Special Situations Index.
Shrinking assets, whereas uncomfortable for all buyers, are particularly problematic for activist buyers that push administration to make modifications starting from shopping for again shares to promoting off divisions to refreshing their boards.
An activist fund’s agreements with goal corporations typically embrace pledges to maintain a sure sum of money in the inventory, one thing that may grow to be troublesome when shoppers demand their a refund from the activist fund.
McGuire expects to maintain managing his personal capital and will in the longer term companion with others on investments, one of many sources stated.
Raising new capital for activist funds has been robust since late 2015 when buyers started worrying extra concerning the prospects of a recession when long-biased activist funds typically fare poorly. This yr has been a winner for a lot of activist funds as robust positive aspects in the markets, particularly in the software program and shopper sectors, have buoyed many portfolios together with Ackman’s Pershing Square Capital Management, which has gained greater than 50% this yr.
But tons of of hedge funds have additionally shuttered their doorways this yr. Hedge Fund Research reported that 540 funds shut in the primary three quarters of 2019, whereas solely 391 funds have launched throughout that point. In 2018, a complete of 659 funds shut down, in accordance to HFR knowledge.
Reporting by Svea Herbst-Bayliss; Editing by Paul Simao