Hedge fund Pelham Capital is in hot water. The London-based giant has lost almost 80% of its assets after years of poor returns.
From a report out overnight in The Financial Times:
Pelham Capital, once one of the biggest names in London’s equity hedge fund sector, has lost more than three-quarters of its assets in the past three years amid poor performance, investor withdrawals and team departures.
Assets are down from $4.5 billion three years ago to about $1 billion today, according to the FT. This drawdown comes from a combination of trading losses and redemptions by disillusioned investors.
A History of Poor Performance
Pelham has underperformed the market for years:
The flagship fund was down 11.8 per cent in 2021 and dropped 29 per cent last year, investors said. This year it has recovered by about 5 per cent, leaving it far off its so-called high-water mark, the level at which it can start charging performance fees.
Founded by trader Ross Turner in 2007, Pelham posted strong returns at first. But like so many funds, it could not sustain them:
…big losses in 2018, 2021 and 2022 have dragged down the hedge fund’s overall returns. Pelham’s annualised return since inception to August of this year is about 5 per cent, according to Financial Times calculations applied to historical data.
Employees Jump Ship
Pelham’s poor performance means it cannot charge performance fees for the foreseeable future. This means no fat end of year bonuses.
Facing a bleak future, many top employees have left. Pelham’s COO, CTO, and a portfolio manager have all jumped ship in recent months.
This is how hedge funds die.
Bad performance leads investors to pull their money out. A lack of performance fees makes it impossible to retain key employees.
Soon, you’re left with no money and no staff. Game over.
High Fees — And Not Much Else
Hedge funds charge a fortune in fees — a 2% yearly management fee plus 20% of all gains is standard. But their performance is poor.
In 2008, Warren Buffett and hedge fund manager Ted Seides made a bet.
Seides picked a portfolio of top hedge funds, betting they’d beat the S&P 500 over the next decade. Buffett bet that the index would prevail.
Buffett won, as he usually does. He gave his $2.2 million in winnings to Omaha charity Girls, Inc.
Wrap-Up
The future for Pelham Capital is bleak. As assets dwindle and the office clears out, the once mighty fund faces an uncertain future.
Whatever happens to Pelham, I’m avoiding hedge funds. There’s no sense paying 2 and 20 for poor performance.
What do you think the future holds for Ross Turner and Pelham Capital? Leave a comment and let us know!
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