Billionaire Jeff Vinik Shutters Second “Comeback” Fund After Just 8 Months
Eight months after launching his latest hedge fund, the one-time mutual-fund rockstar Jeffrey Vinik, who once ran Fidelity’s storied Magellan Fund, is opting to return capital to shareholders and close up shop.
Why? Apparently Vinik, who had been out of the hedge fund for five years when he decided that he and some business partners would try and raise some outside capital and give it a go, isn’t a regular reader of Zero Hedge.
If he had been, he would have understood that after a decade of centrally planned markets that only go up (and, for the past 18 months, haven’t really gone anywhere), LPs had finally thrown in the towel and decided to ditch their handsomely payed portfolio managers en masse.
The difficulty carried over into 2019, as the market’s robust rebound made it hard for traditional long-short equity funds to beat their benchmarks.
This would make life difficult for Vinik, who pledged to raise $3 billion for his new fund. He has apparently learned the hard way that, despite his reputation, he isn’t immune to the broader trends. After all, even Steve Cohen had trouble meeting his fundraising targets this year, and he’s Steve friggin Cohen.
For those who aren’t familiar with Vinik’s legacy, he notched several years of consecutive double-digit returns for the Magellan fund before departing Fidelity in the mid-90s to launch his first hedge fund. That fund also performed amazingly well, until Vinik returned capital to outside shareholders at the end of 2000 to “spend more time with his family”. He still made them a ton of money, despite pulling out in the middle of the dotcom crash.
Along the way, Vinik acquired a professional sports franchise (the NHL’s Tampa Bay Lightning) and also became a minority owner in the Boston Red Sox. But in 2013, he again decided to shutter his fund, which he had reopened to outside money eight years prior, after nearly a year of disappointing returns. At the time he managed about $6 billion in outside money.
According to WSJ, Vinik expected that his third comeback would be met with fanfare from investors, who would scramble over one another to put money in his hand for another long/short equity fund run by the veteran stock-picker.
Unfortunately, it didn’t work out like that. After eight months of aggressive fundraising, he still had a little over half a billion in AUM. Rather than try to stick it out, Vinik decided to call it quits. Despite putting up modest numbers (his fund was up 4.8% between March and September, per WSJ), Vinik’s performance apparently wasn’t enough to spark more inflows.
He told WSJ that between him and his partners, the economics of running a hedge fund simply wouldn’t make sense, particularly after slashing fees.
In an interview, Mr. Vinik said he needed to manage significantly more money for the “economics to make sense” for himself and his business partners. He said he had been surprised to find how much the industry had changed since 2013, a period during which he had focused on the Lightning and a project to invest in Tampa’s downtown. Investors he had known had changed jobs and the decision-making process to invest was far more drawn out than in the past, he said. He said he made the decision to close recently as it became clear more money wouldn’t be pouring in at the start of 2020.
“I honestly believed, obviously foolishly, that I could raise $3 billion by March 1,” Mr. Vinik said. “What I learned after probably 75 meetings is, the hedge-fund industry of 2019 is very different than the hedge-fund industry when I started in 1996, and it’s even very different from the hedge-fund industry when I closed in 2013.”
It’s just one more example of a hedge fund titan finally realizing that in a way, the hedge fund industry is slowly becoming like the music industry in that smaller funds are finding it harder to stay in business, while the biggest, most successful funds effectively have carte blanche to do – and charge – whatever they want.
Wed, 10/23/2019 – 15:45