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Major Hedge Fund Closes: Even the "World's Best Business" Is Getting Tougher

Posted Aug 12, 2009 11:46am EDT by Peter Gorenstein

One of the brightest stars in the hedge fund universe has burnt out.  Tim Barakett founder of Atticus Capital says he's packing it in – telling investors he will return $3 billion of invested capital and will close two of the firm's biggest funds.  Barakett, told the Wall Street Journal, after losing money last year he started to reflect, "I've wondered, 'Do I really want to be on this treadmill forever?'"

Erin Arvedlund, an author who's also worked at hedge funds, says the Atticus news is significant for the hedge fund industry.  "It's part of a larger trend which is that a lot of good managers, and bad, are closing their doors because they're realizing, I can't make good money in this market," she says.

Started in 1996 with just $5.5 million, by 2008 Atticus had amassed $20 billion in assets under management.  Then the market crashed and the firm's two largest funds fell between 27% and 44%.  As is often the case with large hedge funds, Arvedlund thinks Atticus became a victim of its own success.  "It's a question of capacity,” she says. "How much in assets do you want to run so you can take that 20% cut and how much can you reasonably manage, a lot of people get greedy.  They want to run more than that because they can."

Arvedlund speculates, what happened with Atticus is all part of a "weeding out period."  And, in the future tough times will lead to structural changes in the industry, "because it’s harder to raise money."   Arvedlund says, "It'll be a democracy, dare I say, where the actual investor will have more say in the terms."

37 Comments

John
John - Wednesday August 12, 2009 12:05PM EDT

World's best Business "hedge Funds"...don't think so. Most used naked shorting and other manipulative practices to fatten profits. Now, that the Secuirty & Exchange Commission has now come to their senses and Voted to enforce the law. These hedge will do no better then the avg. Mutual fund manager.-johnc222

Jed
Jed - Wednesday August 12, 2009 12:06PM EDT

When Black Jesus talked about redistributing the wealth, that meant looting the hedge funds. The Fed is favoring public banks, that means crippling the shadow banking system. And finally, Index fund ETFs are now a safer and more liquid bet than hedgeidiot funds.

Yahoo! Finance User
Yahoo! Finance User - Wednesday August 12, 2009 12:17PM EDT

Mick told me that turtles make good soup. Enough already!

Mike
Mike - Wednesday August 12, 2009 12:27PM EDT

Sure it's the kids and treadmill... no, sorry folks, it's the rules of the game has changed. No more naked shorts - no more radical speculation. The 'gambler' stock jocks are going to have to go away. Oh well, they are multi-millionaires and our returns suffered even more because of it. Good bye.

Mike
Mike - Wednesday August 12, 2009 12:31PM EDT

Good bye 'stock jocks'... the arrogance of the greedy is disgusting.

chubby
chubby - Wednesday August 12, 2009 12:32PM EDT

Most hedge funds entered last year's stock debacle long stocks, which means they didn't hedge diddly squat, and their customers got killed. You can get that with an index fund, with a lot cheaper fees! Hedge funds, with their ridiculous fee structures, are for chumps.

GerritD
GerritD - Wednesday August 12, 2009 12:33PM EDT

HAHA! Hedge funds ARE THE DEVIL!

The_Wind_Gods
The_Wind_Gods - Wednesday August 12, 2009 12:38PM EDT

Good close em all down.....$#!@%#$!% PIRATESS http://www.creators.com/opinion/joe-conason/slap-down-free-market-pirates.html

Dave
Dave - Wednesday August 12, 2009 12:40PM EDT

Incredible - first 3 posts all from scumbags!

Neil Bush
Neil Bush - Wednesday August 12, 2009 12:46PM EDT

ericvonjed Your comment makes absolutely no sense but I’m certain you don’t know that. My guess is as long as you keep the hate rolling it’s all good. What a tool!

Yahoo! Finance User
Yahoo! Finance User - Wednesday August 12, 2009 12:48PM EDT

The problem for hedge funds is that they get paid largely on the gains in the portfolio. After taking a bath last year, they have too far to go before they will get paid on gains. Solution? Close series x and open a new fund, series y. Now they can get paid on the gains immediately. It's a total scam.

Yahoo! Finance User
Yahoo! Finance User - Wednesday August 12, 2009 12:48PM EDT

Can't make money in this market?!? are you kidding me? You could have bought just about anything in March.

asdf
asdf - Wednesday August 12, 2009 12:58PM EDT

It is quite common for someone to devise a formula that works for a while and then it does not work. The whole concept of hedging may not work in the future. With 20 years worth of baby boomers about to retire, they will spend less which will cause manufacturing and retail to shrink. They will be net sellers of investments which will put downward pressure on the markets.

Polski
Polski - Wednesday August 12, 2009 01:05PM EDT

Stock Investors, hear the beat of the drum! I am having some serious discussions with my "so called" advisor! Everyone, make your own decisions on how much you can lose?

JGIB
JGIB - Wednesday August 12, 2009 01:20PM EDT

It's interesting that Mr. B got tired of what he was doing as soon as it didn't work anymore. Where is the quality of persistence?

goliath
goliath - Wednesday August 12, 2009 01:24PM EDT

What a joke. These hedge fund gurus need to start listening to Mike Stathis. He has called every single market move including the collapse. Have a look. http://www.avaresearch.com/article_details-335.html Ask yourself why the financial media continues to ban him. He clearly is the leading expert on this economic collapse. He even predicted Dow 6000 and the bailout of Fannie and Freddie in his 2006 book America's Financial Apocalypse.

goliath
goliath - Wednesday August 12, 2009 01:24PM EDT

What a joke. These hedge fund gurus need to start listening to Mike Stathis. He has called every single market move including the collapse. Have a look. http://www.avaresearch.com/article_details-335.html Ask yourself why the financial media continues to ban him. He clearly is the leading expert on this economic collapse. He even predicted Dow 6000 and the bailout of Fannie and Freddie in his 2006 book America's Financial Apocalypse.

Yahoo! Finance User
Yahoo! Finance User - Wednesday August 12, 2009 01:46PM EDT

Not surprised. Most hedge funds greatly depend on leveraging. Without it, their performance is usually lower than an index fund. Leveraging works fine when the market is in a steady upward or downward trend. It can lead to disastrous results during heavily manipulated and bipolar markets which we've been in for over two years now thanks to the fed reserve and the fed gov. Favorite major banksters and politically connected wealthy have the inside edge with access to non-public info and mountains of practically free money. Everyone else is at a major disadvantage. In a giant casino, those with brains either don't play or switch to short-term trading. J6P will be skinned alive yet again whenever this gov created bubble bursts. Right now, the market is more overvalued than during the top of the dot com bubble.

david
david - Wednesday August 12, 2009 02:45PM EDT

My vote says, whoever thinks they can possibly be worth 20%+ needs to be weeded out. That greedy fiction is over now. Let them take their billions and disappear to their islands because nobody really wants to see them again. (We really should be charging Bernie for the time he spends on our dole.)

BobS
BobS - Wednesday August 12, 2009 02:23PM EDT

Greed! The best things in life is free. Money is evil. Those who want more can never get enough! Just like a crack head! I feel so sorry fore these people! Were all racing to the same end.

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