Another onetime hedge fund luminary continues to stumble.
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Convexity Capital Management disclosed it had $4.3 billion
under management as of year-end 2016. This is half what the
Boston hedge fund firm was managing just a year ago and down
about 70 percent from the $14 billion it was managing at the
beginning of 2014.
Convexity once had the distinction of being the
most successful hedge fund launch ever when it raised $6.3
billion in 2005, when it was founded by Meyer, David Mittelman,
and Maurice Samuels. Meyer was previously president and CEO of
Harvard Management Co., which posted average annualized returns
of 16.1 percent.
Convexity explains in its ADV filing that it aims "to earn
benchmark returns specified by the limited partners plus an
additional return based on the success of long-short and other
relative value strategies executed principally in the
fixed-income and related markets."
At the beginning of 2012, the firm instituted a clawback
policy if relative value performance were less than the
Unlike most hedge fund and money management firms in
general, Convexity does not report gross or net performance to
clients. It prefers to report how it performs in relation to
Bloomberg, Convexity lagged its benchmarks by 0.3
percentage points in 2012, 3.4 percentage points in 2013, 2.4
percentage points in 2014, and 0.6 percentage points in 2015.
The wire service also reported Convexity trailed the benchmark
by 3.6 percentage points in the first half of 2016.
In July 2013
we reported that Convexity told investors in its
second-quarter letter it was closing to new investments until
its performance improved.
In 2012, Convexity pulled in about $1 billion in new money,
including $425 million in the fourth quarter, but also suffered
$1.2 billion in withdrawals for the full year. This worked out
to $200 million in net outflows, according to a report the firm
sent to investors.
Offering rare insight into the firm’s thinking,
Meyer lamented at the time that value from January 1, 2012, to
June 2013 was a negative 161 basis points.
"The charitable interpretation of this lean period would be
that we did a pretty good job protecting capital in an
extremely difficult environment — frozen interest
rates, declining volatilities, few anomalous spread
opportunities and increasing regulation," Convexity told
clients. "But you did not sign up for us to protect capital;
you signed up for value added. When are you going to see some
of it? We cannot be too precise in answering this
Many investors apparently have lost patience waiting for it