Jack Meyer’s Convexity Continues to Suffer Asset Drain

March 29, 2017   Stephen Taub

The onetime Harvard hotshot is having trouble holding on to clients.

  Photo credit: Bigstock. 
Another onetime hedge fund luminary continues to stumble.

Jack Meyer’s 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 benchmark return.

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 certain benchmarks.

According 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 question."

Many investors apparently have lost patience waiting for it to happen.

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