With several months having passed since the last prominent hedge fund closure, the recent narrative that the 2 and 20 community was doing exceedingly well to close out the year (with long/shorts piling into tech names with record leverage), was starting to gain traction. That may have changed this afternoon, when Reuters reported that well-known hedge fund manager Neil Chriss announced he is liquidating his $2.2 billion firm Hutchin Hill Capital LP after three years of poor performance. The firm lost roughly 5.5% in the January-November period after having been up 4.7% in 2016. At one point, Hutchin Hill managed more than $5 billion in assets.
Chriss, whose firm is, or rather was, made up of various trading pods like Millennium and SAC, sent a letter to clients that the best way forward is to “proactively return capital as expeditiously as possible.”
“We fought hard, but did not deliver the performance that you expected from us,” Chriss wrote in the letter dated Nov. 30 and seen by Reuters on Thursday.
In the video below, recorded roughly a year and a half ago, Neil Chriss sat down at the Milken Conference to discuss the evolution of hedge funds. Liquidation was not one of the topics covered.
As Reuters summarizes, Hutchin Hill, founded in 2007, is the latest high-profile casualty in the ravaged hedge fund industry, and follows one-time icons Eric Mindich and Richard Perry who likewise made headlines when they shuttered their firms over the past two years.
“This decision is not about one year of performance, which has been disappointing,” Chriss wrote. “We have not delivered on our performance goals for three years in a row.”
Chriss had for some time tried to salvage the firm by cutting costs and refocusing resources. Earlier this year, he began shuttering the firm’s credit portfolio and shifted resources to trading stocks. He also focused more on macroeconomic and quantitative investing. A year ago, Chriss shut the firm’s Hong Kong office.
Despite the efforts, Chriss wrote that it does not make sense to continue with a smaller team and less money under management. He said he expects all investors to get their money back by the end of the first quarter of 2018.
Chriss, who earned a doctorate in mathematics from the University of Chicago – and who probably should have just run a profitable frontrunning HFT operation or better yet, some smart beta contraption or quant fund – previously worked for Morgan Stanley, Goldman Sachs and SAC Capital, where he headed SAC’s quantitative strategies division.
In the letter he discussed Hutchin Hill’s legacy and said he was “extremely proud” of the 83.2% net cumulative return his firm returned and its 6.6 percent annual returns.
Ironically, as noted above, Hutchin Hill is shutting down just as the hedge fund industry “breathes a cautious sigh of relief as many managers are performing better and taking in new money after years of lagging behind stock market gains and taking criticism for high fees.”
It remains to be seen how the industry will be breathing once the handful of tech stocks which every hedge fund is invested in, crash.
The HFRI Fund Weighted Composite Index, which tracks hedge fund performance, has gained 7.2 percent in the first 10 months of 2017, marking its best return since 2013, data from Hedge Fund Research show. Even so, in 2017 hedge funds will underperform not only the average mutual fund, but also the broader market for the 7th straight year.