Hedge Fund Managers Set Up for Next Acts (Published 2010) - The New York Times

James J. Pallotta, a prominent hedge fund manager, is opening a new fund, Raptor Evolution, after shutting his Raptor Global fund following a loss. According to The New York Times, Pallotta had posted average annual returns of 19.2 percent during 15 years at Paul Tudor Jones's firm and five years earlier at Essex Investment Management. Raptor was spun out of Tudor Investments in late 2008 after losing 20 percent; after flat performance in early 2009, Pallotta closed the fund that June, citing doubts about "the sustainability of certain aspects of the industry's structure and short-term focus." At its height, the Raptor funds managed more than $12 billion. Tim Berry, head of hedge fund investments at Private Advisors, said it would be easy for Pallotta to raise money given his track record. People familiar with the fund said it will use a small team and a small number of securities, and Pallotta will not earn a performance fee until previous investors recoup their losses.

Other managers attempting comebacks include Gabe Nechamkin, a former George Soros trader on his second fund, and John W. Meriwether, whose Long-Term Capital Management failed in 1998 and who is on his third fund. It is unclear whether either is offering legacy investors make-whole terms. Jeffrey Gendell's Tontine Capital Partners, which oversaw $7 billion and averaged 38 percent returns from 1997 to 2007, closed two funds that lost more than two-thirds of their value in 2008. In 2009 Gendell opened a new fund that will invest only in easy-to-trade securities, avoid leverage, and forgo performance fees until prior losses are recouped.

The broader industry is undergoing a shakeout. Todd Buchholz, a former Tiger Management managing director, said the field is crowded with very high fees, while noting it is not the end of hedge funds. Standard hedge fund fees are a 1 to 2 percent management fee and 20 percent of profits subject to high water marks, and nearly half of funds in the Hedge Fund Research Index were below those levels over the last three years. Investors are increasingly weighing low-cost index funds against hedge funds, and the central question for relaunched managers is whether investors will forgive past losses.