The Hedge Fund business is littered with interesting anecdotes, success stories and subsequent humble pie by some of the perceived greatest minds on the street. What makes Julian Robertson’s investment story fascinating is that he is, by most peoples and investor standards, one of the most prominent and successful (hedge fund) investors and incubator. What went wrong then?
The story starts with Bill Hwang who ran Tiger Asia successfully for many years. The story ends with a firm now called Tiger Pacific. You ask what is the difference between ‘Asia’ and ‘Pacific’? And the answer is, we do not know.
At this stage what is apparent, Tiger Asia closed since it was never able to end rumors, allegations and accusations by the Hong Kong SFC regarding some form of insider trading. The case has been going on for years. Earlier in 2012, Julian Robertson probably decided that the asset drain on the one hand and the potential reputational consequences on the other, may have a significant impact on his legacy. In fact, in the New York Times DealBook article, Mr Robertson is quoted by saying “I am saddened by the news but certainly understand Bill’s decision. …I have worked side-by-side with Bill for 20 years. I have enormous respect for him as an individual and an investor. He has always been a great partner, a great person and a great friend. I continue to hold him in the highest regards.” We do not doubt that these words are sincere, quite the opposite in fact. However, these words sound awkward once the launch of Tiger Pacific was announced. Why?
The new team at Tiger Pacific is, well, not new. It is essentially the old team of Tiger Asia bar Bill Hwang. We ask the following questions:
- What can investors do, do prevent old teams posting as new? And, should they? Is it not time to move on or is legitimate to run a quasi successor fund with essentially the same variables?
- How do investors rate ethics, sustainability, corporate governance with regards to a Funds life cycle? Should a Fund be declared defunct for good? Is the re-launch under a new name simply false advertising?
- What reputational concerns are there? Why couldn’t Tiger Asia simply retire Mr Hwang and nominate a new management team as we would expect from any corporate? Hewlett Packard et al wont close down shop after some news a la Autonomy and later re-emerge as Hewlett-Whatever.
Although we do not possess all the answers to the above questions, we do suggest that the hedge fund industry still struggles in defining its own business model. It still appears that hedge funds life-and-die by the fact that the portfolio manager is the product. If that is true, there is no accrued goodwill in the brand per se. Is it not time to create hedge fund firms that can survive irrespective of its founders malaise? Or is this simply not possible given the Fund terms and offering memorandum structures that contain key man clauses and other restricting provisions.
At CITE, we suggest that a (hedge) fund Product is defined by more than just its portfolio manager and its performance history. From an asset allocators perspective, we suggest to focus entirely on total value creation. Value creation is not simply a function of total return but very often takes shape in form of other elements too, including
- access to local market knowledge, insight and expertise
- access to a diverse viewpoint from other smart investors
- sharing and debating global newsflow, investor trends and sentiments
- networking benefits: access to local firms, analysts, experts
- investor communication: up-to-date news flow with added manager editorial and comment; reality is, some news may be missed and/or the media may clout the intricacies of the news/event
Our view concerns the ubiquity of available funds yet very few actually deliver value beyond capital return, if that. In our mind, sharing of information and thus acting in a transparent manner, creates equal value to the asset allocators. From the fund managers perspective, creating some form of investor intimacy may lead to a reduced risk of redemptions when times are tough with regards to performance.
The cost of switching one fund for another simply because short term performance results are out of sync with peer group funds, are already high. Once the investor adds the costs of losing access to the aforementioned variables of network, information flow, exchange of ideas etc, a redemption notice may potentially be delayed by a months, quarter or even a year. This should be enough time to prove that performance follows insight and also demonstrate to the investor that trading (hedge) funds is for amateurs.