One of the most arduous tasks a hedge fund manager must perform in these troubled times is to write the periodic letter he sends to investors updating them on the performance of the fund. If things have gone awry, should he manfully take the rap – or should he (Russell Brand-like) evade the blame? Prospect has got hold of one such letter that gives an answer.
In the good times, of course, these documents were lengthy bragathons. In them, the manager usually sought to play down the impact of (generally favourable) market conditions and to play up his own unusual investment genius (known in the trade as his alpha). It was after all these market-beating skills that allowed him to draw substantial fees from the fund.
This style has mutated as the downturn has worsened. Now the market, rarely mentioned on the way up, has emerged as a significant influence on investment performance—as a recent gem of a letter from Toscafund shows. This is a London-based hedge fund, set up by a former banking analyst called Martin Hughes, which has been badly caught up in the downturn by its predilection for investing in banks, fund management companies and house builders, none of which have especially flourished in the recent environment. In the year to 30 September (the investment period covered in the letter) its fund was down 57 per cent.
Here, for the record, is that non-apology in part…
“As your portfolio managers and co-investors in Tosca, we are writing to inform you that the events of September have had a profound negative effect on our performance. On behalf of the team, we apologise for this outcome. We are confident we can explain how the performance will be recovered.
“In the event that we are inundated with redemptions it is our intention to restructure the fund. This will assist redemptions but will also give those of you that wish to stay the opportunity to participate in the turnaround and the rebound that we believe will take place. The portfolio has been readjusted, but in essence remains fundamentally intact to benefit from a number of corporate actions which we are involved in. We are more than ever determined to succeed in being a catalyst to make things happen and to…