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Raptor Hedge Fund to Close After Losses
By ZACHERY KOUWEJUNE 2, 2009
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James J. Pallotta, a stock picker and former partner of the hedge fund pioneer Paul Tudor Jones, has decided to liquidate his $800 million Raptor Global fund after losses and investor withdrawals last year, he said in a letter sent to investors on Tuesday.
Mr. Pallotta, a co-owner of the Boston Celtics, did not give a specific reason for closing the fund, but wrote in the letter that he had grown skeptical of the “sustainability of certain aspects of the industry’s structure and short-term focus.”
At its peak in mid-2007, Raptor managed nearly $9 billion in assets, but that declined to about $5 billion last August. Like other hedge funds, Raptor took huge losses in the fourth quarter and had a wave of withdrawal requests.
A person familiar with Mr. Pallotta’s thinking said he planned to take a few months off before raising money for a new fund, most likely with a focus on longer-term investments. The person spoke on condition of anonymity because of a confidentiality agreement signed with the fund.
A spokesman for Mr. Pallotta declined to comment on his decision.
The move is surprising because Mr. Pallotta ended a 15-year partnership with Mr. Tudor Jones on Jan. 1 to form his own firm. As part of the separation agreement, Raptor, which was formed in 1993, was spun out of Tudor Investment Corporation as an independent business, and Mr. Pallotta took several veteran traders and portfolio managers with him.
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The hedge fund industry shrank substantially in the last year as investors withdrew capital and firms took heavy losses. Hedge fund assets fell to $1.4 trillion at the end of 2008, from a record $1.9 trillion at the end of 2007, according to data from Hedge Fund Research Inc., which is based in Chicago. Last week, the longtime hedge fund manager Arthur J. Samberg told investors he was liquidating his $3 billion firm, Pequot Capital Management. In May, Satellite Asset Management, a big New York hedge fund founded by protégés of George Soros, said it was closing after poor performance led to a rush of client withdrawal requests.
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Unlike many of his counterparts in the hedge fund industry, Mr. Pallotta decided not to stop his clients from withdrawing their capital, which forced him to sell assets as stock prices were falling. He started the year with about $1 billion in assets under management and has decided to keep most of it in cash, resulting in flat returns this year.
Since its inception, Raptor said it had returned an average of 13.9 percent a year, including the flat performance this year, compared with a 6.5 percent return in the Standard & Poor’s 500-stock index over the same period.
Mr. Pallotta said in his letter that investors would receive about 75 percent of their investment in cash in early July and 15 percent in assets. Clients will receive their remaining investments in the fund “as soon as practicable thereafter,” he wrote.
Once the liquidation of the Raptor funds is under way, Mr. Pallotta plans to step away from day-to-day management of the firm and focus on developing a new investing strategy that better aligns the interests of investors and managers with superior risk-adjusted returns over time, he said in the letter.
A version of this article appears in print on , on Page B9 of the New York edition with the headline: Raptor Hedge Fund to Close After Losses. Order Reprints| Today's Paper|Subscribe |