How BlueMountain fell over the hedge fund cliff
Back in the good old days (pre-crisis) hedge funds were the wizards of financial markets, basking in their golden years of high risk, high return endeavours.
It would’ve been unfathomable to think back then that the old masters of the universe would have to cut down fees to lure investors or that they’d be passed up for much cheaper passively managed funds, or indeed that some of the industry’s biggest names would fall by the wayside.
Some managers have seen no way out of the slump other than to throw in the towel. Highfields Capital Management and Criterion Capital Management closed within a week of each other last year. And they’re just the largest examples. There have been plenty of smaller managers that have exited the business.
Add to that list BlueMountain Capital, the old haunt of Jes Staley (pictured below), where the Barclays chief executive spent two years as a managing partner.
BlueMountain announced on Monday that it’s hanging up its hedge fund hat and saying sayonara to one of its co-founders.
The firm has decided to close its flagship hedge fund and return money to investors as it undergoes somewhat of an identity crisis. At the same time, Stephen Siderow, the former McKinsey consultant who launched the firm with ex-JPMorgan Chase managing director Andrew Feldstein (pictured below), is moving on to new pastures.
BlueMountain has been struggling with an odd affliction for a hedge fund: Too much money and too much diversification.
When the firm launched in 2003 with $300m, it was a specialised credit shop. Investors liked BlueMountain because it was niche and the firm drew in plenty of client money, swelling its coffers to up to $18bn.
But any fund manager can tell you that getting investors to commit money is just half the battle. There’s also the question of where to put it to work.
BlueMountain decided to step out of its comfort zone and diversify into a variety of other sectors, adding new strategies like volatility trading, equities, insurance linked securities and so on.
Diversification, like cash, is not a bad thing in the asset management world. In fact, it’s a very good thing. But you can have too much of both if you’re not careful.
Ultimately, you can easily end up having fingers in too many pies.
There’s a lot of cash circling the hedge fund world and investors are on the hunt for yield. But when almost every asset class is overvalued, sometimes it’s good to just sit on the cash or not take it all. There are plenty of big-name hedge funds that have done just that.
Rubio wants ByteDance to face the music
Washington’s relations with Beijing are on a bad footing this week.
Senator Marco Rubio has chimed into the economic conflict between the two nations with a request of his own: He wants the Committee on Foreign Investment in the US (Cfius) to review TikTok, the popular Chinese video app owned by ByteDance, which acquired Musical.ly in 2017.
Rubio wants Cfius to review the transaction, saying the company is being used by China “to censor content and silence open discussion”.
The senator’s call followed suggestions that TikTok has been censoring content at the Chinese government’s request. He alluded to a report by The Guardian published last month that said TikTok is advancing Chinese foreign policy by censoring content on sensitive topics like Tiananmen Square and Tibetan independence.
Cfius has not commented on Rubio’s request but it wouldn’t be the first time the inter-agency committee could use its retroactive powers to review a deal. Earlier this year Cfius forced the Chinese company Beijing Kunlun Tech to sell dating app Grindr, in which it had acquired a majority stake in 2016 on national security concerns.