| Daniel Loeb of Third Point |
The stock market has staged a pretty healthy rebound since its six-week rout to start the year. And a lot of hedge fund firms have been slowly battling back from their early-year losses.
In fact, many firms have moved into the black, while others have reduced their losses for the year.
But one hedge fund–related group that is still posting huge losses for the year is the stocks of publicly traded management companies of hedge funds or reinsurance companies whose assets are mostly managed by high-profile hedge fund firms.
Most of the stocks have suffered significant setbacks in the past few weeks or months after rallying earlier in the year.
The sharp stock losses this year are especially significant since these vehicles are the easiest way nonaccredited investors can invest in hedge fund managers.
The biggest loser so far is Och-Ziff Capital Management Group, the New York hedge fund firm headed by Daniel Och. At year-end it was the world’s fourth-largest hedge fund firm, with $44.6 billion under management.
The multistrategy specialist is heavily dependent on a steady stream of fees to boost the stock price. So, the firm is not known for taking outsize risks.
Last year its flagship multistrategy fund, OZ Master Fund, was down 0.28 percent, while its other two main funds were up in the mid- to upper single-digits.
This year OZ Master Fund is down only 1.22 percent through May.
Still, total assets under management have slipped to $42.4 billion since the end of last year. Assets have fallen 10 percent since the end of 2014.
The stock is probably reflecting concerns over widely publicized investigations of the company for possible violations of the Foreign Corrupt Practices Act that have been going on for a number of years now. Och-Ziff has received subpoenas from the Securities and Exchange Commission and requests for information from the Department of Justice concerning a 2007 investment by a sovereign wealth fund in some Och-Ziff funds and investments by some of the funds in a number of African companies.
Shares of Man Group are down 33 percent this year alone. They are also down 28 percent since April 15, one day after the stock advanced following the release of its first-quarter results, which showed a net increase of $500 million in assets.
“The ongoing uncertainty in the markets remains challenging and, accordingly, the risk appetite of our clients has the potential to impact flows,” Emmanuel Roman, chief executive officer of Man, said in a press release. “We continue to explore new options for growth, both organically and by acquisition, within our disciplined financial framework.”
At year-end the London-based firm was the world’s ninth-largest hedge fund firm, with $31.2 billion, up 5 percent from the previous year. Altogether, Man manages $78.6 billion.
The firm is best known for its Man AHL group of systematic hedge funds and Man GLG funds, which use fundamental analysis.
This year its key Man AHL funds are either up or down by about 3 percent.
Many of the GLG funds are either down by less than 1 percent so far this year or up as much as 5 percent or so, according to several databases. However, they have suffered a net outflow of assets.
On May 6, Citigroup reportedly cut its recommendation on Man stock to Sell from Buy. “Performance-fee generation looks challenged,” it told clients in a note. The firm reportedly cut its pretax earnings estimate by 35 percent.
Then there are the two reinsurance companies that essentially exist to invest the premiums in the hedge funds of two high-profile hedge fund managers. These stocks rely on the performance of the investment portfolio and the profitability of the reinsurance business.
Shares of Bermuda-based Third Point Reinsurance are down more than 17 percent this year and more than 7 percent in the past week and a half.
Third Point Reinsurance was created by Daniel Loeb mostly to provide permanent capital for his New York hedge funds. Through May his Third Point Offshore Fund is up 1.2 percent.
In early May the reinsurer reported its fourth loss in the past seven quarters, in part due to losses on its underwriting business.
One hedge fund stock, however, has bucked this trend. Shares of David Einhorn’s Cayman Islands reinsurance company, Greenlight Capital Re, are up more than 4 percent year to date. However, the price is down more than 10 percent since its peak in mid-March.
Greenlight Capital Re reported a profit for the March quarter after suffering a loss in 2015.
Einhorn’s Greenlight Capital funds were up 1.1 percent through May.
The lesson learned here: Don’t use these stocks as a proxy for investing in the underlying fund or funds.
