By Stephen Taub
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| Illustration: Greg Mably |
The news that Caxton Associates’ Bruce Kovner was retiring from the hedge fund he launched in 1983 was long expected, with Kovner the latest hedge fund pioneer to withdraw from the industry at a time of increased chaos and lowered returns. Kovner has turned over the $9.4 billion firm to Andrew Law, whose aggressive bet on the credit markets in 2008 gave Caxton its best return in years. Law, a managing director who in April 2003 joined Caxton as a portfolio manager in its London office, was said to have racked up a better than 100% return by the end of the year. As a result, Caxton Global Investment, the firm’s flagship fund, finished 2008 up 12.9%.
“Andrew saved the firm in 2008,” says one knowledgeable person. “He was largely responsible for Caxton’s success that year.”
Kovner apparently shared this view. In early 2008, Kovner—who was already planning the retirement that he finally announced last month—named Law chief investment officer and head of the firm’s day-to-day operations. Law, a 45-year-old British native who previously had spent nearly seven years at Goldman Sachs, specializing in interest rate products, currencies, emerging markets and equity indices, was expected to smoothly take the baton from one of the hedge fund industry’s most successful managers, a pioneer in macro investing who had racked up roughly 21% annualized gains since he created his firm.
The goal is for Caxton to become the first hedge fund firm dependent on its iconic founder’s trading skills to survive his departure. However, as Kovner formally severs ties with the firm altogether, Caxton faces major challenges.
The reality is that the firm’s star had been fading long before Law took over the day-to-day reins. Since 2003, Caxton’s returns have averaged only in the single digits, compared with the 28% annualized gains generated in the 18 years leading up until then. Kovner also generated double-digit returns during 15 of those first 17 full years, posting only one modest loss (down 2.5%) in 1994 during that year’s global fixed-income market rout.
In the two years following 2008, Caxton has generated mediocre returns—5.8% in 2009 when the equity markets raced back up and 9.3% in 2010, compared with 23% and 13% for the S&P 500, respectively. The fund was also short of its stated goal of earning 6% to 8% above the return on cash in a single year.
This year has not been much better. While it did post a 2.75% gain in August when the S&P 500 lost 5.7%, Caxton Global Investment still remained off by 2.2% for the year through August while
the average macro fund was up 1.71%.
Moreover, in the past few years, several of its most successful investment teams have left Caxton. At the end of last year, Lucidus Capital Partners, a corporate credit specialist, became an independent hedge fund firm, even though Kovner and longtime Caxton chief executive officer Peter D’Angelo retain a passive 25% stake in the $1.8 billion firm.
Then on May 31, Caxton sold Kurt Feuerman’s Pyrander Capital Management, with roughly $1.8 billion in assets, to Alliance Bernstein.
