A look behind the fund closures

Wed Feb 1, 2006

It's not just bad returns that prompt shutdowns; higher business costs and lack of scalability for some strategies took a toll in 2005

To get a sense of why shutdowns of U.S. hedge funds doubled last year, consider the case of Chicago-based Driehaus Capital Management. In early January, the mutual fund giant was in the process of liquidating its entire hedge fund portfolio, effectively retreating from the alternative sector after a four-year foray.

What prompted a Driehaus retreat? Since its inception in 2001, the Driehaus Long/Short Advantage funds, managed by Jeff James, posted an average annualized return in excess of 10%, typically playing growth versus value themes. But even with attractive returns in tough times, the Driehaus funds struggled and raised only a fraction of the asset target put on them, failing to attract wealthy or institutional clients in significant droves. And with returns of just 3% for the...

ISSN: 2151-1845 / CDC10004H

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