By Katrina Dean Allen
Photographs by Doug Goodman
Hundreds of the industry's leading managers turned up in New York for the 2009 Absolute Return Awards dinner on November 2 to honor those firms that delivered the best risk-adjusted returns over the past 12 months, including 2008's tumultuous fourth quarter—one of the most trying times ever for hedge fund managers.
The calendar year 2009 had been a much better one for hedge funds, and the mood of the evening was much lighter than that at the more somber event held in 2008 at the height of the financial crisis. The night's big winner was Minnetonka, Minn.-based Pine River Capital Management, which garnered three nominations and took home two awards, including New Fund of the Year, for its Nisswa Fixed Income Fund. Paulson & Co. received five nominations yet again for the third year running, and won the much-coveted Management Firm of the Year accolade for the third year in a row too.
The awards were based on a quantitative analysis of returns and Sharpe ratios taken over the 12-month period ending September 30. Firms' ability to navigate through last fall's financial fallout added suspense to the evening's festivities, held at the famed church at 583 Park Avenue that was overhauled in 1923 by renowned architectural firm Delano & Aldrich.
This was Absolute Return's fifth annual awards ceremony. Performance used to determine the winners was drawn primarily from the Absolute Return database, which tracks more than 3,000 U.S. funds. To ensure that all funds are considered and that the true best in class were identified, AR magazine also collects additional data from third-party sources. The evening was sponsored by Barclays Capital, Prime Fund Solutions and S3 Partners.
THE NOMINEES AND WINNERS OF 2009
Winner: Stelliam Fund
Performance (Oct. 2008-Sept. 2009): 48.62%.
Sharpe ratio: 2.73
Bay Resource Partners, Elm Ridge Capital Partners, SAB Overseas, Soundpost Capital, Stelliam Fund
The equity markets made a major comeback in 2009, benefiting long/short equity funds with long exposure. Gains pushed a number of equity strategies closer to their high-water mark, and some funds began collecting incentive fees again. Sharpe ratios for the period were also up.
Five funds made the cut in 2009, narrowly ousting the winners from the two previous years—Pershing Square International in 2008 and Zweig-DiMenna International in 2007. Elm Ridge Capital Partners and SAB Overseas were head-to-head in terms of performance and Sharpe ratio. Bay Resource Partners turned in the second-highest returns. Stelliam Fund, founded by Ross Margolies, was the clear winner with outstanding performance and the highest Sharpe ratio over the period.
Winner: Carlson Black Diamond Relative Value
Performance (Oct. 2008-Sept. 2009): 18.11%.
Sharpe ratio: 2.01
Carlson Black Diamond Relative Value, M Kingdon (Offshore NV), Maverick, Viking Global Equities III, Wexford Catalyst
Clint Carlson's Black Diamond Relative Value fund took the top slot in Global Equity, with stellar performance and a Sharpe within close range of the highest Sharpe ratio for the period, which was produced by Viking Global Equities III. Of the five funds nominated in 2009, Viking has now been a contender for three years in a row.
Winner: FrontPoint Financial Horizons
Performance (Oct. 2008-Sept. 2009): 44.22%
Sharpe ratio: 1.92
BlackRock Health Sciences, CRM Windridge Partners, FrontPoint Financial Horizons, Harvest Small Cap Partners, Seligman Spectrum Focus
A newly combined category in 2009, Specialist Equity included industry sector and small-cap funds managing more than $250 million. Harvest Small Cap Partners made the short list after winning the Small-Cap Equity award in 2008. Harvest was able to keep up its strong performance and Sharpe in 2009, but other funds moved into the spotlight. CRM Windridge turned in the second-highest return but the lowest Sharpe ratio of the qualifying group, whereas Seligman Spectrum Focus attained the highest Sharpe ratio but delivered the lowest return among the nominees over the period.The winner, FrontPoint Financial Horizons, reported the best performance and came within the 25% range required of the top Sharpe ratio to challenge the other funds successfully. FrontPoint Financial Horizons was also a nominee in this category in 2008.
EMERGING MARKET EQUITY
Winner: HG Green
Performance (Oct. 2008-Sept. 2009): 49.30%
Sharpe ratio: 1.53
BRZ Long Short FIM, HG Green, JGP Max FIM, Tarpon All Equities
The nominees in 2009 included three funds in the running in 2008. Brazilian funds HG Green and JGP Max FIM found themselves on the final nomination list again. JGP Max FIM, the 2008 winner, was a close contender.
While BRZ Long Short FIM logged the highest Sharpe among the group, it was HG Green that reported the best 12-month performance. That, along with a Sharpe ratio that was high enough, gave HG Green the top spot in 2009 for the second time in four years.
ARBITRAGE & CONVERTIBLES
Winner: Castle Creek Arbitrage
Performance (Oct. 2008-Sept. 2009): 30.37%
Sharpe ratio: 3.86
Castle Creek Arbitrage, Paulson Enhanced, Symphony Rhapsody, Waterstone Market Neutral, Whitebox Concentrated Convertible Arbitrage
Making the cut again in 2009, Paulson Enhanced and Waterstone Market Neutral proved that despite the volatile markets they had the right stuff to continue outperforming their peers. The market chaos in 2008 did clear the decks, however, allowing a new crop of funds to take advantage of the great year for convertible and equity arbitrage, the best-performing strategy of 2009.
Whitebox Concentrated Convertible Arbitrage reported the highest return, closely followed by Waterstone Market Neutral. But neither fund came within 25% of the Sharpe ratio needed to push it into the winner's circle. In the end, Castle Creek Arbitrage took the title with a combination of strong returns and the best Sharpe.
Winner: King Street Capital
Performance (Oct. 2008-Sept. 2009): 19.36%
Sharpe ratio: 5.70
Gruss Global Investors, King Street Capital, Paulson Advantage, Pentwater Event Fund, Scottwood Capital Master Fund
Event funds fared better in 2009 than in 2008, with the five final nominees decisively outperforming their peers. Returning to the short list from 2008 were Paulson Advantage, that year's winner, and King Street Capital.
New to the nominations, Scottwood Capital Master Fund proved itself a worthy opponent by clocking the highest performance but fell short on Sharpe. King Street Capital emerged as top in its class with a powerful combination of highest Sharpe ratio and outstanding performance.
Winner: MKP Opportunity
Performance (Oct. 2008-Sept. 2009): 17.95%
Sharpe ratio: 3.31
Balestra Capital Partners, Caxton Global Investment, MKP Opportunity, Moore Global Investments, Quantum Endowment, Tudor BVI Global
The top return in this major category during the period was set by George Soros' Quantum Endowment. The 2008 returning winner, Balestra Capital Partners, also made the short list. But the real star was MKP Opportunity, which over the 12-month period made solid returns and comfortably the best Sharpe ratio, making it the winner.
Winner: Hudson Bay
Performance (Oct. 2008-Sept. 2009): 32.13%
Sharpe ratio: 3.22
Halcyon Enhanced, Hudson Bay, Mariner Tricadia Credit Strategies, Millennium International, Nisswa Fund, Orbis Optimal, Platinum Partners Value Arbitrage
Seven funds made the short list for the multistrategy category, making the competition fierce. Two of the nominees, Millennium International and Platinum Partners Value Arbitrage, made the final list in 2008, when Platinum took home the award.
Platinum again produced the highest Sharpe for the period, but its performance overall was not quite as competitive. Izzy Englander's Millennium came close but also fell short. Pine River's Nisswa Fund delivered the best return among the nominees, but its Sharpe was no match for that of Hudson Bay, which took the prize with a combination of strong returns and an exceptional Sharpe.
Winner: Hyman Beck Global Portfolio
Performance (Oct. 2008-Sept. 2009): 24.58%
Sharpe ratio: 1.31
Chesapeake Diversified, Graham Global Investment, Hyman Beck Global Portfolio, Quantitative Global, Sunrise Capital Diversified, Tudor Tensor
Of all the strategies tracked by Absolute Return, managed futures funds turned in the worst performance for 2009. But there are always exceptions, and this was the closest race for the award of any category.
The highest Sharpe ratio was set by previous winner Quantitative Global, but both Graham Global Investment and Hyman Beck Global had higher returns and were just within range on Sharpe, with Hyman Beck emerging as the winner by just a few basis points.
FIXED INCOME & MORTGAGE BACKED SECURITIES
Winner: Nisswa Fixed Income
Performance (Oct. 2008-Sept. 2009): 94.70%
Sharpe ratio: 8.37
Barnegat Fund, EMF Fixed Income, Midway Market Neutral, MKP Credit, Nisswa Fixed Income, SPM Structured Servicing Holdings
Fixed income funds had a terrific year. Despite outstanding returns from SPM, which was also nominated in 2008, and fellow front-runner Barnegat Fund, none of the contenders could compete with the phenomenal return and Sharpe ratio produced by Nisswa Fixed Income.
The relatively young fund, managed by Steve Kuhn at Pine River Asset Management of Minnetonka, Minn., led the group in both outright returns and Sharpe, and so walked away with the award.
HIGH YIELD & EMERGING MARKET DEBT
Winner: BlueMountain Credit Alternatives
Performance (Oct. 2008-Sept. 2009): 14.95%
Sharpe ratio: 1.13
BlueMountain Credit Alternatives, Brownstone Partners Catalyst, NWI Emerging Markets Currency
After the upheaval of late 2008, many high-yield and emerging market debt strategies enjoyed a good run in 2009. However, only three funds made the final cut, and not one of 2008's nominees was among them.
Brownstone Partners Catalyst and the NWI fund both delivered strong Sharpe ratios, but their returns eventually slipped below the thresholds required for the period in their respective peer groups. Ultimately, BlueMountain Credit's stellar returns and Sharpe allowed the fund to capture the award.
Winner: Alden Global Distressed Opportunities
Performance (Oct. 2008-Sept. 2009): 219.63%
Sharpe ratio: 2.97
Alden Global Distressed Opportunities, Caspian Select Credit, Davidson Kempner Distressed Opportunities, Paulson Credit Opportunities, Perella Weinberg Partners Xerion Fund, York Credit Opportunities
Distressed is the third-best-performing hedge fund strategy of 2009, making up for its dismal returns in 2008. Those strong results made the competition more fierce.
Repeat nominees from 2008 included Daniel Arbess' Perella Weinberg Partners Xerion Fund as well as 2008's winner, Paulson Credit Opportunities. Davidson Kempner Distressed Opportunities logged the second best performance. However, none of the contenders came even close to the triple-digit return of Alden Global Distressed Opportunities, which also logged the best Sharpe ratio. Alden was only formed in 2008 but is managed by distressed debt market maven Randy Smith.
NEW FUND OF THE YEAR
Winner: Nisswa Fixed Income
Annualized performance since inception: 101.24%
Annualized Sharpe ratio since inception: 8.26
Alden Global Distressed Opportunities, Marathon Credit Opportunity, Nisswa Fixed Income, Whitebox Special Opportunities
This category was open to all funds that had launched in the previous 18 months and that managed at least $100 million. Despite the market meltdown in 2008, several funds still produced outstanding returns.
The competitors to beat were Alden Global Distressed Opportunities and Nisswa Fixed Income, which had both taken awards for their respective strategy categories this year. With its triple-digit return and high Sharpe, Pine River's Nisswa Fixed Income fund took the prize.
Winner: SAC Capital International
Annualized performance over 10 years: 25.15%
Annualized Sharpe ratio over 10 years: 2.06
Caxton Global Investment,
King Street Capital,
Paulson International, SAC Capital International
This category was first introduced in 2007, when Ken Griffin's Kensington Global Strategies was honored for the best long-term performance. Izzy Englander's Millenium International, also nominated in 2007, took the prize the following year. To be nominated, funds needed a track record of at least 10 years and assets of at least $1 billion. Those vehicles that were eligible were then ranked by their average Sharpe ratios for the period. The short list in 2009 contained some of the oldest and best-known funds in the industry, including Bruce Kovner's Caxton Global Investment and King Street Capital, which also received a nod in 2008 and took home an award this year in the Event Driven category.
This year's top contender proved to be Steve Cohen's SAC Capital International, with the best return and a Sharpe that was just within 25% of the ratio achieved by 2008 winner Millennium.
MANAGEMENT FIRM OF THE YEAR
Winner: Paulson & Co.
Founder: John Paulson
Assets as of July 2009: $27 billion
Carlson Capital, Mariner Investment Group, Moore Capital Management, Paulson & Co, Whitebox Advisors, York Capital Management
The Management Firm of the Year was also introduced in 2007, and is intended to recognize the firm that has performed best across a range of strategies. To qualify, each firm must manage at least $5 billion in hedge fund assets in at least three different strategies. We use three criteria to determine the winner. AR calculates the firm's overall Sharpe ratio weighted by assets in each strategy; the firm's overall performance, weighted by assets, compared with the Absolute Return indices; and the growth in firm assets over the previous 12 months (taken from the biannual AR Billion Dollar Club). To determine the overall winner, each firm's composite results are tallied on a points-scoring system.
John Paulson's Paulson & Co. took the top honor quite comfortably in both 2007 and 2008. This time, even though it faced tougher competition, Paulson & Co. managed to retain its title as best management firm in 2009.
FUND OF THE YEAR
Winner: Waterstone Market Neutral
Performance (Oct. 2008-Sept. 2009): 51.14%
Sharpe ratio: 2.73
HG Green, Nisswa Fund, Quantum Endowment, Waterstone Market Neutral
For this special award we take into account not only the funds that won in the various strategy categories but also any other vehicles with outstanding performance that missed out in their peer group by falling slightly short on return or Sharpe ratio criteria.
This year, only one of the four nominees, HG Green, had also won another award. The other three had all set the highest returns in their categories but had been narrowly beaten by other funds with Sharpe ratios that were just too strong. Out of the four, it was Shawn Bergerson's Waterstone Market Neutral fund that had beaten its peer group by the widest margin, and so came at the top of the class for 2009.