DKR Fusion Management, which once managed $4.3 billion in
multiple strategies, is down to $40 million after nearly $500
million in redemptions this summer.
This year's asset drop marked just the latest setback in
DKR's long, slow decline. The firm was founded by Drexel
Burnham Lambert alumni Gary Davis and Barry Klein in 1992 as
part of the AIG Trading Group, which bought Drexel's trading
platform when the junk bond powerhouse imploded. Known as DKR
Capital, the company
was first run as a traditional fund of funds before
bringing its own traders in-house in 1994. In 2000, Davis and
Klein bought DKR from AIG and quickly became known for
giving their managers wide latitude to manage their own
Several representatives of the
Stamford, Conn., firm declined repeated requests for
interviews. Reached by telephone, DKR President Daniel G.
Rizzuto would not comment on the company's plans. Antonio
Peguero, the company's chief operating officer and general
counsel, issued a statement via a spokesman that "DKR continues
to operate as usual and has no plans to shut down."
jumped in and
out of other strategies during the past decade, its
quantitative unit dubbed Fusion became a mainstay.
Founded by Pascal Magnollay in 2001 with $50 million,
Fusion was staffed by
at least half-a-dozen Ph.Ds. The platform attempts to
seek out market anomalies through so-called underreaction
strategies, which reflect the tendency of stock prices to
underreact to specific events. The DKR Capital website now
redirects to the Fusion page, and a spokesman said the two
names can be used interchangeably.
Though DKR was mostly successful at managing a variety of
hedge fund strategies and its oldest funds produced solid
returns, some critics assailed the firm's structure, comparing
it unfavorably to that of
FrontPoint, a similar incubator dealt with similar problems
in managing multiple teams (see the AR September cover
The fall of FrontPoint). In 2005, the University of
pulled its $32.5 million from the firm, singling out the
company's loss of two trading teams and the disappointing
performance of several new ones.
Nonetheless, with at least fifteen separate products in
2006, DKR was a constant presence in AR's
Billion Dollar Club. Assets peaked in January 2008 at $4.3
billion after several years above $3 billion. During those
years, a number of the firm's funds earned steady returns. The
DKR International Relative Value fund, for instance, made
money every year from 1995 through 2007, including seven
double-digit annual percentage gains.
The financial crisis of 2008 marked a major change.
Davis decided to liquidate the International Relative Value
fund (which lost 18.86% in the first 11 months of the year) and
two related funds, which held about $520 million at the start
of 2008. Other DKR funds quickly followed, including the
Saturn Event Driven Program, which was down 19.58% for the
year through August 2008 when DKR stopped reporting returns
(the fund closed in October 2009). More DKR strategies closed
over the subsequent years. This May, the
Strategic Currency Program, down 17.34% for the year in
October 2008 (when the firm stopped reporting returns)
officially shuttered, having fallen an additional 12.55% in
Davis blamed the collapse of Lehman and the ensuing broad
retrenchment by prime brokers that had provided less
restrictive financing to hedge funds for his firm's pullback.
"We believe it is unlikely that lenders will be rushing back to
provide the leverage necessary for a number of relative value
strategies to function profitably,"
Davis wrote to investors in 2009. Davis did not return a
call seeking comment.
DKR fell beneath $1 billion and was cut from the Billion
Dollar Club. As recently as June, the firm managed $530 million
in two quantitative funds running the same strategy (one fund
employs more leverage). DKR's Quantitative Strategies 2X
managed futures fund was up in the beginning of the year
but fell 13.89% from March through the end of August, bringing
it down 8.79% for the year, compared to a 0.44% loss for the
AR Managed Futures index.
|DKR was a fixture in the AR Billion
Dollar Club before falling off the list in 2009.
(Source: AR Billion Dollar Club, reporting)
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