Thriving in tough times

Fri Dec 9, 2011

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Winners of the seventh annual AR Awards showed strong performance in a tricky climate.


By the AR editorial staff

It was another good year for Ray Dalio's Bridgewater Associates, which took home its second consecutive Management Firm of the Year trophy at the seventh annual AR Awards, held at the Mandarin Oriental in New York City on November 10. The Westport, Connecticut-based firm proved that size needn't be a deterrent to performance, snagging another trophy for best macro fund for its Bridgewater Pure Alpha fund, which manages $58 billion.

Plenty of other A-list firms took home trophies, including Tiger Global Management (for the global equity category), Renaissance (fund of the year), Brevan Howard Asset Management (credit and high yield) and York Capital Management (long-term performance).

The AR Awards honor hedge funds that deliver the best risk-adjusted returns to their investors, with winners chosen based on a quantitative analysis of returns over the 12-month period ended August 31. To qualify for an award in most of the main categories, funds must have had minimum assets of $500 milllion, though the threshold is set at $100 million for the new fund award to reflect the candidates' shorter trading periods.

The performance of the nominated funds was drawn primarily from the AR database, which tracks some 2,600 funds in North and South America. AR gathered additional data from third parties to ensure that all funds were considered and that the industry's best performers were in the running.

U.S. EQUITY

WINNER:
Sandler Associates
Performance (September 2010-August 2011): 12.75 percent
Sharpe ratio: 2.78

NOMINEES:
Cambrian Fund; Hellman, Jordan Private Investor; Sprott Capital; Trian Partners

 
  Jamie Dinan, York Capital Management
A sharp decline in the markets in August punished many long-short equity funds. But the winner of the U.S. equity award, Sandler Associates, managed to contain the damage, with a loss of just 0.54 percent that month, thanks to prudent long bets on consumer and technology stocks and short positions in European banks and construction-related companies. The win marked Sandler's second consecutive victory in the category. Cambrian; Hellman, Jordan; and Trian were first-time nominees, while Sprott Capital had been nominated four times in previous years and was AR's fund of the year in 2010.

GLOBAL EQUITY

WINNER:

Tiger Global

Performance (September 2010-August 2011): 66.24 percent

Sharpe ratio: 6.59

NOMINEES:

JAT Capital Management, Joho Fund Class A, Standard Pacific Capital, Viking Global Equities III, Wexford Catalyst Fund

For global equities it was a tough 12 months as well, but you wouldn't know it based on the nominees in 2011's global equity category, many of which churned out big gains. The category produced several first-time nominees, including Chase Coleman's Tiger Global, JAT, Joho and Standard Pacific Capital. Timing long or short plays in such areas as Chinese companies, European banks and tech highfliers proved to be crucial. Coleman's $4.8 billion Tiger Global roared to the top partly by loading up on credit card firms as well as top-performing Internet companies, including Priceline and the Chinese web services company Baidu. Both Tiger and John Thaler's JAT Capital took hits from their holdings in Netflix, but other positions in technology, gaming and media made JAT a close contender. That fund returned 49.71 percent for the period.

SPECIALIST EQUITY

WINNER:
Coatue Offshore Fund
Performance (September 2010-August 2011): 23.20 percent
Sharpe ratio: 2.76

NOMINEES:
Act II Long/Short Fund, CCI Healthcare Partners, Dorset Energy Fund Limited-Series A, Harvest Small Cap Partners, Seligman Health Spectrum Plus Strategy

Nominees for this award included several previous nominees and one previous winner. Tiger Cub Philippe Laffont's Coatue Offshore Fund won the award in 2007 and was nominated again in 2010. Dorset Energy and Harvest Small Cap were also nominated in previous years.

The Dorset Energy fund proved to be a tough competitor, producing an impressive 37.04 percent gain for the period, but its Sharpe ratio fell short. Laffont's fund, which focuses on telecommunications, media and technology stocks, took home the prize with the top Sharpe ratio of 2.76 and a strong return of 23.20 percent over the period.

QUANTITATIVE EQUITY

WINNER:
BlackRock 32 Capital Fund
Performance (September 2010-August 2011): 38.15 percent
Sharpe ratio: 6.3

NOMINEES:
Invesco U.S. Market Neutral, Renaissance Institutional Equities Fund International, SAC MultiQuant Fund

The quantitative equity category is new to the AR Awards and was introduced to recognize the outstanding performance achieved by quantitatively focused equity funds over the past year. All of the nominated funds come from firms well-known to the industry, including Invesco, Renaissance and SAC.

The BlackRock 32 Capital Fund is one of the firm's smaller funds; it manages $364 million, compared with the runner-up in the category, the Renaissance Institutional Equities Fund International, which manages $5.8 billion.

Renaissance was a fierce contender, achieving a return slightly higher than that of BlackRock's fund. But it was unable to compete with BlackRock's Sharpe ratio. This was the first nomination for the BlackRock 32 Capital Fund. Some of BlackRock's other funds were nominated nine times previously in different categories, and one had won. The BlackRock Health Services fund won in the specialist equity category in 2008.

ARBITRAGE & CONVERTIBLES

WINNER:
Glazer Capital Management
Performance (September 2010-August 2011): 5.96 percent
Sharpe ratio: 3.56

NOMINEES:
Investcorp Silverback Arbitrage Fund, Lazard Rathmore, Symphony Rhapsody Fund, Wolverine Convertible Arbitrage Fund

In a mostly flat period for the category as a whole, all the nominees boasted performances that beat the AR benchmark index by some distance. Glazer Capital's $541 million fund, with the firm's first-ever nomination, pulled out the win thanks to a superior Sharpe ratio. Although its fellow nominees, including defending category winner Lazard Rathmore, earned higher percentage returns overall, none were able to rival Glazer's risk-adjusted metric.

Portfolio manager Paul Glazer's 11-year-old merger arbitrage fund concentrates on sub-$1 billion deals. Steady performance, including only one month of negative returns in the period under consideration, helped lead the fund to the winner's circle. The fund was up 3.86 percent for 2011 through the end of October after a modest retrenchment in August and September.

It was the first nomination for the Investcorp fund, the second consecutive nod for Wolverine and the third in a row for the Symphony strategy. None has taken home the prize yet.

EVENT DRIVEN

WINNER:
Third Point Offshore Fund
Performance (September 2010-August 2011): 20.99 percent
Sharpe ratio: 1.86

NOMINEES:
ECF Value Fund, JANA Partners, Litespeed Partners, Pentwater Event Fund, Scoggin Capital Management II

 
  Lionel Kaliff, Bridgewater Associates
Portfolio manager Dan Loeb may be well-known for his blustery shareholder activism, but his Third Point Offshore fund needed no theatrics to win the event- driven category. By both performance and Sharpe ratio, $7.1 billion Third Point bested the competition for its second consecutive win. Third Point was also nominated in 2005 but did not win. Luckily for Loeb, AR's analysis for the purposes of the awards ended August 31. Third Point was rocked in the third quarter and is up just 0.9 percent for 2011.

There was just one first-time nominee in the category: Jamie Zimmerman's Litespeed Partners, which came within striking distance of Third Point in terms of its Sharpe ratio but fell slightly short on returns. ECF, JANA and Scoggin each came up empty for the second time. Pentwater is having a dry streak: Despite three consecutive years of nominations, Matthew Halbower's fund was again left wanting on the big night, felled by significant losses this summer.

GLOBAL MACRO

WINNER:
Bridgewater Pure Alpha Trading
Performance (September 2010-August 2011): 28.24 percent
Sharpe ratio: 2.85

NOMINEES:
Armored Wolf Alpha Fund, Covepoint Emerging Markets Macro Master Fund, Galtere International Master Fund, MKP Opportunity

Despite macroeconomic events seemingly driving most investments in the past 12 months, funds designed to take advantage of just such forces were up only 0.67 percent through October, on average, according to the AR database. Ray Dalio's Bridgewater, the largest hedge fund firm in the world at $125 billion, continued to outperform for the second straight year. Pure Alpha won in the global macro category for 2011, coming off sister fund All Weather's victory in 2010. Bridgewater beat out previous global macro winner MKP Opportunity (2009); Galtere was a contender in 2008. Melissa Ko's Cove-point and John Brynjolfsson's Armored Wolf were first-time nominees.

MULTISTRATEGY

WINNER:
SPM Core Fund
Performance (September 2010-August 2011): 31.21 percent
Sharpe ratio: 4.63

NOMINEES:
Atlas Global Investments, Millennium USA, NWI Explorer Global Fund, Pine River Master Fund, Platinum Partners Value Arbitrage Fund (USA)

Don Brownstein's $2.8 billion mortgage specialist firm Structured Portfolio Management snagged several nominations in 2011, including nods in the fixed-income and mortgage-backed category (in which two of its funds were nominated) and the fund of the year category.

This was SPM Core's first nomination in this category. SPM's flagship Structured Services Holdings fund was nominated four times previously but didn't win.

SPM Core beat out the other contenders with a return of 31.21 percent and a Sharpe ratio of 4.63. The Platinum Partners Value Arbitrage fund came closest with a return of 27.64 percent and a Sharpe ratio of 6.0. Pine River, which earned a total of four nominations at the 2011 awards, was another strong contender, with a Sharpe ratio of 3.16 and a return of 14.50 percent for its Pine River Fund.

MANAGED FUTURES

WINNER:
QFS Currency Fund
Performance (September 2010-August 2011): 39.24 percent
Sharpe ratio: 1.71

NOMINEES:
Campbell Global Assets Fund Class B, Chesapeake Diversified Program, Renaissance Institutional Futures Fund, Sunrise Capital Diversified

 
  David Lippe, Renaissance Technologies
Karlheinz Muhr's $2.2 billion QFS Asset Management proved it's still possible to make monster gains with a managed-futures strategy even when the average CTA is down 3.00 percent, according to the AR database. The QFS Currency Fund earned its first win in this category with an impressive 39.24 percent gain. The fund was nominated for the same award in 2010. QFS bested 2010 winner Renaissance and previous winner Campbell (2005) and previous nominees Chesapeake (2006) and Sunrise (2009). QFS was founded in 1988 by current chairman Sanford Grossman and bought Cenario Capital Management in April 2011, which was led by Muhr.

FIXED INCOME

& MORTGAGE BACKED

WINNER:

SPM Directional Mortgage

Prepay Master Fund

Performance (September 2010-August 2011): 36.79 percent

Sharpe ratio: 4.54

NOMINEES:

BlackRock Fixed Income Global Alpha Fund, Halcyon Offshore Asset-Backed Value Fund, Metacapital Mortgage Opportunities Master Fund, Pine River Fixed Income Fund, Providence MBS Offshore Fund, SPM Structured Servicing Holdings Master Fund

SPM faced a bevy of strong competitors in this category, including itself. The firm's Directional Mortgage Prepay Master Fund squared off against six others - including its sister fund, SPM Structured Servicing Holdings - in a highly competitive year for the category. The Pine River Fixed Income Fund won the distinction in 2009. Another strong contender and first-time nominee, Metacapital, was one of AR's 2010 Funds to Watch. All the funds nominated did far better than the industry average for mortgage-backed securities hedge funds, which were down 1.22 percent for 2011 through October, according to the AR database. But SPM's Directional Mortgage Prepay Master Fund, a first-time nominee in the category, took home the prize. SPM's Structured Servicings Holdings won in the same category in 2010. It has earned four previous nominations in this category.

EMERGING MARKETS

WINNER:
JGP Brax Fund Class A
Performance (September 2010-August 2011): 24.58 percent
Sharpe ratio: 3.01

NOMINEES:
ARX Long Short FIM, GAP Absoluto, HG Green Fund, Marathon Master Fund, Moneda Latin American Debt

Latin America-focused funds did well overall for the period, with the AR Latin American Debt Index returning 6.05 percent for 2010 and the AR Latin American Equity Index returning 9.70 percent. But Brazil has been a particularly compelling growth market, especially amid concerns of China overheating. Four of the six nominees this year - JGP, ARX, GAP and HG Green - are based in Brazil. HG Green, the 2009 winner, rose 12.94 percent over the 12-month period and has long been a standout among Brazilian funds for its active management of foreign exchange and commitment to equity investing. JGP won the category in 2008 and has been a nominee for four years running; it beat a slew of tough competitors this time to take home the prize again.

CREDIT & HIGH YIELD

WINNER:
Brevan Howard Credit Catalysts Master Fund
Performance (September 2010-August 2011): 13.95 percent
Sharpe ratio: 2.51

NOMINEES:
Arrow High YIeld Fund Class A, BlackRock R3 Fund Onshore, BlueMountain Credit Alternatives Fund, Trilogy Financial Partners International

This category also boasted several previous nominees. The BlueMountain fund has been in the running for three consecutive years, including 2009, when it picked up the prize. Arrow High Yield was also nominated in 2010, while the BlackRock and Trilogy funds were in contention for the first time. European powerhouse Brevan Howard was also nominated in 2010, but it picked up its first AR award this time for the $1.8 billion Credit Catalysts fund, which is managed out of the firm's U.S. unit. The two-year-old fund won the category with a return of nearly 14 percent and a strong Sharpe ratio. It was up 16.68 percent in 2009 after launching in August of that year and gained 13.46 percent in 2010. Run by David Warren, the fund focuses on corporate credit, MBS and ABS.

DISTRESSED

WINNER:
Perella Weinberg Partners Asset Based Value
Performance (September 2010-August 2011): 9.99 percent
Sharpe ratio: 5.90

NOMINEES:
Candlewood Special Situations Fund, Cerberus International, GCA Credit Opportunities, Knighthead Master Fund, York Credit Opportunities Fund

Distressed funds overall performed well in 2010 - earning 12.86 percent that year, according to the AR Distressed Index - but had a tougher time in 2011. Perella Weinberg, the winner in this category for its second year in a row, had the highest Sharpe ratio of all the nominees. The fund has found some unique opportunities in distressed transportation investments, including the rail services division of American International Group.

Four-time nominee Cerberus International, which had a higher performance at 13.58 percent but a lower Sharpe at 3.87, has recovered from its high-profile setbacks in Chrysler and GMAC with a new emphasis on smaller, lower-profile distressed companies.

LONG-TERM PERFORMANCE

WINNER:
York Credit Opportunities Fund
Performance: 16.05 percent
Sharpe ratio: 1.54

NOMINEES: 
D.E. Shaw Composite, King Street Capital, Millennium International, NWI Emerging Markets Currency

Survival is no easy feat for a hedge fund these days, but the nominees for the 2011 long-term performance award performed strongly for at least a decade. All of the nominees in this category had been nominated in their respective strategy categories in previous years, and several were past winners.

In 2011, AR considered funds that manage at least $1 billion in assets and measured each fund's performance for a ten-year period. Millennium International was a strong contender, with the top Sharpe ratio in the group and a solid return. King Street Capital also boasted a strong Sharpe and a double-digit gain. But York Credit Opportunities, with a Sharpe ratio within range of its competitors and the highest return in the group, took home the prize.

NEW FUND OF THE YEAR

WINNER:
Candlewood Structured Credit Fund
Performance (September 2010-August 2011): 35.43 percent
Sharpe ratio: 6.95

NOMINEES:
Copia Market Neutral Fund, Marathon Securitized Credit Fund, Pine River Liquid Mortgage Fund, Whitebox Asymmetric Opportunities Fund

The environment for starting new funds is tougher than ever, so it's no surprise that all the funds nominated for this award either launched from well-established firms or were started by managers with solid industry pedigrees. Of the nominees, Marathon, Pine River and Whitebox have been nominated for several strategy awards in the past and have taken home trophies, while Candlewood had also been nominated in the distressed category in 2010.

To be considered for this award, funds had to have been launched in the past 18 months and met a threshold of $100 million. New York-based Marathon boasted the second-highest return with its Marathon Securitized Credit Fund, which launched in February. But Candlewood Structured Credit - managed by the Candlewood Investment Group, which spun out of Credit Suisse's asset management division in the fall of 2010 - had both the top Sharpe and the highest return by several percentage points, making it the clear winner.

MANAGEMENT FIRM OF THE YEAR

WINNER:
Bridgewater Associates
Founder: Ray Dalio
Hedge fund assets as of July 2011: $70.3 billion

NOMINEES:
BlackRock, Pine River Capital Management, York Capital Management

To qualify for this award, which was introduced in 2007 to honor the firm that has performed best across a range of strategies, groups had to run at least three funds with combined assets of at least $3 billion. Nominees were determined using the following criteria: weighted average returns, weighted average Sharpe ratios and asset growth over the year. Each of the firm's results were then calculated using a points-scoring system.

The firms nominated in 2011 each won AR awards in the past, and BlackRock, Pine River and York have all demonstrated significant asset growth and delivered strong risk-adjusted returns to their investors. But ultimately, with its impressive asset growth and outstanding risk-adjusted performance, Bridgewater Associates won the category for the second year in a row.

FUND OF THE YEAR 

WINNER:
Renaissance Institutional Equities Fund
Performance (September 2010-August 2011): 38.80 percent
Sharpe ratio: 3.77

NOMINEES:
Bridgewater Pure Alpha, JAT Capital, SPM Directional Mortgage Prepay Master Fund, Tiger Global

For this award, AR determined the nominees and winner by looking not only at the winners of the various industry categories, but also at funds that had achieved outstanding performance but narrowly missed winning in their peer group by falling slightly short of the Sharpe ratio or return criteria.

Several strong contenders emerged, with three of the nominees also winning awards in their respective categories. But Renaissance Technologies, which was a strong second-place finisher in the quantitative equity category, took home the trophy for generating an outstanding risk-adjusted return. The fund continued to deliver strong results to its investors in 2011, a notable distinction in a year when many hedge funds disappointed their investors.

After losing money for three straight years, RIEF hit its stride in 2010, returning 16.5 percent that year. Renaissance founder James Simons officially retired from the firm in 2010, leaving Peter Brown and Robert Mercer in charge as co-CEOs.