Absolute Return Awards 2007
Venue: 583 Park Avenue
Location: New York
Dates: Tuesday, 04 December 2007
Tuesday, 04 December 2007
The Absolute Return Awards identified the best performing US hedge funds based on risk-adjusted returns. A turbulent 2007 provided opportunity for hedge fund firms Paulson & Co., Citadel Investment Group and Passport Capital, which took top honors in the third annual Absolute Return Awards competition.
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Paulson leads the class of 2007
Passport and Citadel among other big winners for the year
By Meena Divani
A turbulent 2007 provided opportunity for hedge fund firms Paulson & Co., Citadel Investment Group and Passport Capital, which took top honors in the third annual Absolute Return Awards competition.
John Paulson, whose Paulson & Co. has jumped to $28 billion in assets with huge returns, capped a remarkable year with five nominations and an unprecedented three awards, including the important new award for Management Firm of the Year.
Citadel's Ken Griffin also took top honors for another new award – the Long Term Performance Award – based on the past 10 years' returns. The firm's Kensington Global Strategies had a stellar performance and a Sharpe ratio over that long period unmatched by even a strong set of nominees.
This year's Fund of the Year Award went to Passport Global Strategy, run by John Burbank, Jim Cunningham and Walther Lovato. For the Passport team, the award recognized an outstanding year – up 241.38% over the 12-month period, with assets rising to more than $2.3 billion on a Sharpe ratio of 2.91.
Some of the other well-known firms that walked away with awards included Eton Park Capital Management in the multistrategy category, Moore Capital Management in high-yield and emerging market debt, Zweig-DiMenna in U.S. equity and Everest Capital in global macro.
Newer names that took home awards this year included HG Green, managed by Brazil's Hedging-Griffo group, which won the Emerging Market Equity Award, the first time an award has been won by a Latin American manager. Nominations for ARX Long Short and Tarpon All Equities in the New Fund of the Year category also highlighted the strength of emerging market managers this year.
Continuing strong performance over recent years led several winners from 2006 to be nominated again, including Highland Capital Management in Dallas, Texas. The Highland Crusader Fund took last year's New Fund of the Year award, and the firm has since doubled its assets. But despite a strong year all around, Highland narrowly missed out in several categories, including Management Firm of the Year as well as the Distressed Securities and the High-Yield & Emerging Market Debt Awards.
The quality of candidates was so strong this year that even funds with excellent returns, such as TPG-Axon Capital and Pequot Core Global Strategy, missed out on nominations in the Multistrategy and Global Equity categories because they narrowly failed to reach the 25% range required on top Sharpe ratios.
As usual, the methodology to select the final nominees and winners was entirely quantitative. To be considered, funds first had to have at least $500 million in assets. Qualifying funds had the highest returns and Sharpe ratios, with the winner having the highest return and a Sharpe within 25% of the best qualifying ratio.
Three award categories allowed for exceptions to this methodology. For the Small-Cap Equity Award, won by the Whitebox Intermarket fund, the minimum was set at a lower $250 million, since these funds often must be capped at a smaller size. For the New Fund of the Year Award, the minimum was $100 million. Relative outperformance was also considered for new funds because of their varying inception dates and strategies. Paulson Credit Opportunities II walked away with this award despite strong competition from Kyle Bass and Mark Hart's Subprime Credit Strategies.
To qualify for the Management Firm of the Year Award, contenders needed to run assets of at least $5 billion and have at least three different strategies. Firms were then ranked by a scoring system measuring their average returns and Sharpe ratios against the Absolute Return medians (weighted by assets per strategy) as well as growth measured by the Absolute Return Billion Dollar Club.
The Fund of the Year Award was also, once again, calculated somewhat differently. We considered not only funds that won individual categories, but also funds with outstanding performance that missed out on awards in their original categories.
The nominees and winners – 2007
Nominees: Bay Resource Partners, Clovis Capital Partners, Glenview Capital Partners, Kinetics, Pershing Square, SAB Overseas, Zweig-DiMenna International
||Joseph DiMenna (left) and Martin Zweig's Zweig-DiMenna International was this year's clear winner of the U.S. Equity Award|
Many funds outperformed the median, and several funds also posted strong Sharpes. Bay Resource Partners secured a place on the short list for the third consecutive year, and last year's winner, Pershing Square, received its second successive nomination.
Most of those that made the final list were evenly matched on returns, with Kinetics and Pershing Square posting particularly strong performance. However, Joseph DiMenna and Martin Zweig's Zweig-DiMenna International – with a stellar Sharpe and easily the most outstanding performance – was untouchable in the race and was this year's clear winner.
Winner: Zweig-DiMenna International
Nominees: Highside Capital, Lone Cedar, Maverick, Passport Global Strategy, Shumway Capital Partners Ocean Fund, Viking Global Equities III
After winning for two consecutive years, Arnhold and S. Bleichroeder Advisors Sofire Fund narrowly failed to make the short list this time, which opened the award to other names.
The highest Sharpe for the period was set by Chris Shumway's SCP Ocean Fund, and Passport Global Strategy had the highest performance.
Unfortunately, Passport fell short of the 25% Sharpe range. Only one contender fell within range of Shumway's ratio and had a stronger return over the period – Dallas-based Highside Capital, which thus walked away with the award for 2007.
Winner: Highside Capital
EQUITY SECTOR FUNDS
Nominees: Coatue Offshore, Dorset Energy, Galleon Technology, FrontPoint Financial Services, FrontPoint Utility & Energy
We decided this year to broaden last year's award for technology funds to include the performance of equity funds investing across the whole range of concentrated sectors in the equity markets.
The FrontPoint group did particularly well in this category, with two of its funds – the Utility & Energy fund and its Financial Services fund – reaching the short list.
As there is no Absolute Return Index for this category, to win the award a fund must not only have one of the highest Sharpe ratios but must also beat the median return of those funds qualifying for the category. Unfortunately for FrontPoint, this meant that its Utility & Energy fund, which had the highest Sharpe among the group, missed out by just failing to beat this median return.
Among the funds above the median return, the next highest Sharpe was set by last year's winner, Raj Rajaratnam's Galleon Technology Fund. Both FrontPoint Financial Services and Philippe Laffont's Coatue Offshore, however, came within the 25% Sharpe range and had higher returns. Since the $1.7 billion Coatue fund had the best return, it took the award this year.
Winner: Coatue Offshore
Nominees: CCM Small Cap Value, Fairfield Redstone, Whitebox Intermarket, YA Global Investments
Small-cap equity, which aims to put the spotlight on slightly smaller funds that focus on the sector, was one of three new categories this year. This award was closely contested in the run-up to October. Ultimately, the highest Sharpe – by a wide margin – was posted by YA Global investments.
As with the Equity Sector Award, no Absolute Return Index for small-cap players exists, so the benchmark was the median for the qualifying funds. And since the YA Global fund was below the median, it was unable to take the award this year, which opened up the race to the other contenders.
Finishing within the qualifying range of Fairfield Redstone's top Sharpe, Jason Cross's and Gary Kohler's Whitebox Intermarket Fund won the award with the highest performance in the group.
Winner: Whitebox Intermarket
EMERGING MARKET EQUITY
Nominees: Everest Emerging Markets, HG Green, Tiedemann Global Emerging Markets
For this award, three funds posted returns well ahead of the field. Thus the short list was our shortest for any category this year.
Also, this was the first time a Brazilian based fund made it into the running. The HG Green Fund, managed by Hedging-Griffo's Luis Stuhlberger, demonstrated the skills of emerging-market managers based in Latin America and posted both a strong return and the highest Sharpe of the group.
Although the Everest Capital fund posted a slightly higher return, it and the Tiedemann fund were ultimately out of range on Sharpe to challenge HG Green. That made HG Green 2007's clear winner.
Winner: HG Green
ARBITRAGE & CONVERTIBLES
Nominees: Laurus Offshore, Paulson Enhanced, Whitebox Convertible Arbitrage, York Lion Fund
||The Paulson Enhanced fund, led by John Paulson (left), wins the Arbitrage & Convertibles Award|
In yet another year when convertible strategies generally struggled, those who made the right plays during the February and August downturns were able to produce the most respectable risk-adjusted returns.
Both Laurus Offshore and Paulson Enhanced made the final short list for a second year running, and Whitebox Convertible Arbitrage not only finished with the highest Sharpe but also completed the rolling 12 months with a return of more than 18%.
However, with both astonishingly huge returns and an impressive Sharpe, Paulson Enhanced emerged as the easy winner.
Winner: Paulson Enhanced
Nominees: Amber Master Fund, Atticus Global, King Street Capital, Owl Creek Overseas, Paulson Partners, York Investment
Featuring some of the best players in the business, this category was sure to be hotly contested. Making it onto the short list for the third successive time was last year's winner, Joseph Oughourlian's Amber Fund, along with several other industry heavyweights.
An obvious strong contender was the Paulson Partners fund, which posted the highest return in the group. But Jeffery Altman's Owl Creek Overseas also made the short list.
Initially, it looked as though Paulson would have a straightforward win, but its Sharpe ratio ultimately fell a little short of the required 25% range. That meant the $1.5 billion Owl Creek Overseas fund, posting strong returns and a Sharpe untouchable by the rest of the nominees, secured this year's award.
Winner: Owl Creek Overseas
Nominees: Bear Stearns Emerging Market Macro, Blenheim Capital, Everest Global Capital, Moore Global, Traxis Offshore, Wexford Spectrum
Three funds from last year's short list were able to secure nominations again, including 2006 winner Blenheim Capital. All maintained strong performance and solid Sharpe ratios in 2007.
Barton Biggs' Traxis Offshore fund posted the highest Sharpe of the group, and both Wexford Spectrum and Everest Capital Global came within range.
But the fund within range on Sharpe that beat Wexford's return – with comfortably the highest performance over the 12-month period – was Marko Dimitrijevic's Everest Capital Global, which thus took the Global Macro Award.
Winner: Everest Capital Global
Nominees: Atlas Global, Carlson Capital Double Black Diamond, Eton Park Offshore, Fir Tree Value, Kensington Global Strategies, QVT Overseas
Many of the industry's elite were in contention for the big Multistrategy Award, making it one of the year's mostly fiercely contested categories.
||Eric Mindich's Eton Park edged ahead as the eventual winner of the Multistrategy Award|
Some of the industry's biggest names narrowly missed the final short list. Among them were Perry Partners International, Basso Multistrategy and particularly TPG-Axon Capital, whose performance was among the highest in the group but was ultimately a little too short on Sharpe to make the final cut.
The final nominees produced outstanding Sharpe ratios, with New York's Fir Tree Value leading the pack. Coming within the 25% range was last year's winner, Carlson Capital Double Black Diamond, as well as Citadel's Kensington Global Strategies and Eric Mindich's Eton Park Offshore.
In what proved to be an incredibly close finish, only a few basis points separated Kensington and Eton Park – with Eton Park edging ahead as the eventual winner.
Winner: Eton Park Offshore
Nominees: Anglian Commodities, FX Concepts Multi-Strategy, Graham Global – K4 Portfolio, Quantitative Global Program
In another turbulent year for managed futures, only a handful of managers made double-digit returns. Such big names as Grossman Currency, Campbell Global Assets and Chesapeake Diversified Program failed to make the final list this time.
Graham Global's K4 Portfolio did extremely well, posting the group's highest return. But it did not come within the 25% range of Quantitative Global Program's top Sharpe ratio. Quantitative Global missed out last year, being just shy of the size required. But it has since grown to a bit more than $1.5 billion, and it walked away with the award this time.
Winner: Quantitative Global Program
FIXED-INCOME & MORTGAGE-BACKED SECURITIES
Nominees: BlackRock Obsidian, Caspian MBS, III Relative Value Credit Strategies, JWM Relative Value Opportunity II, Moore Global Fixed Income, Sorin Fund
One of the year's less volatile strategies created a large group of qualifying funds, with many big names making the short list.
By Sharpe ratio, III Relative Value Credit Strategies led the group, and all came close in terms of performance.
Three funds finished with an annualized return of more than 20% for the period, including BlackRock Obsidian and Moore Global Fixed Income. But only one also came within range of the top Sharpe. That was was the eventual winner, New York's Sorin Fund, managed by Jim Higgins.
Winner: Sorin Fund
HIGH YIELD & EMERGING MARKET DEBT
Nominees: BlackRock Galaxite, Gramercy Emerging Markets, Highland Credit Opportunities, Moore Emerging Markets, Paulson Credit Opportunities, Quantek Opportunity Fund, Whitebox Hedged High Yield
Following the subprime mortgage crisis and the ensuing credit crunch, credit and debt portfolios saw plenty of action this year. While some suffered heavy losses, those with the foresight to short subprime did remarkably well.
Foremost was Paulson Credit Opportunities, whose short positions led it to finish the 12-month period with a stellar return. However, the Paulson fund was also highly volatile, which means it struggled to stay within range of the top Sharpe.
Gramercy Emerging Markets and the Quantek Opportunity Fund finished with the strongest Sharpes among the nominees. But there was no dedicated Absolute Return index for this mixed category so, to win, a fund also had to beat the median of the qualifying group, which both these funds failed to do.
The highest Sharpe among the funds above the median was achieved by Whitebox Hedged High Yield. The only other funds within a 25% range of this were Moore Emerging Markets and BlackRock Galaxite. In its strongest year since inception and finishing just within range, Moore walked away as the winner.
Winner: Moore Emerging Markets
Nominees: Harbinger Capital Partners, Highland Crusader, Longacre International, Ramius Carpahtia Overseas, Schultze Partners
A separate award was created this year for funds investing primarily in distressed securities. In what was a relatively quiet year in the distressed arena, the front runners on the short list all achieved solid performance.
Both Schultze Partners and Highland Crusader returned more than 20% for the 12 months. But $8.5 billion Harbinger Capital Partners Offshore fund, managed by Philip Falcone, easily posted the best Sharpe as well as the top performance. So Harbinger was the clear winner of our first Distressed Securities Award.
Winner: Harbinger Capital Partners Offshore
NEW FUND OF THE YEAR
Nominees: ARX Long Short, Paulson Credit Opportunities II, Rogge Capital Partners Offshore, Subprime Credit Strategies, Tarpon All Equities
All funds launched since May 2006, with at least $100 million in assets, were eligible for this award.
As hedge funds took off in Latin America, two nominations went to Brazilian funds: ARX Long Short and Tarpon All Equities.
But the race came down to a close contest between Paulson Credit Opportunities II, always likely to be a strong contender, and a strong challenge by Subprime Credit Strategies, a joint-venture fund run by Hayman Capital's Kyle Bass and Corriente Advisors' Mark Hart.
With the strongest performance of the two, Paulson Credit Opportunities took home the New Fund of the Year Award.
Winner: Paulson Credit Opportunities II
Nominees: Caxton Global, Highbridge Capital, Kensington Global Strategies, King Street, Millennium USA, OZ Overseas, Perry Partners International
The new Long-Term Performance Award, intended to highlight funds with consistently good returns over a longer span, is another important addition to this year's lineup.
||Ken Griffin's Kensington Global Strategies was the clear winner of the long-term performance award|
To determine a winner, funds with a track record of at least 10 years were ranked by their Sharpe ratios for the entire period. Unsurprisingly, the short list was heavily weighted with multistrategy funds and included many of the industry's oldest and best-known names.
Strong performance was rung up by Bruce Kovner's Caxton Global as well as Izzy Englander's Millennium USA. But Ken Griffin's Kensington Global Strategies, with the top Sharpe ratio and a tremendous annualized return that no other fund could match, was the clear winner of this award.
Winner: Kensington Global Strategies
MANAGEMENT FIRM OF THE YEAR
Nominees: BlackRock, FrontPoint Partners, Highland Capital, Highbridge Capital Management, Moore Capital, Paulson & Co.
This year, we also introduced a Management Firm of the Year category to the Absolute Return Awards. Whether or not a firm has nominees or winning funds in particular categories, the award recognizes exceptional performance for a firm across its whole range of funds and strategies.
To identify contenders and the eventual winner, we applied the quantitative method used successfully over several years by our sister publication, EuroHedge. To qualify for nomination, a group needed minimum assets of $5 billion or more and at least three different strategies. We then focused on average Sharpe ratios (weighted by assets), average performance versus the Absolute Return indices (again weighted) and growth of firm assets (by absolute amounts and in percentage terms, taken from the biannual Absolute Return Billion Dollar Club). Firms were then rated by a scoring system under each criterion to determine the overall winner.
With two funds nominated each, BlackRock, FrontPoint and Highland all presented a strong case for the award – with FrontPoint's excellent risk-adjusted returns giving it the highest average Sharpe on the short list, and Highland coming out second overall on our scoring system.
Moore Capital had three of its funds on short lists for this year's awards, highlighting the strength and depth of Louis Bacon's investment team. And Highbridge Capital, with phenomenal growth since it was purchased by JPMorgan, was also in contention.
Paulson, however, emerged with no less than four nominations for individual funds, plus phenomenal growth and unparalleled returns following its hugely successful shorts on the subprime market, without doubt the most successful trades of the year.
By our scoring system, the race was tighter than expected. But one firm achieved both the fastest rate of growth and outperformed the medians by the widest margins, pushing it ahead of the others. Paulson & Co., headed by John Paulson, was the clear inaugural winner of this award.
Winner: Paulson & Co.
Founder: John Paulson
FUND OF THE YEAR
Nominees: Coatue Offshore, Harbinger Capital Partners Offshore, Highside Capital, Passport Global Strategy, Paulson Credit Opportunities, Zweig-DiMenna International
This award relies less on pure Sharpe ratios and focuses instead on outperformance in relation to relevant peer groups. The approach opened up the race not only to funds that had won in various categories but also to funds with exceptional returns that narrowly missed out on other awards due to Sharpe ratios that failed to qualify by narrow margins.
Nonetheless, four of the funds ultimately nominated – from Coatue, Harbinger, Highside and Zweig-DiMenna – had won in their categories.
||The Fund of the Year Award went to Passport Global Strategy, run by John Burbank (left), Jim Cunningham and Walther Lovato|
Joining them on the final list was Paulson Credit Opportunities, which had huge returns but narrowly missed taking the High-Yield and Emerging Market Debt Award because its Sharpe was out of range.
The same was the case for Passport Global Strategy, which racked up by far the best performance in its global equity peer group, with contributions from winning bets in India's consumer sector, in basic materials and on the subprime meltdown. Despite a strong Sharpe, it too just missed out on winning its category.
In the end, the award came down to a close call between Paulson and Passport. On three criteria – a stronger Sharpe, the greatest outperformance in its strategy area and a much longer track record – Passport Global Strategy took the award.
Winner: Passport Global Strategy