May 20, 2006 -- Saranac Capital Management, a hedge fund whose superstar trader boss started the operation with almost $3 billion in client cash, is shutting down. Saranac, launched with great fanfare in December 2004 with a whopping $2.9 billion - much of it from Citigroup - announced that it has begun the process of closing and will seek to return its clients' remaining capital by June 30. Its rapid demise is a glaring reminder that the glitzy hedge fund business is a fickle one in which prestigious backers and a high profile matter little when investors are dissatisfied. Saranac's nine portfolios contain the fund's remaining $600 million of client capital. Even the impressive track record of Saranac founder Ross Margolies, who guided the Salomon Brothers Capital Fund to 18 percent annual returns from 1995 to 2004, couldn't trump the broad-based collapse in Saranac's complicated strategies. As Saranac launched its first trades in the winter of 2005, convertible and equity-arbitrage strategies began a nearly year-long decline. These strategies work best when market uncertainty creates wild swings in stock prices; but last year, market volatility was near historic lows. According to fund investors, its four arbitrage funds declined an average of 5.5 percent last year. Perhaps even more challenging for Saranac, its equity funds started the year with a decline of 11.5 percent - before recovering and closing the year with a loss of 1 percent - which led to additional client withdrawals. Margolies told Bloomberg News that he was closing the fund because the fees generated from managing $600 million were not enough to pay his 45-person staff. Although all his portfolios were now in the black, Margolies said, there was little opportunity to earn the large profits that would attract additional capital. The brief life of Saranac was "a sure sign that the hedge fund market has bottomed out," said a manager of a $2 billion fund-of-funds who closely watches the mysterious corner of Wall Street. "This kind of investing is just too frothy. You are supposed to have a slightly longer time horizon for a fund to pay off." roddy.boyd@nypost.com
It sounds like the fund only only a couple of hundred million at its peak, but everbody just decided to take out their money. I'm very surprised he did not have longer lock-up clauses for the money.
Probably only the beginnig. There's gonna be many more to come and even more that have come and gone that never are heard of. You saw what happened to gold last week, that definitely wasn't all retail. There are A LOT of hedgies out there that are really playing in water that is over their heads. When commodities broker's phones are ringing off the hook and on the other end is a fund that want to put on a position in corn and doesn't know how to, that's a sign. Hedge fund investors can be very fickle and if they want their money, they want it. Most hedge funds don't have their investors locked for any more than two years. There are a lot of them that are only locking for one year. It's another sign of the froth.
what is the difference between a hedge fund manager and a class action lawyer when it comes to be making money for the individual client?
this just shows that the name of your former employer means nothing, but people will continue to judge you based on that.