Lansdowne Partners, one of Europe’s oldest and best-known hedge fund managers, is planning to shut its flagship hedge fund after a long period of poor performance.
The Mayfair-based firm, once regarded as the gold standard of equity investing, will close its $2.8bn Developed Markets fund run by Peter Davies and Jonathon Regis because it has become harder to find attractive bets against overpriced companies, according to a person familiar with the plans.
“It is much harder to see opportunities in the short book, either in terms of generating specific value or as a hedging offset to the long investments,” Lansdowne said in a letter to investors. The firm declined to comment beyond the letter.
The Developed Markets strategy, which managed more than $12bn in assets five years ago, is known for a well-timed bet against Northern Rock during the financial crisis and some large gains in the period that followed.
However, performance has lagged in recent years. The fund lost 23 per cent during the first six months of 2020, as its long positions in airline stocks were hard hit by the coronavirus pandemic.
The Financial Times reported last year that the fund’s short bets had not beaten the market in aggregate since 2008, reflecting how some managers had struggled to make money from their short positions amid an environment of central bank easing that had pushed asset prices higher.
Lansdowne’s Developed Market fund was also hit by bullish bets on UK stocks, having bet the UK economy was “structurally in a very good position”. Meanwhile, it has been negative on US equities, which have on average fared better than European stocks this year. Hedge funds on average are down 1.1 per cent in the first six months of this year, according to data group Hedge Fund Research.
The fund gained only about 1 per cent in last year’s bull market, and suffered losses in two of the three previous years, according to investors. It underestimated the impact of Brexit on UK stocks, for instance on a long-held position in Lloyds Banking Group. The bank’s share price has also been weighed down by low interest rates and the cost of a payment protection mis-selling scandal.
Lansdowne’s publicity-shy managers Mr Davies and Mr Regis have become very positive on the outlook for betting on rising stock prices, and believe excessive short-term reactions to coronavirus by investors have created large valuation opportunities, the person said.
The closure of the Developed Markets fund was first reported by Institutional Investor. Clients will be able to pull their cash out, or invest in either an existing long-only version of the strategy or a new fund called LDM Opportunities that Lansdowne is launching to invest in early-stage companies.
Lansdowne was founded in 1998 by Steven Heinz and Paul Ruddock.
Additional reporting by Paul Murphy in London
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