Credit Suisse expects to take a $450m hit after York Capital Management, the US alternative investment group in which it owns a stake, said it would wind down its European hedge fund business.
The move by York, one of the hedge fund industry’s oldest names and for years one of its biggest players, comes after lacklustre returns in some of its strategies and a fall in assets. It marks the latest high-profile hedge fund firm to scale back its operations.
York told investors in a letter on Monday that it planned to focus on longer-duration assets such as private equity, private debt and collateralised loan obligations, where it has been raising money and where it manages around $8.5bn in assets. It said it would exit its European hedge fund strategies. The firm’s New York-based flagship fund will continue but will primarily run internal money. The move will mean York shuts down about $3bn of funds.
Co-managing partner and co-chief investment officer Christophe Aurand, who is based in New York and has been at York for about 20 years, is to leave at the end of the year, according to the letter. Partner Fraser Maingay, who focuses on European stocks, will also exit.
The restructuring at York is the latest in a series of setbacks for Credit Suisse this year after it was caught up in scandals at Luckin Coffee and Wirecard, having worked on deals for both. The Swiss bank also launched an internal review over its supply chain finance funds linked to SoftBank and Greensill Capital.
York was launched in New York in 1991 by Jamie Dinan and set up an office in London in 2000. The firm grew to roughly $16bn in assets before the financial crisis, then suffered double-digit losses during 2008’s market turmoil that knocked its assets.
It made gains in the years after the crisis, including a return of about 14 per cent in 2012, and grew assets to a peak of approximately $26bn about five years ago, according to a person familiar with the situation.
Credit Suisse first invested in York in 2010 through its asset management arm, part of the bank’s international wealth management business. It paid $425m for a 30 per cent stake in the business and offered its funds to the bank’s clients.
However, like many of its peers trading “special situations” such as mergers, acquisitions and restructurings, York has found markets harder going in recent years. Profiting from trading corporate M&A has become tougher because of increased competition. This year its main fund has lost about 6 per cent, said people familiar with its performance, while its European fund is down about 9 per cent. York declined to comment.
York also plans to spin out its Asia-Pacific business, which is led by Masa Yamaguchi and which manages $2.7bn, next year as a separate business, in which Credit Suisse will remain an investor. Its Asian Opportunities fund is up 17.8 per cent this year, having gained 28.7 per cent last year, according to the investor letter.
The restructuring comes as a number of high-profile hedge funds struggle during 2020’s market gyrations.
Hedge funds on average are up 1.2 per cent this year to October, according to data group HFR, although when weighted by assets funds are down 4.3 per cent. Managers on average lost money in 2015 and 2018, and investors have been pulling money out of the sector over the past three years.
This year billionaire investor John Paulson shut his hedge fund to external investors, while veteran macro investor Louis Bacon has returned outside capital. London-based Lansdowne Partners has also closed its flagship $2.8bn hedge fund.
York’s focus on private equity and debt and move away from hedge funds reflects a shift in investor appetite in recent years towards private markets, where many large institutions believe there are better returns to be had.
“I continue to believe that attractive opportunities exist in today’s environment across opportunistic, stressed and distressed investments,” wrote Mr Dinan in the letter.
York’s assets make up under 1 per cent of the SFr438bn ($477bn) of assets under management in Credit Suisse’s investment division.
The bank said the impairment, which will be booked in the fourth quarter, would not affect its plans for dividends and capital distribution in 2020 and 2021. Its shareholders are expected to vote in favour of it paying the second instalment of its 2019 dividend at a meeting on Friday, following in the footsteps of rival UBS last week.
Get alerts on Credit Suisse Group AG when a new story is published