Famous London Hedge Fund Closes Down

by Carla Johnson, Investors Offshore, London

22 July 2002

While hedge funds continue to breed like rabbits in Europe, with the total number of funds up by 60% in the last two years to more than 500 (still just a fraction of the global total of more than 6,000), some do occasionally close down, and difficult investment conditions may lead to consolidation among existing funds in the months to come, say industry figures.

Last week saw the closure of long-established Bayard Partners Ltd, which said on Tuesday it withdrew from active hedge-fund management and is changing the fund's investment strategy to a "passive, low-risk investment in liquid bonds and cash instruments." Bayard said the "markets are a toxic mixture of overvaluation, unrealistic expectations and sentiment driven volatility."

Bayard says that when it opened its hedge fund 10 years ago, the risk/reward profile of a European long/short strategy looked very attractive but that this was no longer the case.

In 1998 Bayard Partners's fund, said to be in excess of US$750m, rose an amazing 86.3%, but lately it has suffered losses. Bayard's statement said the fund has returned 15.64% annually, net of fees, since inception in 1992.

Jacob Schmidt, director of hedge-fund research at Allenbridge Hedgeinfo in London, told the Wall Street Journal that too many new funds had entered the market recently. "We are going to see some consolidation in the hedge-fund industry in the next year," says Mr. Schmidt. "Some of the small successful fund mangers will be taken over by larger fund managers, and the unsuccessful ones will shut down. Many good fund managers are finding out they can't manage money and run the business at the same time."

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