A Hedge Fund CEO Bragged About Not Taking Management Fees. He Was Right — Sort of.
Amid record volatility, Parplus Partners closes down after losses.
Jim Carney opened Parplus Partners in 2017 to run a volatility strategy designed to protect investors in down markets.
Even more, in a January interview with Institutional Investor Carney spoke of not needing to charge a management fee. “Eat what you kill. That’s what I’ve been doing for 34 years,” the veteran trader said at the time.
But not only did he not protect investors — he didn’t protect himself. And the only thing dead is Parplus Partners.
After suffering losses, Parplus has closed down. The firm’s web site (parpluspartners.com) and presence on LinkedIn has been taken down. According two people familiar with Parplus, the firm is shutting. No one answered Parplus’s two cell phone numbers. A spokeswoman, Michelle Manoff, who has represented Parplus as recently as January, didn’t return calls.
Parplus’s losses were reportedly at the root of $200 million in losses at ABN Amro’s clearing business. According to Risk.net, a risk management and derivatives publication, ABN AMRO’s loss in its clearing business was tied to trades done by Parplus.
Parplus did significant business with Ronin Capital, a proprietary trading firm, which also defaulted on cleared trades.
ABN AMRO announced on March 26th that its clearing division would take a $200 million loss after a U.S. client, which it didn’t name, couldn’t make a margin call. The clearing arm settles trades between buyers and sellers.
Parplus started taking in outside capital in the summer of 2019. Carney was outspoken in declaring that he would never take a management fee and would instead only take a performance fee when he beat the Standard & Poor’s 500 stock index.
“Most of my career I’ve been a proprietary trader and I’ve only been paid for what I make,” Carney said at the time. Other hedge funds should follow suit, he believed.
Carney was confident that his volatility model would work, given the sheer size of the opportunity in volatility trading for asset managers like Parplus since banks had left the market in the past decade.
A number of volatility managers have heard that Parplus has shuttered. “It’s not surprising that some people’s risk mitigation strategies didn’t include the kind of sustained volatility we’ve had,” said one.
Parplus isn’t the only firm to close. Malachite Capital Management, with about $600 million in assets, has said it is closing down its funds following losses.
“I wanted to be a clear alternative to indexing,” Carney had said in January, adding, “Investors don’t want to pay for beta.”
Right now, market beta actually seems a favorable alternative to the ultimate fate of Parplus.