The closure of Jack Meyer’s Convexity Capital Management marks the third hedge fund founded by a Harvard Management Company alum to close down their hedge fund firm in less than a year — and adds to the list of hedge fund luminaries who have given up on the business.
As Institutional Investor reported on Friday, Convexity informed investors that it is returning their capital, citing unfavorable market conditions. Convexity launched to great fanfare in 2005, given Meyer’s highly successful run as the chief executive of the Harvard Management Company. The endowment produced annualized returns of 16.1 percent during his tenure.
But years of underwhelming performance took a toll on Convexity, with assets falling from $14 billion at the end of 2014 to $4.3 billion just two years later. As of year-end the firm had a tad less than $2 billion in regulatory assets, an inflated figure that includes leverage, according to a Securities and Exchange Commission filing.
Meyer is not alone in the move. Last October Institutional Investor reported that Highfields Capital Management, headed by Jonathon Jacobson, told investors it is returning all of its capital and converting to a family office.
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Also that month, the Wall Street Journal reported that Frontlight Capital was planning to shut down. It was founded by Edward DeNoble, who previously worked at Convexity and HMC.
Meyer and Jacobson join a slew of hedge fund luminaries who have closed their doors in recent years, including Leon Cooperman of Omega Advisors, John Griffin of Blue Ridge Capital, Richard Perry of Perry Corp., Eric Mindich of Eton Park Capital Management, and John Burbank of Passport Capital.
Convexity’s closure is especially notable given its much-hyped launch. When Meyer, David Mittelman, and Maurice Samuels debuted their firm, they attracted $6.3 billion, making it the biggest hedge fund launch ever at the time. The firm’s woes go back to about 2012, according to an earlier interview with Meyer.
In July 2013 Institutional Investor reported that Convexity told clients it was closing to new investments until its performance improved, according to its second-quarter letter.
Convexity explained in its annual Form ADV filing with the SEC that it invests in securities, commodities, and other financial instruments and products “with the goal of generating a return approximating the weighted average return of the Benchmarks” specified by its various investors. It uses “any combination of equity and debt securities, futures contracts, options, swap agreements, and other derivatives, commodities, cash equivalents and financial products, whether or not included in any Benchmark, in an effort to achieve a return comparable to that of the weighted average of the Benchmarks.”
When Highfields announced it was shutting down, the long-short firm was managing $12 billion. It had compounded at 10.2 percent since its inception in 1998. But it posted low- to mid-single-digit gains each year from 2014 through 2017 and was down in the low single-digits in 2018 when it decided to close.
“No one feels worse about our lagging performance than I do,” Jacobson stated in the letter announcing the closure and obtained by Institutional Investor at the time.
Jacobson rose to prominence as senior equity portfolio manager for the Harvard Management Company from 1990 to 1998. He was joined later by Richard Grubman and Kenneth Coburn, both of whom retired before Highfields closure announcement.
Little-known Frontlight managed about $280 million when it decided to shut down, according to the Wall Street Journal report. The Frontlight Enhanced Macro Master Fund I lost 5.6 percent in 2017 and was down another 4.17 percent in 2018 through September, according to the Journal, which cited a document it had reviewed.
According to the report, DeNoble was a top trader at Convexity — which he had joined in the firm’s early days — who pushed to take a more macro approach to investing, something Meyer and his co-founders were uncomfortable with.
DeNoble was a vice president and portfolio manager at Harvard Management Company, where he had spent more than 18 years.