LONDON (Reuters) - Hedge fund firm Polar Capital (POLR.L) does not foresee another wave of redemptions by clients and some have even begun to invest fresh funds, its chief executive Mark Kary told Reuters on Monday. Speaking at the Reuters Hedge Funds and Private Equity Summit in London, Kary also said he believes assets in the hedge fund industry had probably fallen below $1 trillion but were now beginning to stabilize.
“Things have definitely quietened down ... we don’t see any further building of redemptions in the pipeline,” Kary said.
“At the margin you’ve seen the inflows starting, but they start very quietly, very quietly. It’ll take a while for confidence to get restored.”
His comments come after an extremely tough period for the $1.4 trillion industry, which saw $150 billion of outflows in the fourth quarter after its worst performance year on record.
Total assets at Polar, which also runs traditional funds, fell 22 percent in the nine months to December and it said it expected $500 million of redemptions in the first quarter.
Kary also said he hopes some of the near-$400 million outflows expected when Polar shuts its Paragon hedge fund would be invested in other Polar hedge funds. Paragon’s closure follows the resignation of fund manager Julian Barnett, whose departure for personal reasons was announced in January.
“We would hope that a sensible percentage of people’s investment holdings in that fund rotate into other Polar funds. Particularly in this environment people need to be seen to be doing the work, so I think there will be a lag,” he said.
“The initial outflow will be $370 million or $380 million but I’d like to think within the next quarter some of that will flow back.”
Kary also said there was a “perfectly valid argument” for Polar, which according to analysts has around 42 million pounds of cash on its balance at end-March, buying back its shares.
“The stock certainly reflects a valuation at a significant discount to that cash ... we could quite happily buy our stock.”
Kary also said assets in the industry were unlikely to dwindle much more from here.
”If it hasn’t bottomed already it’s in the process of making a bottom,“ he said. ”I suspect we’re below $1 trillion already. I see no reason why it needs to go much lower from here.
“Europe seems to have more or less subsided already, things have calmed down ... The States ... have really got hit very hard by what’s going on in real estate and private equity.”
However, he said the industry had grown too large during the boom years, fueled by cheap borrowing and hedge funds becoming ”a bit of a fashion item.“ ”The idea that you can have 10,000 hedge funds all with a short book, all with a long book, all risk managing and all doing it supremely well is ... absolute nonsense. It’s a skill set that only a very small number of people can execute properly.
“This went from a $400 billion business to a $3 trillion business in the space of seven years and I just don’t think there’s enough talent around to be able to do that.”