Caxton Associates, one of the world’s oldest and best-known hedge funds, plans to shut its flagship fund to new money after a record year of gains during the coronavirus crisis.
The London-based firm, founded by legendary US billionaire Bruce Kovner in 1983 and now headed by Andrew Law, has gained about 40 per cent in its flagship Global fund this year, taking its assets under management to $4.9bn, according to numbers sent to investors and seen by the Financial Times.
The move shows that while some hedge funds are enjoying standout years thanks to shrewd bets during this year’s market turmoil, investors wanting to place their money in these top-performing funds could soon struggle to find capacity.
Caxton, a macro hedge fund that bets on bonds, currencies and stocks, is one of a number of funds to have made large gains this year from a dash higher in bond prices, as investors clamoured for safe assets and central banks launched rate cuts and debt-buying operations to fight the economic damage from coronavirus.
It has also profited from trading gold and betting on a weaker dollar, as well as from trades in stocks based on their environmental and social sustainability.
In a letter to investors this month, and seen by the FT, Mr Law wrote that the firm had decided to cap the size of its Global fund just above its level at the end of October. Because the fund has “a strong pipeline” of investors wanting to get in, the fund was likely to close to new money over the coming months, he said in the letter.
The Global fund’s 39.6 per cent gain this year to the end of last week is its highest since the Global share class was launched in the mid-1990s, surpassing its 31.5 per cent return in 2001. Caxton Macro, a separate, smaller fund run by Mr Law, has gained 55 per cent this year.
While shutting to new investors limits the amount of management fees a hedge fund firm can earn, the move is favoured by some managers keen to avoid their funds becoming too unwieldy, which they fear could hit performance. Steve Cohen’s Point72, for instance, reportedly told investors earlier this year it was shutting to new money.
Caxton’s move comes towards the end of what has been a strong year for many hedge funds, despite huge market volatility. Funds on average are up 7.3 per cent to the end of November, according to data group HFR, although a number of managers have also suffered painful losses.
Some funds’ returns are attracting the attention again of big investors, many of which pulled money out of hedge funds in recent years in favour of private equity and private debt. One investor described interest from US pension funds in macro funds as being “off the charts”.
However, some industry insiders believe these investors could increasingly struggle to find attractive funds to put their money in as managers restrict capacity.
“The challenge for many investors will be capacity and access as the best in the industry remain hard closed to most investors across the world,” said Michael Rosenthal, chief investment officer at private investment office Signia Wealth.