Investor ‘loss of faith’ causes Thames River listed hedge fund closure

The decision by Thames River to close its £54m Multi Hedge listed fund and return the cash to shareholders next month is part of a long-term demise in faith by investors in the listed alternative fund sector, analysts say.

Thames River said shareholders have sanctioned an EGM for the fund, run by fund of funds veteran Ken Kinsey-Quick, on September 11 to wind it down, following a year of underperformance in 2011 which has pushed the fund to a discount of 12%.

The Guernsey-listed fund of funds invests across a range of directional and non-directional hedge fund managers, but principally in equity long/short funds, as well as multi-strategy and credit hedge funds.

“The board of the company outlined proposals for a managed wind-down, which if approved by shareholders, will lead to realising the company’s investments and returning the cash to shareholders over time,” said a spokesperson for Thames River.

Thames River’s decision extends a long line of closures of listed hedge funds.

Cazenove Absolute Return is putting forward its own winding-up proposals, as is Absolute Return Trust.

Investors have been disappointed managers have been unable to narrow share price discounts to NAV to any extent since July 2009, shortly after the end of the global financial crisis.

The average discount on listed hedge funds is over 10%, according to recent analysis by investment bank Jefferies. By 31 July, shares of 11 of the 23 listed hedge funds left have fallen this year, and only four rose by 5% or more.

Volatile equity markets have contributed to a wide dispersion in share price performance this year, Jefferies said.

Even the listed BH Macro fund, from hedge fund giant Brevan Howard, has seen its shares fall by 7.1%, although Jefferies said this is “overdone compared to an NAV [decline] of 1.3% this year to 20 July.

“Overall, we believe the market has not sufficiently rewarded funds for good NAV performance this year, meaning that discounts to NAV have typically widened in response to investor risk aversion,” the bank’s analysts said.

Its funds team highlighted CQS Diversified, BlueCrest AllBlue and BH Global – all ‘internal funds of funds’ – as quality portfolios trading at
historically wide discounts. 

Simon Elliot, an analyst at broker Winterflood, said the sector faces a demise in popularity.

“At its height, at the end of August 2008, the listed fund of hedge funds sub-sector had almost £5bn in assets under management, but this has fallen to just £1.8bn now, and £0.5bn of that is managed by funds which are either in wind-down or have proposals in place to move into wind-down.

“Shareholders lost faith in the sub-sector after the credit crunch when funds offering either ‘absolute returns’ or ‘uncorrelated returns’ failed to do so.”

Last year Thames River also closed Kinsey-Quick’s Absolute Return fund. He still runs four other multi-manager hedge fund mandates alongside the Multi Hedge fund.


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