Emerging Markets Fund to Return $1.3 Billion After 17 Years

(Bloomberg) -- Hedge fund Emerging Sovereign Group is returning money to investors after almost two decades. Its founders plan to make bigger and riskier bets trading their own capital.

ESG, which focused on emerging markets and was backed by billionaire Julian Robertson, will return $1.3 billion to clients, according to a letter viewed by Bloomberg. Investors will get their money back by the end of the month, a person with knowledge of the firm’s plans said. Most of the assets were from clients who had their money locked up for five years. Thomas Dwan, president of ESG, declined to comment.

Kevin Kenny, Mete Tuncel and Jason Kirschner founded their New York-based hedge fund in 2002 with an investment from Robertson and then sold a majority stake to Carlyle Group LP in 2011. They bought it back two years ago. The trio plan to trade their own money by making concentrated wagers in both public and private markets.

“We believe the time has come to return to a more flexible investment approach,” the founders said in the letter. “We see in today’s market dislocation a compelling opportunity to compound our internal capital and we are excited to pursue a more personal and aggressive investment style both in public and private markets.”

ESG returning money comes as another hedge fund closes its doors. Karim Abdel-Motaal is shutting his macro fund a little more than a year after starting up because he couldn’t raise money quickly enough, according to a letter to investors seen by Bloomberg.

Mediocre performance and investor withdrawals have plagued the hedge fund industry for years, though the pace of closures has slowed this year. About 125 hedge funds liquidated in the second quarter, bringing closures this year to 270, according to Hedge Fund Research Inc. That compares with 481 funds that liquidated in the first half of 2017.

ESG had run a number of funds. The founders said in their letter that their main equities fund generated an average annual alpha of 8.7 percent since inception. Alpha is profit made over a benchmark. ESG had run a smaller fund that focused on betting against China’s currency. The Nexus fund, which had $500 million at the start of 2016, lost money on its short yuan wager. It now has about $20 million in assets, the person said.

Before starting their hedge fund, ESG’s founders worked together at Morgan Stanley, where Kenny was the head of global emerging markets debt trading and syndicate.

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