Tourbillon Hedge Fund to Return $1 Billion in Latest Closure

(Bloomberg) -- Another week, another hedge fund closure.

Jason Karp, who six years ago started his Tourbillon Capital Partners, is closing his main fund after losses, effectively saying that the hedge fund model is broken. He plans to return the more than $1 billion to investors at the end of the year, according to a letter sent to clients Monday that was viewed by Bloomberg News.

Karp said that while his equities hedge fund, the Tourbillon Global Master Fund, had outperformed in its first three years of business, it hadn’t met expectations recently.

“We believe we need to be investing solely in areas where we have strong, distinct advantages with the highest odds of success," the 42-year-old said in the letter. “We think TGMF no longer fits that bill.”

Karp is the latest in a slew of seasoned managers from Jon Jacobson to “oil god” Andy Hall to throw in the towel on their funds since hedge fund manager Daniel Loeb said more than two years ago that the industry was in the “first innings of a washout.” Hedge funds, which manage $3.2 trillion and charge among the highest fees in finance, have been blighted by years of mediocre performance, causing investors to run for the exits.

Slowing Pace

Despite the liquidation of high-profile hedge funds of late, the pace of closures has slowed this year, according to Hedge Fund Research. About 125 funds shut in the second quarter, bringing closures in the first half to 270, the Chicago-based firm said. That compares with 481 funds that liquidated in the first half of 2017.

Karp’s fund, which managed $3.4 billion at its peak, lost 3.2 percent this year through September, a person with knowledge of the performance said. Since inception, it had made an annual average of 12.3 percent, the person said. A spokesman for the New York-based hedge fund declined to comment beyond the letter.

In the letter, Karp said that his hedge fund had thoroughly analyzed its performance and processes, and decided against focusing solely on its top trades as his investors had suggested -- those likely to have an 80 percent chance of winning. “Doing so is incompatible with a traditional hedge fund structure like TGMF because it requires tremendous flexibility around portfolio construction and capital deployment," he wrote.

Health and Wellness

Karp said that he and his senior employees will continue to invest their own money in stocks, but in a way where there are fewer limitations on their trading. They also plan to focus on investments where they have the strongest convictions. Still, the hedge fund manager is leaving the door open to manage other people’s money again. Karp told investors that should he decide to return to the industry, he won’t charge them fees until he recoups their previous losses.

Karp also said he plans to spend most of his time focusing on investments in health and wellness industries. In the letter, he described his battle with autoimmune diseases and an incurable degenerative eye disease that had impaired his vision. He was told that he would be blind by the age of 30. Karp spent time researching his illnesses and found that they were primarily linked to food. Within nine months of improving his nutrition and lifestyle, he said his illnesses reversed, including his “incurable” eye disease.

“This harrowing journey instilled in me a life-long passion of focusing on nutrition and how it affects the health and wellness of humanity,” Karp wrote in the letter. “As I was forced to scrutinize all aspects of food and the food industry -- what was in the food, whether it came from a farm or a profiteering corporation, what kinds of pesticides, engineering and ‘technology’ were used to make it shelf-stable, taste great, and look appealing -- I learned there was a huge knowledge gap.”

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