Lansdowne’s Roden Says Hedge-Fund Woes Not the Fault of ETFs

(Bloomberg) -- Hedge funds perform badly because their investment analysis has failed and not as a result of an increase in exchange-traded and quant funds, according to Stuart Roden, chairman of Lansdowne Partners.

Blaming passive investing strategies and volatility for poor performance by hedge funds is a “bad excuse,” Roden said at the Legends 4 Legends alternative investment conference in Amsterdam on Thursday. “As a buyer of those products, anyone who tells you anything different is kind of fooling you.” His London-based firm manages $19 billion.

Roden, who was co-head of Lansdowne’s flagship Developed Markets fund before becoming chairman in 2014, also said the growth of assets managed by hedge funds shouldn’t be cited as a reason for underperformance. That contrasts with Andrew Law, chairman and chief executive officer of Caxton Associates, who said in an investor letter that growth in the industry since the financial crisis means it’s too big to deliver returns that match clients’ expectations.

“I just can’t find any evidence that size per se has been the problem,” Roden said, pointing out that investment bank proprietary trading desks, which were quasi-hedge funds, have shrunk the amount they oversee “enormously.”

Frustrated Clients

Hedge-fund firms including Paulson & Co., Perry Capital and Brevan Howard Asset Management have suffered withdrawals this year by clients frustrated at paying high fees for low returns. Investors pulled $23.3 billion from hedge funds in the first half, the most since the financial crisis, according to data from Hedge Fund Research Inc.

While the redemptions equal less than 1 percent of the $2.9 trillion industry, some of the biggest funds are suffering because pension plans and other large institutions are pulling their cash after years of lackluster returns.

Nevsky Capital shut down its $1.5 billion hedge fund in January, saying the algorithm-driven market environment was incompatible with the firm’s investment process.

Lansdowne’s Developed Market fund lost 12.8 percent this year through August. The fund has earned an annualized return of 13.6 percent since its start in 2001, according to an investor document. A spokesman for Lansdowne Partners declined to comment. Equity long-short hedge funds have gained 3.4 percent this year, according to Hedge Fund Research Inc.