Why Perry Capital Shut Down: The Full Letter

That 2016 would be disastrous for hundreds of hedge funds - confirmed by the unprecedented number of HF shutdowns even as the S&P is supported by central banks just shy of all time highs - was presaged by the closing of Nevsky Capital at the very start of the year, whose famous farewell letter.

As a reminder, instead of swimming against the central bank current, one which has swept away so many prominent, iconic hedge funds, Nevsky did the noble thing when it admitted that:

"it is more difficult than ever before for us to accurately forecast macroeconomic and corporate variables. This pushes up our cost of capital and substantially increases the risk of us suffering substantial capital loss on individual positions either because of a forecast error or simply because we could be caught up in an erroneous market trend, which could then persist for far longer than we could take the pain. This has made what we enjoy most – the thrill of analysing economic data releases and company accounts – no longer enjoyable. It is therefore time to accept that what we have done has worked brilliantly for twenty years but does not work anymore and move on. We are confident our process will eventually work again – for the laws of economics will never be repealed – but for now they are suspended and may be for some time; an indefinite period involving indeterminate levels of risk during which we think it would be wrong for us to be the stewards of your money."

Then earlier this week, another hedge fund legend, Richard Perry of Perry Capital likewise folded his flagship Perry Partners fund, although unlike Nevsky's eloquent farewell, Perry had a far simpler justification for the closing: "the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable."

Short, simple and to the point. And yes, we get it, because we have said it all along for the past 7 years: central planning will inevitably crush everyone in nationalized "markets", before central banks themselves throw in the towel once they own all assets, ending the "wealth effect" transmission channel, having made the 0.01% richer than their wildest dreams in fiat terms. To all those who are still stuck in the business unable to retire and trying to make their P bigger than their L every day, our condolences. 

Full Perry Partners letter below:

Dear Investors

 

Over 28 years ago, Paul Leff and I started a money management firm. Our catalyst oriented value approach combined financial analysis and active engagement with management teams to create attractive opportunities with asymmetric risk/reward. During this time, we provided capital to many companies and countries facing stress and distress. Our style worked well for many years and we had the pleasure of hiring, training, and working alongside some of the best people in this business who have significantly contributed to the success of Perry Capital. Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.

 

As a result, we have decided to wind down Perry Partners LP. We will manage the Fund's wind down in the most effective way possible. We have been raising cash and plan to return a substantial amount of the fund's capital in the beginning of October. The rest of the portfolio will be monetized in an orderly fashion and will be categorized by expected liquidation horizon: short term (2-3 months), medium term (6-12 months) and longer term (greater than I year).

 

We will prudently manage the remaining investments down over time. The short and medium term investments will be sold opportunistically but efficiently so as not to move markets or harm investment value. The longer term investments, for example the GSEs and some of the RMBS putback securities, will take time and energy to successfully realize an appropriate result. Our core team remains in place so that no effort or diligence will be compromised. We are committed to these investments and to you, our partners.

 

Going forward, we intend to return your capital quarterly. I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans. Our interests are aligned — the Perry funds represent almost all of my liquid capital.

 

Over the next few weeks, I hope to speak with many of you. I want to personally tell you how much I have valued your support and trust. Thank you for your partnership over the years.

 

All my best,

 

Richard Perry