Prominent hedge fund suffers severe drop in assets

Peter Thiel became legendary when his sale of PayPal to Ebay several years ago made him a billionaire. But now, according to a piece in today’s New York Post, his hedge fund firm, Clarium Capital, is in serious trouble, having undergone a dramatic reversal in the last year and a half. At the beginning of 2008 the firm’s asserts under management were $4 billion, then they doubled to almost $8 billion in June 2008, and now they are down to $1.9 billion. Meanwhile, other hedge funds are doing ok. The article doesn’t make entirely clear why Thiel is having such trouble. Also, a Google search indicates that the Post has frequently covered Thiel’s ups and downs.

THIEL’S HEDGE FUND PLUMMET
FACEBOOK BACKER STRUGGLING WITH LOSER FUND
by KAJA WHITEHOUSE
July 8, 2009

Peter Thiel, the PayPal co-founder who was also an angel investor in social-networking titan Facebook, could himself use an angel to help his struggling hedge fund firm, Clarium Capital Management.

After falling from hedge-fund stardom in the second half of 2008, Thiel’s fund continues to struggle nearly one year later with poor performance and bailing investors.

In June, the fund fell another 4.4 percent, bringing total returns this year down 6 percent, according to data obtained by The Post.

What’s worse, Clarium’s assets under management have plummeted to just $1.9 billion—a far cry from the end of June 2008, when the fund had swelled to $7.8 billion from $4 billion at the start of 2008.

The results mark a significant fall from grace for Thiel, who founded Clarium in 2002 and at one point last year was being hailed as a hedge-fund wunderkind who had successfully sold online payment service PayPal to eBay in 2002 for $1.5 billion and smartly invested $500,000 in Facebook in 2004.

Just a year ago, Clarium, which was then based in San Francisco, boasted an astounding annual return of 57.9 percent, compared with average hedge-fund losses of 0.75 percent.

But things came undone last July as Clarium’s bets against the dollar went awry. The fund lost a whopping 13 percent in August followed by another 18 percent loss in October.

By December, the firm was able to recover much of its losses and close the year down just 4.5 percent, compared with an average hedge-fund loss of 20 percent.

But by then it was too late: Assets had plunged to $2.5 billion by the start of this year.

Now, six months later, the outflows have continued as Clarium struggles to get back on track during a period in which other hedge funds have recovered from last year’s beating.

Clarium spokesman Jim O’Neil declined to comment on the fund’s performance, but people familiar with the firm said Clarium continues to struggle with bets on inflation and the direction of the US dollar.

The unrelenting losses also raise questions about how long Clarium can continue.

Unlike most funds, which ride out the bad times by charging small fees based on assets, Clarium eschews the traditional 2 percent management fee in favor of a pure performance fee of 25 percent.

So even if assets stopped shrinking, Clarium would be struggling to make a profit until it could turn its performance around.

Meanwhile, there are expenses to pay, such as the firm’s posh new office space on Bryant Park, where Thiel moved the bulk of his hedge-fund staff last year from San Francisco.

As reported by The Post last June, the Silicon Valley venture capitalist decided to move the fund’s trading operations to New York to bring them closer to the heart of the financial action.

[end of Post article]

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Mike Berman writes:

A google search also reveals that Peter Thiel is an anti-immigration activist.

Ron L. writes:

The decline of Clarium Capital Management is not only unwarranted, but detrimental to the right. Peter Thiel had been a libertarian, and in more recent years had moved to the right. I doubt that Thiel will be in a position to donate another million to NumbersUSA.

July 9

MG writes:

$4B in assets does not qualify a hedge fund as prominent, too many funds have way more in assets.

Clarium is far from the end. With persistence and a bit of luck they can ride out this downturn.

Apparently their fee structure is very aggressive, I assume it is by design and they have will and means to ride dry periods.

I’m not sure why investors can withdraw money that easily, usually hedge funds require commitment for a few years.

It is a shame that one of the very few conservative very rich people is having business setback. I wish Mr. Thiel all the luck.

LA replies:

I should have said, “hedge fund headed by prominent person.”

Posted by Lawrence Auster at July 08, 2009 06:41 PM | Send