Another hedge fund manager is abandoning the vagaries of managing outside money for the peace of mind of running a family office.
Scottwood Capital will return almost all of its outside capital, some $470 million, at the end of the month. Then, like the founders of Soros Fund Management, Duquesne Capital Management, Shumway Capital Partners and Icahn Associates before him, Scottwood founder Edward Perlman will turn the firm into a family office.
Perlman told investors last month that he planned to stop managing client capital. According to Hedge Fund Alert, he then began liquidating Greenwich, Conn.-based Scottwood's positions, leaving the firm entirely in cash by the beginning of August.
Perlman blamed increased risks in the credit markets and regulatory uncertainty for his decision. But he also seemed exasperated by the vicissitudes of investors who pulled money from the fund when it did poorly and plowed it back in when fortunes reversed.
Scottwood's clients used the fund "like an ATM" in 2008 and 2009, Perlman complained, slashing its assets from almost $1 billion to less than $250 million, and then returned in droves after the hedge fund posted a 45% gain in 2009.
But investing in Scottwood, which Perlman, a former Bear Stearns trader, founded in 2001, has not been a smooth ride. The fund—which will end life having returned an impressive 11.7% on an annualized basis—plummeted in 2008 before turning things around in 2009 and early 2010. But after rising 20% through April of last year, Scottwood went back into a tailspin, losing 6.6% on the year.
This year, the fund was back on the upswing, rising 1.8% through the end of last month.