California Hedge Fund Is Latest Europe Crisis Casualty

By Saijel Kishan - Jun 14, 2012 7:10 PM GMT+0300

Hedge-fund manager Paul Sinclair is the latest casualty of Europe’s sovereign-debt turmoil, almost six thousand miles away from the epicenter of the crisis.

Sinclair, who is based in Los Angeles, is liquidating his $458 million health-care equities fund, Expo Capital Management LLC, after more than five years, as political decisions made on the other side of the globe have undermined his stock picks and spurred losses for a second year.

People wait in line for bread outside the charity organization "Pane Quotidiano" ("Everyday Bread"), in Milan on June 14, 2012. Photographer: Luca Bruno/AP Photo 

 “I don’t have an edge on Greek elections, the Spanish banking system, what the European Central Bank, the International Monetary Fund, the Chinese government, Angela Merkel, or the U.S. Federal Reserve will do,” he said in a telephone interview yesterday.
Sinclair, 41, said that over the past year he’s found it increasingly difficult to make money because of the macroeconomic environment, and that investing in health care since 2004 has left him “physically and mentally exhausted.” He said he chose to return money to investors, which he plans to do by the end of the month, rather than hold cash and charge them fees.
Billionaire energy trader John Arnold, former Morgan Stanley co-president Zoe Cruz, and Duke Buchan III are among managers who have shuttered hedge funds in the past year as Europe’s sovereign-debt crisis has roiled global markets. The industry last month posted its biggest loss since September as stocks slumped on concern Greece may exit the euro and the global economy is weakening.

Supporters of the Greek socialist party Pasok with the party's flag and fireworks during the a pre-election rally in Athens on June 13, 2012. Photographer: Andreas Solaro/AFP/Getty Images

‘Tricky Markets’

“It’s a confluence of tricky markets, super-cautious investors and a tough fundraising environment that’s making it a difficult time for hedge-fund managers,” said Steven Nadel, a partner at New York-based law firm Seward & Kissel LLP, which advises hedge funds.
Sinclair said he has most of his liquid net worth invested in his fund and was no longer comfortable putting it at risk when markets are subject to the actions of policy makers globally.
He said he plans to spend the rest of the summer sleeping and relaxing and may take up a new hobby, according to a June 9 e-mail he sent to clients. Sinclair said he would continue to follow the health-care industry and is keen to see how it is shaped by a U.S. Supreme Court decision on President Barack Obama’s health law overhauls and the November presidential elections.
Returning client money “is an unusual move but fair and would be welcomed by investors,” said Graziano Lusenti, founder of Nyon, Switzerland-based Lusenti Partners, which advises clients on investing. “Most hedge funds would try to hold onto the money for as long as they can.”

Liquidations Rise

Liquidations in the hedge-fund industry rose to 775 last year, the most since 2009, according to Hedge Fund Research Inc., a Chicago-based research firm.
Fortress Investment Group LLC, based in New York, last month said it will liquidate its $500 million commodities fund run by William Callanan after losing almost 13 percent in the first four months of the year.
Arnold also said the same month that he plans to close Centaurus Energy Master Fund in Houston. Cruz, the former Morgan Stanley executive, is liquidating her $200 million hedge fund after losing 8 percent last year.
Buchan, a New York-based hedge-fund manager, cited the European debt crisis as one of the reasons behind the closing of his equity hedge fund Hunter Global Investors LP.
“Markets seem to be driven more by the latest news out of Europe than by a company’s earnings prospects,” he said in a Dec. 8 investor letter. “We have not weathered the ensuing volatility well.”

Moore Traders

At least three hedge funds run by former Moore Capital Management LLC traders have shuttered in the past seven months after losing client money. They are Salute Capital Management, run by Lev Mikheev, Avesta Capital Advisors LLC, founded by William Tung and Tim Leslie’s JCAM Global fund.
Sinclair’s Expo Health Sciences Fund lost about 6 percent this year through May, after falling 8.7 percent in 2011, the hedge fund’s first year of negative returns, he said in an e- mail. The fund has returned about 50 percent since its 2007 inception, net of fees.
Hedge funds slumped 2.9 percent in May and 1.3 percent this year, according to data compiled by Bloomberg. They lost 5.8 percent last year and a record 19 percent in 2008, the data show.

Market Correlation

The turmoil in the global markets has spurred stocks across industries to rise and fall in tandem. The relationship between price fluctuations for health-care stocks and the rest of the market has tightened. The 30-day correlation coefficient between the MSCI World Index and its members in that industry is 0.92, compared with the average since 1995 of 0.73, according to data compiled by Bloomberg. Readings of 1 mean prices are moving in lockstep.
Sinclair employed a seven-person team with offices in San Francisco. Before he started his hedge fund, Sinclair worked at Vantis Capital Management LLC, a hedge fund in Pasadena, California, where he managed a health sciences fund from about two years until the end of 2006, when the firm shut down. He was previously at Merrill Lynch & Co., within the bank’s health-care investment banking group, and before that at investment bank Donaldson Lufkin & Jenrette.
Sinclair received a masters of business administration from Stanford Graduate School of Business in 1999 and graduated with a bachelors degree in business economics from the University of California in 1994.


To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net