Hedge fund titan Louis Moore Bacon is shrinking his flagship portfolio by one quarter and will return $2 billion in assets at a time tumultuous global market conditions are making it tougher to trade huge amounts of money.
Bacon, who has run Moore Capital Management for more than two decades, told investors by letter of his plans to slim down the $8 billion fund as he worries about trades getting too crowded, making it ever more difficult to deliver the kind of double-digit returns his investors have seen since 1989.
Portions of the letter were seen by Reuters.
The news quickly circulated in the $2 trillion hedge fund industry and is sure to spark concerns that other managers might also want to pull back.
"Investors are going to be asking their managers who oversee more than $10 billion whether they are too big and some might say 'yes' while others will say 'no, I can handle it'," said Charles Gradante, co-founder of the Hennessee Group which invests with hedge funds.
The fund, which Bacon essentially runs alone, has been one of the industry's best performers, investors said. Bacon allowed investors to shift their money to other Moore Capital portfolios.
Bacon said markets are "trickier and less liquid."
For the first half of the year the fund was roughly flat. Over the last two decades the fund has delivered returns of about 18 percent per year making global macro calls on currencies, interest rates and other securities.
In the letter, Bacon blames current low interest rates for the difficulties in making money and takes a swipe at both the Obama administration and European policy makers.
With his decision to downsize, Bacon joins a number of big name investors, including Paul Tudor Jones, who have returned some assets in order to improve performance down the road. Some academic research has shown that smaller hedge funds tend to be more nimble and therefore able to deliver better returns.
Bacon stopped short of returning it all as fellow hedge fund managers Stanley Druckenmiller and John Arnold have done in recent years.
"Hedge funds have gotten too big to the point where they have become buy-and-hold shops," Gradante said, noting that their sweet spot was when they were much smaller and able to invest in small and mid-cap stocks that were ignored.
Bacon, 55, known as a fierce competitor, grew up in North Carolina before moving north for college and founding his New York and London based firm.