One of London’s best known hedge funds, Gradient Capital Partners, is on the brink of collapse after dropping nearly 42pc in value last month.
The City-based European equity fund, which had $2.5bn under management at its peak, is now down over 63pc so far this year, leaving investors fearful it will be forced to close.
The “blow-up” is a mighty fall for the founders, Ivor Farman and Scott Pagel, who famously paid themselves £100m each over two years after producing stellar returns to their investors.
The pay deals placed the pair in the ranks of the UK’s 800 wealthiest people and among the 30 wealthiest hedge fund managers in the country.
Gradient made a net investment return for its investors of 56pc in 2005 and 47pc in 2006. In 2007 the founders paid themselves £109m, and £94m the year before that, according to accounts filed at Companies House.
Yesterday, sources close to the fund insisted that Mr Farman and Mr Pagel are determined not to close Gradient but are instead working on ways to resuscitate the business.
Experts have predicted that as many as one in four hedge funds could be forced to close in the next few months. The chaos in the markets has hit funds hard in recent months as the movements have been exaggerated by the high levels of leverage in the sector. The problems have been compounded by the ongoing difficulties in the prime brokerage departments of investment banks, leading to investors taking fright and scrambling to withdraw their money.
Observers have pointed to Gradient’s unusually low-cost structure – it employs just four people – as being key to its survival.
One said: “The fund has been badly hit by poor performance and big redemptions. But it has been sensible to keep its cost base down so it will probably tough it out and re-emerge at the other end.”
Mr Farman, 44, previously worked at Schroder Securities, BNP Capital Markets and Goldman Sachs before he joined Adelphi Capital Management, a London-based hedge fund. He set up Gradient in 2001 with Mr Pagel, a 35-year-old American who worked as European stock analyst at Goldman Sachs before moving to Adelphi.
The pair nearly closed the fund after six months due to lack of investor interest but soon caught the wave of the hedge fund boom.
By Louise Armitstead
Last Updated: 1:37PM BST 17 Oct 2008
Source: The Telegraph