Party Is Over for Hedge Funds

U.S. hedge funds flooded into the City in the last decade, but now that business has slumped, some fund companies are shrinking their London outposts as a way to cut back on costs.

London is the second-biggest center for the hedge-fund industry after New York, with more than 400 hedge funds based in the U.K. capital, according to industry estimates.

But many hedge funds have had a rough year as markets have slumped and investors have withdrawn their money. Overall, hedge funds saw their returns fall 18% on average in 2008, according to Chicago-based Hedge Fund Research.

After hundreds of new offices opened during the hedge-fund boom years of the last decade, the pace of closures is picking up.

IMS Consulting counts at least a dozen firms in recent months that have shuttered their London offices altogether. And some major names have let staff go and cut spending.

SAC Capital, the Stamford, Conn.-based hedge fund owned and run by U.S. investor Steven Cohen, has had a total of 16 departures in recent months, or roughly half its London staff. The fund, which is known for charging some of the highest fees in the industry, also has made a handful of recent hires, including appointing Deutsche Bank executive Drew Lubin to run the London business.

Magnetar Capital, an Evanston, Ill., fund company that racked up big profits in 2007 thanks to its trades tied to subprime-mortgage securities, has shut its London risk-arbitrage desk, eliminating four positions, according to a spokesman with the firm.

Another fund company, New York-based Atticus Capital, has made some cutbacks in London, according to a person familiar with the situation, though no executives or senior investors have left.

But at a time when some U.S. hedge funds are beating a retreat from the U.K. capital, one storied fund manager has decided that this is the time to move in. George Soros's fund company is opening offices in London this week and kicking things off with a party in the wealthy Mayfair district, where many hedge funds are located.

The irony of the Soros fund's arrival at the same time the U.K. pound is plumbing its lowest level in years won't be lost on many in the City.

Mr. Soros is best-known here for making more than $1 billion in 1992 with bets against the pound that eventually forced Britain to withdraw from the European exchange-rate mechanism, the precursor to the common euro-zone currency.

Source: WSJ