Breakingviews: Headwinds ahead for hedge funds

The flies keep dropping in hedge-fund land. Perry Capital is winding down its main funds, while Brevan Howard is cutting its management charges for some investors. Across the industry, decent returns are hard to find even before fees. Weaker performers wishing to continue in business are under pressure to charge less for their services. Some, like veteran Richard Perry, will choose just to give up. More from Breakingviews : U.S. election campaign wags global currency market Perry opened his fund in 1988 with Paul Leff. In the firm's first two decades, the fund averaged 15 percent annual returns and never lost money over a year, according to Bloomberg. Lately, though, performance has gone negative. The firm managed $6.6 billion at the end of 2015, according to a regulatory filing, down from nearly $9 billion two years before and around $15 billion in early 2008. In a letter to investors, Perry talked about market headwinds and the unpredictability of success in the fund's investments. Hedge funds once thrived on such things, but not at the moment. According to Hedge Fund Research, 530 funds liquidated in the first half of 2016, exceeding the 406 launched. From the crisis shake-out in 2008 until 2015, the number of funds tracked by HFR increased every year. For Perry, the headwinds he talked about clearly aren't about to die down. His chosen response, after a long career in hedge-fund terms, is to call it quits. At 61 and a billionaire, the prolific art collector can afford to spend more time with his Dines and Lichtensteins. To stay in the game, Brevan Howard, also on a losing streak, is taking the other logical approach by cutting management fees to zero for some existing investors to reduce the risk they will withdraw their money. Hedge funds have been slow to address the low average returns that have prevailed for several years, making management fees typically approaching two percent a year plus performance fees nearing 20 percent of gains look over the top. Strong performers won't have to make such concessions, and some of the relative losers will close their doors. That may mean that average fees move down only slowly. Even so, Perry's decision represents a clear message from a former industry star that times are tough. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Richard Perry

Heidi Gutman | CNBC

The flies keep dropping in hedge-fund land. Perry Capital is winding down its main funds, while Brevan Howard is cutting its management charges for some investors. Across the industry, decent returns are hard to find even before fees. Weaker performers wishing to continue in business are under pressure to charge less for their services. Some, like veteran Richard Perry, will choose just to give up.