(Adds Coffey’s contract renegotiations in 27th paragraph.)
Nov. 18 (Bloomberg) -- Greg Coffey was described by Louis Moore Bacon as “one of the most impressive traders in the world” when the billionaire founder of Moore Capital Management LLC hired him in 2008 to help manage his hedge funds. His investment performance since has been subpar.
Coffey’s main Moore Emerging Markets Fund Ltd. returned an average of 6.2 percent annually in the three years through Oct. 31. Hedge funds rose an average of 7.6 percent in the same period, according to Hedge Fund Research Inc.
As Coffey fails to meet Moore’s profit target and investors pull out, Bacon is making changes to give his 40-year-old star hire a second chance. The London-based trader is starting a new fund, leaving behind almost $100 million of assets that he inherited when he joined Moore and that have underperformed this year, according to two people with knowledge of the matter. Moore also has backed Coffey’s effort to distinguish himself from the firm by creating a group labeled Greg Coffey Funds, which includes the new GC Moore Emerging Macro fund, and registering a partnership called Greg Coffey Investments LLP.
“Building your own brand within someone else’s firm does raise questions about how long you’re going to stay,” said Michael Rosen, chief investment officer of Angeles Investment Advisors LLC, a Santa Monica, California-based firm that helps clients invest in hedge funds.
Bacon, in a letter yesterday to clients, said that the new fund was started at the request of investors for a “separate vehicle” and that Coffey has no plans to leave the firm.
“Greg Coffey and his team are steadfast in their efforts to continue to grow and succeed in their business at Moore Capital,” Bacon, 55, wrote in the letter, a copy of which was obtained by Bloomberg News. “Greg Coffey and I enjoy a mutually beneficial and strong relationship which has continued to flourish through our collaboration in navigating these turbulent markets.”
Bacon and Coffey declined through spokesmen to be interviewed.
Coffey joined New York-based Moore, together with his 12- person team, in November 2008 from rival GLG Partners Inc., where he oversaw more than a quarter of the London-based hedge fund’s $24 billion of assets at the time. He was named co-CIO of Moore’s European business, the first person that Bacon has shared the title with since he started the hedge fund in 1990. Coffey became a partner in the firm, which manages $15 billion.
Wizard of Oz
Coffey, who the U.K.’s Sunday Times dubbed “Wizard of Oz” in a nod to his homeland of Australia, is known for his quick- fire trading style -- buying and selling large volumes of securities daily. He spends his day surrounded by six computer screens on Moore’s trading floor, according to a person with knowledge of the firm. Coffey’s homes in Australia are also outfitted with trading systems.
His Moore Emerging Market fund lost 7.4 percent this year through October, compared with the average 3.9 percent decline posted by the industry. The losses stemmed from Coffey’s bearish outlook on emerging markets since the start of the year, according to two investors, who were among more than a dozen people that provided details while asking not to be identified because Moore is a private firm.
Coffey’s other hedge funds have fared better since they were started in April 2009. A $1 billion equity fund returned an annual 17 percent, after losing 4.1 percent this year through October, according to Bacon’s letter. A $200 million fixed- income and currency fund is up 7.2 percent annually and 3.9 percent this year.
Coffey isn’t satisfied with his investment returns, said Arpad Busson, 48, who has invested in Coffey since the trader managed money at GLG.
“Performance has been very respectable compared to peers,” said Busson, founder of EIM SA, a Nyon, Switzerland- based firm that invests in hedge funds on behalf of clients. “Is he the guy that stands out, and has been No. 1 recently? No. But he has kept up with the leaders.”
Coffey has fallen short of Moore’s target returns of 18 percent to 25 percent, according to a person familiar with the matter.
Coffey also manages a portion of Bacon’s largest fund, Moore Global Investments, which lost 3.1 percent this year through October. Similar macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities, fell an average of 3.3 percent, according to Chicago-based Hedge Fund Research. Moore charges investors 25 percent of investment profits, compared with the industry norm of 20 percent.
Rally Never Came
At a June conference in Rome, Coffey told a room of 40 potential clients that he favored holding cash because of market volatility. He said he expected a rally in August and September and that there would be a lot of investment opportunities in emerging markets, according to two attendees. Coffey posted a 4.3 percent loss in August and a 3.4 percent gain the following month.
Illiquid investments, such as stakes in private companies that are hard to trade, accounted for 2 percentage points of the loss for Coffey’s fund in August, when fears of slowing economic growth in the U.S. and Europe’s sovereign-debt crisis roiled markets, according to an investor.
Coffey experienced the pitfalls of buying stakes in private companies at his previous employer. Investors in the biggest hedge fund that Coffey managed at GLG have been waiting for more than three years to get all of their money back after he invested in a Siberian coal mine co-owned by Russian oligarchs.
Moore last month gave clients the choice to remain in the Moore Emerging Markets fund, which would contain the illiquid assets being shed by Coffey, put money in Coffey’s new fund, have an investment in both funds or pull their money entirely without penalty.
The new GC Moore Emerging Macro fund has about $700 million in assets, according to yesterday’s investor letter. It gained 5 percent this month, according to clients. The old fund managed as much as $1.6 billion last year.
“In situations like these, the reorganization tends to give the portfolio manager a second opportunity to improve performance, and if the manager decided to leave further down the road, he could do so on a higher note,” said Alper Ince, a partner at Pacific Alternative Asset Management Co. in Irvine, California, which invests client money in hedge funds. Paamco isn’t an investor in Moore.
Bacon, in his letter, called the fund reorganization a “rebranding exercise” undertaken for investors. The “vast majority” of clients in Coffey’s old fund decided to move their money to his new one, he said. Bacon is managing the remaining assets in the Moore Emerging Markets fund, including the illiquid holdings, which investors said are valued at about $96 million.
Dannheim Changes Roles
Other changes have been made at Moore to set Coffey and his team apart. His deputy, Eric Dannheim, relinquished the title of chief operating officer of Moore’s European business at the start of this year to become chief executive officer of Greg Coffey Funds, according to a marketing document. The new role allows Dannheim, 43, to spend more time trading and to focus on raising money.
U.S.-born Dannheim, who has worked with Coffey since 1995, is a director of GCIH Ltd., a corporation formed in September that along with Coffey is one of two partners in Greg Coffey Investments LLP, according to a U.K. filing.
Other former Moore traders who ran funds that bore their initials include Paul Findley, who joined in 2008 and left last year to start his own firm.
In recent months Coffey and Dannheim have stepped up efforts to canvas investors. Coffey’s June presentation in Rome was at a conference organized by Goldman Sachs Group Inc. Attendees said it was the first time they had seen him attend a marketing event since joining Moore. Dannheim presented at a Morgan Stanley-organized event in Barcelona last month and is slated to present at another Goldman Sachs event in December in New York.
There has been speculation inside and outside the firm about Coffey leaving Moore ever since he posted a 7 percent loss in February 2010, rumors that Bacon dismissed in his letter yesterday. Coffey’s history of posting large monthly gains and losses at GLG stands in contrast to Moore’s risk-management policy, which reviews traders’ investments if they lose 5 percent, according to investors. His employment contract was also being renegotiated this year, according to three people with knowledge of the matter, further fueling the speculation.
Young Rich List
Coffey was ranked second in Melbourne-based publication BRW’s Young Rich List this year, with a net worth of A$743 million ($742 million), after Nathan Tinkler, a coal-mining investor. He lives in London, where he moved to in 1997, with his wife and two children. Last year he paid about 5 million pounds ($8 million) for an 11,500-acre (4,650-hectare) estate, complete with its own shooting grounds, on the Scottish island of Jura. His other properties include two mansions in Sydney, for which he spent a combined A$19.6 million in 2005 and 2006, said people with knowledge of the matter.
After graduating in 1994 from Macquarie University in Sydney, Coffey landed a job trading at Bankers Trust Corp., according to fund marketing materials. Following stints at Blue Border, a George Soros-backed hedge fund, and Bank Austria, he joined GLG in 2003 after former managing director Philippe Jabre offered him a job.
Coffey spent the first two years running a portfolio that outperformed and then started his own fund, GLG Emerging Markets.
$300 Million Payday
GLG, which was bought by Man Group Plc last year, told clients it expected the size of Coffey’s fund to be about $400 million, according to marketing documents from 2005. Within two years it had swelled to $5 billion, according to an annual report, and became GLG’s top-performer as Coffey beat rivals by returning 60 percent in 2006 and 51 percent in 2007 amid a rally in emerging markets.
Coffey earned $300 million in 2007 compared with $350 million for GLG co-chiefs Noam Gottesman and Emmanuel Roman, according to a survey by Institutional Investor’s Alpha magazine, now AR magazine. That year Coffey’s fund was named Fund of the Year by EuroHedge, an industry trade publication.
In March 2008, as investment bank Bear Stearns Cos. collapsed, his fund slumped 8 percent, compared with a 4.3 percent decline posted by rivals. The following month the fund lost 14 percent, its biggest loss at the time, and Coffey resigned. While he considered starting his own hedge fund, Coffey and GLG wrangled over his departure. Coffey agreed to remain at the firm until October to help with the handover of his investments.
Discussions With Moore
He had met with executives at Moore earlier in the year to discuss joining the firm, according to a person familiar with the matter. Shawn Pattison, a spokesman for Moore in New York, said no meeting took place.
Investors in Coffey’s funds eventually redeemed $2.2 billion. As clients tried to exit, GLG told them that as much as 15 percent of Coffey’s fund was invested in illiquid assets that it would segregate and sell over time. GLG continued to charge clients a management fee.
The firm had initially told clients that Coffey’s fund would have a “fast and aggressive short-term trading style” that would avoid the “deep-value liquidity trap” and sought to react “quickly to a change in outlook,” according to the marketing materials.
His fund instead contained stakes in thinly traded securities such as the stock of Siberian cement producer Sibirskiy Cement and the bonds of Banco Panamericano SA, the Sao Paulo-based bank that was bailed out last year on suspected fraud.
Trapped in Mine
“It’s beyond me how traders with little experience in illiquid assets were authorized to get into them in the first place,” said Peter Rup, CIO of New York-based Artemis Wealth Advisors LLC, which invests in hedge funds for clients. Rup isn’t a Moore investor.
GLG executives declined to comment.
Coffey’s largest illiquid holding was a Russian mine, Sibanthracite Holdings Ltd. He bought the asset, which was valued at more than $400 million, in 2007 and it made up about 10 percent of his GLG Emerging Markets fund, according to investors.
GLG allowed investors to get their money back this year through an auction in which they could sell their stakes in a account holding the mine. The price offered would have resulted in clients losing about 80 percent of their initial investment, the people said.
Clients of Coffey said he told them he wanted sell the fund’s illiquid positions in the month after he resigned and move most of his portfolio to cash. The investors say Coffey told them GLG executives prevented him from doing so. Pattison, the Moore spokesman, said Coffey never made the statements.
“By creating a mess and then walking away from it, you do the entire industry an injustice,” Artemis’s Rup said.
--With assistance from Nichola Saminather in Sydney. Editors: Larry Edelman, Rob Urban
To contact the reporters on this story: Saijel Kishan in New York at firstname.lastname@example.org; Jesse Westbrook in London at email@example.com
To contact the editor responsible for this story: Christian Baumgaertel at firstname.lastname@example.org