Steve Eisman is somewhat of a celebrity in the hedge fund world. And after the release of the film adaptation of Michael Lewis’s The Big Short, Eisman has also become a star outside of the financial community as well.
Eisman, who is played by Steve Carell in The Big Short, was one of the few hedge fund managers to realise the risk sub-prime mortgage borrowing presented to the US economy. His bets against the US housing market, banks and the wider equity market generated a return of more than 70% for his hedge fund investors during 2008.
The handful of hedge fund managers that manage to profit from the financial crisis have earned a certain respect in the financial community, and when they now speak, Wall Street pays close attention.
Eisman closed his own hedge fund two years ago (his crisis fund, FrontPoint Partners was closed in 2012 when he started Emrys Partners, which focused exclusively on financial stocks) and now works at Neuberger Berman, a money management firm where he runs separately managed accounts. His investing style has changed to a more classic hedge fund model, buying stocks he expects will rise in price while betting on others to fall partly because of the limitations placed on him by the separate accounts model. For the service, Eisman charges clients 1.25% of assets per year per $1 million of investment.
The low-cost is a result of the fund manager’s belief that high hedge fund costs are unsustainable. In an interview with Bloomberg, Eisman said the reason he challenges such a low fee is because “that’s where I think fees will be in ten years.”
Such a big change from the traditional 2-and-20 has caught the attention of other hedge fund managers, and the industry seems to be warming to lower fees as investors withdraw assets from the sector.
Steve Eisman: Leading a hedge fund revolution
According to Bloomberg’s data over the past three-quarters, investors have withdrawn almost $25 billion from hedge funds globally. Even though this total is only a snip of the $3 trillion in assets hedge funds manage, it is the highest rate of redemptions since the financial crisis.
Moreover, the rate of redemptions is increasing, New Jersey State Investment Council announced it was slashing its $9 billion hedge fund investment budget by 50% earlier this month and over the past 12 months, funds of hedge funds have lost more than $100 billion in assets because of outflows and poor performance. Long-short funds are bearing the brunt of the losses according to Eurekahedge. During the first six months of the year, funds falling into this category lost 0.8% of assets under management, three times the percentage lost in the strategy that saw the next biggest withdrawals.
Eisman isn’t the only manager taking drastic action in an attempt to stem outflows. At the beginning of the year, well-known manager Paul Tudor Jones announced he was slashing his annual management charge on one of his funds from 2.75% to 2.25%. Performance fees were cut from 27% to 25%. Investors have already pulled $2.1 billion from Tudor Investment Corp this year, leaving the firm with $11 billion under management. Management responded by cutting 15% of the staff and now billionaire Jones is encouraging his team to take on more risk.
According to Bloomberg, managers at Tudor Investment Corp have been paired with scientists and mathematicians to bring new analytical rigor to their trading and the firm is looking to double the gross Sharpe ratio target for its main fund to about 2.25. Further, the firm has implemented a new ‘chief investment officer tool’ to replicate trades of its best managers by using futures contracts and foreign-exchange securities.
The group’s main fund, Tudor BVI Global is down 2.3% so far this year