Shumway to return all outside capital: Full Letter

February 04, 2011   Josh Friedlander


The news comes after a confusing few months in which the firm first tried to alter its management structure and then assured investors that founder Chris Shumway would not be stepping back from overseeing its investments.

Just two months after announcing to clients that he would continue to be actively involved in investment decisions, Chris Shumway announced earlier today that Shumway Capital Partners would return all outside investors' capital. He'll be involved in investment decisions, it's true, just not for his investors.

Here is the full letter that was sent to clients:

February 4, 2011

Dear Investor:

I am writing to let you know that after nine great years, I have decided to return all external capital back to you, our partners, by the end of the first quarter of 2011. I will continue to manage the funds as CIO until the capital is returned. This was a very difficult decision for me and I want to thank those of you who supported me and provided valuable advice along the way. I especially want to thank those who supported SCP's recent structural changes by committing over $5 billion in capital. After much consideration, I believe this is the right decision for me, for our people and for you.

The change in operating structure, with the partnership and new CIO, has set off a course of events that requires me to change direction for the firm. In a sense, these changes created more risk for many of you who committed to stay invested in SCP and makes short term results of the fund a primary issue for us all. As a result, it has become more difficult for us to focus on long term investing as we have for the last nine years, which I believe has been a main driver of our success. I fully understand this complication was brought on by the changes that I chose to make and as such I feel responsible to correct this mismatch of investment style and investor needs. The right decision for all of us is to return investor capital. SCP will continue on, managing internal assets only.

It has been a great journey from a start up fund of five employees and $70 million in assets in 2002 to 95 talented people and assets of over $8 billion today. I have loved the excitement and energy that I derive from working with such a motivated group of Shumway Capital employees and remain indebted to them for supporting the development of this great organization. Our success has been driven by the exceptional employees throughout the firm. While a number of new funds have already come out of SCP alumni, I hope and expect to see more new businesses spawn out of our team. I take great pride in our people’s training and development and believe many will go on to achieve tremendous success.

We set out nine years ago with a simple plan -- build a world class organization that is capable of outperforming broad market indices throughout the business cycle with reduced risk. We accomplished our objective with 17% annual returns, 14% above those for the S&P 500 through multiple market cycles with daily volatility of one third of that of the S&P 500. Our focus has been not only to generate returns but also to protect capital through the rough patches. We certainly were tested by the markets when the S&P 500 fell 57% from October 2007 to March 2009 and fell 32% from April 2002 to October 2002. We managed to show positive 3% performance during the 57% decline and positive 4% performance during the 32% decline. This is the true test of a hedge fund and one we are proud to have accomplished.

I am grateful for the trust you placed in us to manage your capital and thank you for all your support.

Sincerely,

Chris W. Shumway





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