The announcement that veteran European hedge fund manager
Talal Shakerchi is to liquidate his flagship Meditor European
fund after 15 years leaves a significant hole in the European
long/short equity landscape.
The decision, which took most industry players by surprise,
will mean the disappearance of a fund that has been a core
long/short equity allocation for many investors over the years
- who will now need to find new places to re-allocate their
money, thereby creating opportunities for other managers to see
new inflows of assets as a result of the Meditor shutdown.
In a letter sent to investors, Shakerchi said he had decided
to recommend the liquidation of the fund after concluding that
the multi-portfolio manager system that the fund had been
running had not been working.
"The decision was precipitated by a review of the carve-out
system - including performance, investment idea contributions
and economics," he said. "The conclusion of the review was
that, subject to required staff consultations, we should cease
operating the carve-outs."
A consequence of this decision, he said, was a reduced AUM
capacity. One of the largest European long/short equity funds
over the years, peaking at around $3-4 billion, the Meditor
European fund was recently reported by investors to be running
about $1.6 billion in assets.
"This is exacerbated by recent trends in European markets
such as more transaction taxes and less liquidity. With our
strong emphasis on individual shorts, we have also found the
new short position rules constraining. These rules disadvantage
larger managers who actively short like Meditor. In summary, we
are no longer confident that we can continue to offer good
value to our clients on our current scale," he added.
Shakerchi had carved out a very specific niche with Meditor
over the years, taking on board macro views and adding alpha
via individual short positions. The firm, based in lavish
offices in Tower 42 in London, also ran a carve-out portfolio
management structure - whereby individual managers have direct
responsibility for parts of the fund, similar to US managers
like Millennium or Balyasny approach but relatively rare among
Its long-term track record was very impressive: the
annualised compound, since September 1998, was 13% net. The
fund was also well known for its defensive capabilities: it was
up 15.85% in 2008, and saw only two losing years, dropping 5.1%
in 2001 and giving up 6.7% in 2010.
Although returns for the last few years had been relatively
underwhelming, 2013 had marked a return to form: to the end of
November it was up 15.8%. Investors say that longs in the
healthcare sector contributed significantly to performance this
In his letter, Shakerchi said he remained "proud of our
investment achievements over the 15-year life of the funds" -
pointing out that around 85% of gross returns had come from
alpha on both sides of the book, with average annual alpha of
9% on longs and 6% in shorts, and that the fund had
demonstrated strong capital protection through the most
challenging market environments and a lack of correlation with
indices and other funds.
"I am also proud of the client-orientated business approach
we have maintained throughout, including rigorously capping AUM
(putting investor interests above fee flows), treating all
investors equitably and providing consistently high
transparency, including a high degree of relevant detail in
every monthly letter," he said. "There have been no dealing
suspensions, price restatements or redemption deferments."
As a reflection of what Shakerchi called the firm's
"client-first attitude" and the fact that a small minority of
the portfolio may take some time to liquidate, Meditor is
offering an accelerated redemption option to investors -
whereby the manager will retain substantially all of its
holdings until such redemptions are met, thus facilitating
early liquidity for those investors who chose it.
The manager anticipates that the vast majority of the
portfolio, which is concentrated in large liquid equities, can
be liquidated in an orderly way within a few weeks - although
the portfolio has a short tail of less liquid and unlisted
positions, which will take longer to liquidate and where the
firm is keen to avoid a "fire-sale".
Despite the long-term success of the flagship funds, Meditor
also had a fair number of smaller funds that failed to gain
traction, such as the short-biased Meditor Bear, the healthcare
fund Cobra, and the Bermuda-based 'D program', an analysts'
best ideas fund that operated along the lines of Marshall
Wace's TOPS system.
Shakerchi, who began his career at Old Mutual Asset
Management, said he intends to increase the time and focus he
dedicates to charitable activities - once the orderly
implementation of the fund liquidation and capital repayment
process is complete.
"I warmly thank our investors for their outstanding
long-term support and encouragement. We have never forgotten
the importance of that support for the existence of the firm
and have always sought to act accordingly," he signed off in
"A good proportion of you have been investors since
Meditor's early days and have developed solid long-term
relationships of trust and mutual respect with us. I wish all
of you, at both a personal and institutional level, good
fortune in the future."