December 2, 2021

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Remarkable business & finance

Hedge fund GSA Capital to become private trading firm

GSA Capital, one of London’s best-known quantitative hedge funds, is planning to become a private trading firm and focus on better-performing strategies, the latest fund firm to return capital to some external investors in search of higher returns.

The Mayfair-based group, which manages about $2.6bn in assets and was one of the pioneers of low-fee products in the trend-following hedge fund sector, said in a statement it would shut its $750m Trend fund and return money to investors.

Clients in its other three funds will be able to keep their money invested with the firm, but it will no longer take in new assets and will shut its sales team.

GSA is following a well-trodden path in the hedge fund industry, as waning investor interest in some strategies and the distractions of running money for often-demanding and risk-averse investors have persuaded some managers to focus on running internal capital.

In late 2015, billionaire Mike Platt announced he was turning hedge fund BlueCrest into a family office. The move freed him up to take punchier positions, and BlueCrest has since made huge profits. Louis Bacon’s Moore Capital cited a “challenging business model” when it told investors in 2019 it was closing its flagship funds to external money. Last year, Bacon made more than 70 per cent, one of the biggest profits of his long career, helped by a newfound ability to take more risk.

A person close to GSA said it wanted to “focus on returns and [profits] rather than seeking outside capital”, and that it was aiming to become a “trading beast” rather than a “sleepy family office”.

Becoming a private firm would also, in time, allow GSA to increase risk in high-returning strategies, the person added.

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GSA’s move comes after a period of gains in its main funds. Its $400m International fund, which consists mainly of internal money and was already shut to new capital, was up 6.4 per cent last year and is up almost 11 per cent in 2021. Its $1.2bn QMS fund, whose assets come predominantly from external clients, gained 2.3 per cent last year and is up 12.7 per cent this year.

However, performance at its Trend fund has been weaker. The fund launched in 2013 with a 0.5 per cent flat fee, a major challenge to an industry accustomed to charging 2 per cent management fees and 20 per cent of performance. Its assets peaked at $4.5bn but have more recently waned. While it is up 12.3 per cent this year, it made single-digit losses in each of the previous five years.

“To be successful in trend-following you need to scale or fail,” said the person close to the firm, adding that meeting investors in the fund had become a distraction for the firm’s researchers.

GSA was set up in 2005 through the spinout of the global statistical arbitrage desk from Deutsche Bank. In 2015, high-frequency market maker XTX Markets was spun out of GSA.

“A permanent capital base will allow GSA to make long-term investments into [research and development], talent acquisition and retention. GSA also plans to invest a significant fraction of its profits back into the business”, the firm said in a statement.

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