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Sydney hedge fund manager Platypus Capital Management shut down last month as insufficient scale and the difficulty of raising capital from offshore clients in a “post- Madoff world” made business as an independent Australian hedge fund unviable. Even though convicted US fraudster Bernard Madoff claimed to run a market-maker investment firm, not a typical hedge fund, his momentous crime hurt the hedge fund industry, whose managers have a reputation for keeping their strategies secret from investors.
According to Chris Talbot, partner at Platypus, the hedge fund shut down partly because it saw slim chances of raising capital from its offshore client base in coming years. The Madoff scandal meant that due diligence checks would become more frequent and exhaustive, requiring more visits to Australia by northern hemisphere clients whose operating expenses are already crimped. “People need a very good reason to sit on a plane for 24 hours each way,” Talbot said. “If they’re in London, they can get in a cab and see hundreds of managers. “Due diligence has become an absolute focus and will lead to more regulation – even though the legislation was there to stop Madoff anyway.”
The performance of Platypus’ funds, which managed about $46 million, had been good. According to the firm’s May 2009 figures, its long/ short Australian equities fund generated 18 per cent since inception against the -13.05 per cent notched by the ASX200, and its Asian equities fund returned -13.85 per cent while the MSCI Pacific index nearly doubled that loss. But the business challenges of independently running hedge funds from Australia – without a large domestic market – proved too great.
“Within the Australian market, a lot of super funds are only starting to dip their toes into the pool of single-manager hedge funds,” Talbot said. In an email to industry colleagues, he wrote that “Platypus is not at a viable size in the industry as it currently exists”. Other hedge fund managers that have closed for performance or scale reasons throughout the financial crisis include Basis Capital, the BT Global Return Fund, Colonial First State Global Asset Management’s hedge fund-offund, Goldman Sachs JBWere’s multi-strategy fund, the Select Gottex hedge fund-of-funds and Eclectic Capital Management.
