st1:*{behavior:url(#ieooui) }

/* Style Definitions */
{mso-style-name:”Table Normal”;
mso-padding-alt:0cm 5.4pt 0cm 5.4pt;
font-family:”Times New Roman”;

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.

Platypus is now
liquidating its funds and returning capital to investors. When this is done, its
four partners will take much of the remainder of 2009 off to “rest and research”
and consider further ideas, such as finding an incubator to partner with. “We
may look to rebuild provided we are able to obtain the patronage of a suitable ‘big
brother’ who can assist us with marketing, compliance and business risk issues.”
Their ideas should be known in the fourth quarter, Talbot said.


Join the discussion