A decade after making a killing during the financial crisis, Tricadia Capital Management has fallen on hard times. A slew of executives have left and assets have tumbled to about half of where they were at their peak.
The credit hedge fund firm, started in 2003 by Arif Inayatullah and Michael Barnes, has suffered from withdrawals in recent years amid middling performance, according to people with knowledge of the matter. Blackstone Group LP, one of Tricadia’s biggest clients, has redeemed most of its investment, said two of the people, who asked not to be identified because the information is private. Assets now stand at about $1.8 billion, down from a high of $4 billion in 2015.
Tricadia joins a growing list of hedge fund managers who struck it big during the financial crisis, only to struggle in the intervening years as unprecedented monetary stimulus sent global markets soaring. John Paulson, John Burbank, Alan Fournier and Hugh Hendry all failed to keep up, and have seen their funds shrink or shutter.
The flagship Tricadia Credit Strategies fund has annualized gains of about 2 percent since the beginning of 2014, according to investor documents seen by Bloomberg. The fund underperformed Hedge Fund Research Inc.’s Relative Value index for three straight years before rebounding in 2017, when it jumped 7.8 percent.
Assets in that strategy, including separately managed accounts, have fallen by more than half from their 2014 peak to $1.5 billion. Firm-wide assets have also declined in part because Tricadia returned $500 million to investors in its second distressed and special situations fund, according to one of the people.
An external spokesman for New York-based Tricadia declined to comment, as did a Blackstone representative.
In addition to the lackluster returns, the departure of several employees at Tricadia has discouraged investors, according to one client. Raza Mujtaba, a partner, left this month to join Serengeti Asset Management, while Vimal Shah, also a partner, is on sabbatical with no set return date, people with knowledge of the matter said.
The team co-led by Shah, which invests in asset-backed securities, was the firm’s biggest money-maker last year, documents show. Investments across ABS contributed about 90 percent of the credit strategies fund’s profits in 2017. Amit Bubna, who leads the team with Shah, continues to oversee the strategy along with the firm’s founders.
Other departures this year include money managers Imran Ahmed, David Walker and Javier Di Fiori, as well as analysts Tripp Handke and Simon Wagner, and investor relations head Daniel Hoinacki. Money managers Keith Lombardo and Kenneth Kempf left last year, as did Jason Marks. Mujtaba, Shah, Ahmed and Lombardo were veteran traders for the firm, having joined about a decade or more ago.
They declined to comment or didn’t reply to messages. The firm still has about 20 investment professionals, according to a person briefed on the matter.
Barnes and Inayatullah, who both had worked in structured credit arbitrage at UBS Warburg, founded Tricadia as an affiliate of Mariner Investment Group.
The main fund began trading in 2005 and has annualized returns of about 11 percent since inception. Its banner year was in 2007, when structured credit wagers helped it return north of 60 percent. Tricadia had bet against mortgage assets packaged into collateralized debt obligations, scoring a windfall when the market imploded. In 2008, when the average hedge fund plunged almost 20 percent, Tricadia made 2.6 percent, and in 2009 it surged more than 26 percent.
Tricadia has mostly cooled off in recent years, along with its credit-focused peers. Broadly, hedge fund investors have pulled money out of fixed-income strategies, opting instead for more specialized products. Relative value credit hedge funds saw $22.9 billion of outflows in 2016, 2017 and the first quarter of this year, according to eVestment data. Overall, fixed-income hedge funds lost $41.6 billion in that span, the data show.
“Credit spreads are tight,” said Darren Wolf, head of Alternative Investment Strategies for the Americas at Aberdeen Asset Management. “Investors would rather put their money into niche products — middle-market stressed or distressed, less-liquid credit, specialty finance, private credit — that offer much higher expected returns, albeit with different, and often higher, risks.”
Tricadia has taken steps to adapt. In addition to having lowered management fees for its investors, the firm is in talks with investors to start a second Convexity fund in the coming months, according to one of the people. That strategy is designed to protect against unexpected events that lead to market selloffs.
The firm also plans to invest in niche opportunities within emerging markets. This week Tricadia hired Arif Javeed, a former analyst at Soros Fund Management, to oversee investments in the developing world, as well as special situations. Tricadia is in talks with investors about starting a third distressed and special situations fund, said the person. The first and second iterations annualized gains of 11.3 percent and 16.9 percent, respectively, over their lives.
“Managers are getting smarter about tailoring and customizing investment strategies for client needs,” Wolf said.
— With assistance by Caroline Gage