By Svea Herbst-Bayliss
BOSTON (Reuters) - Hedge fund Pine River Capital Management will close its Pine River Fixed Income fund and return $1.6 billion to investors, to streamline its offering of funds, according to a letter to clients seen by Reuters.
Brian Taylor, Pine River's founder and co-chief investment officer, told clients on Monday that the eight-year-old fund, which posted some of the hedge fund industry's most eye-popping returns before losing money in 2015 and early 2016, will be closed.
"The next step in this rationalization effort will be the orderly process of converting the holdings of the Pine River Fixed Income Fund to cash and returning that cash to investors," Taylor wrote.
"We feel that the timing is appropriate following the recent decision by Partner and Fixed Income Fund founder Steve Kuhn to reduce his role at Pine River to focus on philanthropy."
Kuhn had been a co-manager of the fund and remains a partner in the firm who consults on trades, according to his attorney, Benjamin Plaut.
Investors will be able to put money into the firm's flagship $3.6 billion Pine River Fund, the letter said.
A Pine River spokesman declined to comment.
"We now believe we can best serve our investors by managing a single flagship multi-strategy fund - the Pine River Fund - which embodies our full opportunity set, rather than simultaneously managing two multi-strategy vehicles," the letter said.
According to the letter, Pine River will also spin off its $1.2 billion China Fund, which is run by Dan Li, allowing Li to run his own firm, Taylor said in the letter. He underscored that Pine River will still be involved in Li's fund and remains committed to China and broader Asia strategies.
The Pine River Fixed Income Fund earned a spectacular 93 percent return in 2009. Its assets peaked at $4 billion and it was instrumental in establishing $13 billion Pine River as a hedge fund industry powerhouse.
The Fixed Income fund gained 31 percent in 2010 and delivered gains every year thereafter until 2015 when it lost 2.7 percent loss last year thanks to investments in corporate bonds.
Fresh losses followed early this year and the fund is now down 2.6 percent through May after a 1 percent gain in May.
Colin Teichholtz, who co-managed the fund with Kuhn and two others, will become co-portfolio manager of the $3.6 billion Pine River Fund, working alongside Aaron Yeary and James Clark. That fund is off 1.3 percent for the year through May.
Many hedge funds have delivered lackluster returns recently and investors have complained about high fees. Taylor said it is reasonable to "reduce fees for those investors who are willing to commit longer-lock capital to our investment ideas." He also said that the firm is raising cash. "For investment strategies with longer life cycles, we are raising longer-lock capital."