December 21, 2018 / 9:17 PM / 3 months ago

Exclusive: City Financial's hedge fund Decca to shut down - letter

LONDON (Reuters) - London-based fund firm City Financial and the chief investment officer of its Decca Fund, Shahraab Ahmad, have decided to wind down the credit-focused strategy after it “did not deliver the performance that you expect of us”, according to a letter to investors reviewed by Reuters.

City Financial was hit hard earlier in 2018 when Decca, one of its main funds, lost 21 percent in February alone after a wrong-way bet on volatile markets, according to a Bloomberg report.

The so-called February “Volmaggedon”, which saw a steep drop in the value of financial instruments that bet on stock market volatility, was for many hedge funds a terrible month, and for some strategies the worst on record.

“Since launching the fund in 2015, we sought to deliver the types of returns that we have enjoyed with success since my first buyside experience started in 2005,” Decca’s Ahmad said in the letter.

“However, 2018 was a challenging year across strategies and sectors, and we did not deliver the performance that you expect of us and that we are capable of.”

Decca’s assets under management stood at around $1.2 billion at the start of the year, said a source familiar with the matter.

City Financial’s co-founder Andrew Williams, who returned to an executive role at the company in October, started a strategic review of the rest of the business with newly appointed CEO Ed Orlebar, said a source with direct knowledge.

Current CEO Rob Hain will retire from the business following a period of regulatory transition, said the source.

As a result of that review, City Financial will shut its New York office, the source added.

New York-based $200 million opportunistic value fund Shaolin will continue as a standalone, independent manager while City Financial is in talks to sell Hong-Kong based long-short equities strategy PivotBase, which manages around $150 million, the source said.

After Decca’s closure and the restructuring the City Financial’s assets will total around $1.2 billion, down from $3.3 billion a year earlier, the source said.

“We have conducted an in-depth strategic review to ensure that City Financial is best positioned to operate in the current market environment and to serve our investors in the years ahead,” Williams told Reuters.

A spokesman for Decca declined to comment.

Reporting by Maiya Keidan, editing by Louise Heavens

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