Energy Bets Help Take Down Hedge Fund

One of Chicago's biggest hedge funds is shutting down, victim of a brutal pullback for energy bonds pummeling Wall Street investors and international oil companies alike.

The roughly $900 million hedge fund at Achievement Asset Management, run by former UBS Group AG executive Joseph Scoby, was down about 7% through the end of October. Mr. Scoby said he opted to hand back the remaining cash rather than "run a laboratory with investors' money."

"Obviously, we did not make money in credit," Mr. Scoby said. "The thing you zero is on is the crowded nature of this market."

Achievement, which had more than $2 billion under management in mid-2014, is the largest hedge-fund casualty to date from the reversal of a trade that was supposed to carry the year for many star investors. Many managers spotted an opportunity over the past year in beaten-down debt from energy companies hit hard by oil's slide. Yet crude continued to fall, leaving Wall Street traders in the red and large oil companies reporting multibillion losses.

U.S. oil prices fell to near $40 a barrel Tuesday, partly on concerns about the continuing oversupply of crude. The sudden end for Achievement is among the first energy-related hedge fund closures, though industry executives expect more in the weeks to come.

Mr. Scoby, 50 years old, started his career at Chicago option-trading firm O'Connor & Associates, later bought by a predecessor to UBS. Mr. Scoby later served as the group's chief risk officer.

Several former O'Connor traders formed Peak6 Investments in 1997. The Achievement Fund was a part of that firm until last September, when Mr. Scoby spun it out.

Beyond energy, the fund's losses this year included relatively low-rated technology, media and telecommunications corporate bond positions. Over its three-year life, the fund's performance was roughly flat overall.

Crain's Chicago Business earlier reported the fund's plans to close.

Mr. Scoby cited a decline in the availability of liquidity, or the ability to trade in and out of positions, from Wall Street broker-dealers as a reason for the disappointing run. Post-financial crisis regulations have encouraged a shrinking of investment bank trading desks, which many traders have blamed for exacerbating swings in even relatively commonly-traded securities.

"It's going to take me some time to figure out" how to navigate the new status quo, Mr. Scoby said.

The Achievement hedge fund plans to return at least half of its money before the end of the month, and be left with de minimis holdings by the first quarter, Mr. Scoby said. The firm will continue to operate a $70 million portfolio of so-called liquid alternatives aimed at less wealthy investors, including clients of BlackRock Inc.

Write to Rob Copeland at [e-mail]

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November 17, 2015 15:35 ET (20:35 GMT)

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