Boston Globe – Convexity Capital Management, the record-setting hedge fund launched by former Harvard Management Co. stars famous for beating the markets, couldn’t keep up in 2006.
Convexity’s $6 billion hedge fund offers clients a variety of investment strategies. Each earned about 4.5 percent less than their benchmark indexes in 2006, the fund’s first year of operation, according to a person who has seen the results.
That is a more expensive disappointment at Convexity than it would have been at other hedge funds, which typically keep 20 percent or more of the profits they earn for clients.
Convexity charges 20 percent of the amount by which its investments outperform benchmark returns. The firm’s bonus, in effect, is tied to superior performance, rather than raw profit. All hedge funds charge a smaller annual flat fee.
Convexity was created in Boston by former Harvard Management president Jack Meyer, fixed-income investment stars David Mittelman and Maurice Samuels, and more than two dozen other colleagues late in 2005. The $6 billion fund they raised at the start of 2006 was the biggest launch, by far, in hedge fund history.
Meyer declined to comment yesterday.
