Question: Activist Hedge Fund Marcato Capital Management, Backed By Blackstone Group And Billionaire William Ackman, Is Shutting Down As Assets Have Shrivelled After Two Years Of Poor Returns. Richard McGuire, The Firm’s Founder And Portfolio Manager Began Telling Investors Of His Decision To Return Outside Capital A Week Before, And That He Intended To Send …

Question: Activist Hedge Fund Marcato Capital Management, Backed By Blackstone Group And Billionaire William Ackman, Is Shutting Down As Assets Have Shrivelled After Two Years Of Poor Returns. Richard McGuire, The Firm’s Founder And Portfolio Manager Began Telling Investors Of His Decision To Return Outside Capital A Week Before, And That He Intended To Send …

Activist hedge fund Marcato Capital Management, backed byBlackstone Group and billionaire William Ackman, is shutting downas assets have shrivelled after two years of poor returns. RichardMcGuire, the firm’s founder and portfolio manager began tellinginvestors of his decision to return outside capital a week before,and that he intended to send the money back quickly because theportfolio was largely in cash at that point, the sources said oncondition of anonymity.

McGuire had been selling positions over the last months of 2019to meet redemption requests.

The decision marks the end of a nine-year run for one of thehedge fund industry’s most celebrated newcomers who launched in2010 with the backing of Blackstone Group, the world’s biggesthedge fund investor, and Ackman, his former boss at Pershing SquareCapital Management. McGuire was the first former partner to leaveAckman, followed by Scott Ferguson, Roy Katzovicz and Paul Hilal,who have all set up their own firms.

McGuire over the years pressed companies ranging fromDineEquity, now Dine Brands Global, which runs fast food restaurantApplebees, Bank of New York Mellon, auction house Sotheby’s, tofootwear company Deckers Outdoor Corp for changes and won afiercely contested proxy contest at Buffalo Wild Wings.

At its peak, Marcato managed roughly $3 billion in assets, butassets have now shrivelled to a few hundred million, one of thesources said.

Returns started to tumble since 2018, leaving the fund with asizable loss for 2018, an investor said. In 2019, while strong atthe start, also ended in the red after some of the firm’sinvestments that are vulnerable to the effects of the U.S.-Chinatrade war, like Terex Corp, took a hit. Shrinking assets, whileuncomfortable for all investors, are especially problematic foractivist investors that push management to make changes rangingfrom buying back shares to selling off divisions to refreshingtheir boards.

The above information was obtained from the Reuters article ofDecember 22, 2019.

Q) As stated in the above article, bankruptcies of such activisthedge funds as Marcato Capital Management are especiallyproblematic. Why is that the case? Can you give an example ofanother activist hedge fund bankruptcy?
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