The problems at Marketfield aren't a microcosm of the liquid alts industry at large.
A little more than two years ago, I wrote a Fund Spy called "A Red Giant Engulfs the Long-Short Category." The red giant in question was the MainStay Marketfield fund, whose "supernova-like asset growth" had resulted in $13.4 billion in new assets in 2013 and a peak of more than $20 billion in assets under management, up from a mere $35 million in assets at the end of 2008.
Over the past two years, things have changed radically for the erstwhile liquid alternatives poster child. To put it mildly, the red giant has run into a serious gravitational force.
Performance first hit some rough spots in early 2014 (noted in my article at the time) and has kept running south since then. Marketfield's trailing three-year return through Aug. 31, 2016, of negative 6.35% annualized (A shares) ranks in the bottom of the long-short equity Morningstar Category. Assets have gushed out at an astonishing rate, with the fund most recently checking in with $982 million in AUM, 1/20th of its peak size. In April 2016, Marketfield Asset Management reacquired the fund from New York Life (the parent to MainStay Funds), added CEO Michael Shaoul as a named portfolio manager alongside since-inception manager Michael Aronstein, and set about the work of restoring the fund's performance and reputation.
Clearly, serious investing mistakes were made at Marketfield. Equally apparent, MainStay made some egregious missteps in the marketing of the fund.
Less clear to me is the claim that, as many in the media would have it, the problems at Marketfield stand in miniature for the problems experienced in the liquid alts industry at large. That's a convenient narrative for those seeking attention-grabbing headlines, but it's not a helpful diagnosis of what ails either Marketfield or liquid alternative funds.
A Brief History of a Rise and Fall
Marketfield MFLDX, while classified as a long-short equity fund by Morningstar, also shares characteristics of global macro funds. The fund allocates long and short globally based on themes generated through the macroeconomic research and views of Aronstein and his team, largely implemented via individual securities (and occasionally baskets of securities or exchange-traded funds).
Marketfield established its reputation in the 2008-09 period, when the fund lost only 13% in 2008 (Aronstein shorted many financials) but pivoted adroitly to earn 31% in 2009, thus achieving the rare feat of beating the S&P 500 in both years. Aronstein and company continued to hit the right notes in 2010 and 2011, keeping pace with the index and crushing long-short equity peers. Even after that stretch of success, however, the fund was still relatively small, shy of $1 billion at the end of 2011, with growth coming mainly via word of mouth, as the firm made little effort to market the fund.
It was only after MainStay acquired the fund in 2012, taking over distribution duties while Marketfield Asset Management remained as subadvisor, that the fund's asset growth really took off. There was a great performance track record to sell, and clearly advisors sold it--in spades. MainStay, looking to get a foothold in the fast-expanding liquid alternatives space, caught hold of a rocket ship. There's no direct evidence that the massive inflows had a role in the fund's later underperformance, as Aronstein has generally used large, liquid stocks and indexes to implement his ideas. It's true that the fund shifted to a greater international focus, though Aronstein has said this was a result of the opportunity set rather than a need to deploy capital. Still, it's hard to imagine that the inflows and acclaim didn't at least have an indirect effect, whether in pressure to put money to work, match past success, or simply meet the burdens on time from advisors, investors, and the press.