Scottwood Pursues Family Office Model
Since its December 1, 2012 inception, the Perlman Family Office Fund has been invested in the U.S. public securities markets. From inception through year-end 2016, the net annualized gain was 19.90%, with a Sharpe ratio of 2.34. Returns were achieved with tax efficiency, very low investment costs, a highly liquid portfolio and no leverage. Net gain for 2016 was 24.95%
The Perlman Family Office Fund is included in the HFR Index. The most widely followed hedge fund research, tracking and data gathering firms ranked the performance of the Perlman Family Office Fund for each year, and for the cumulative four year period, in the top ten of event-driven managers. Returns also topped those of the the S&P 500 and most hedge fund indices.
Since January 1, 2016, the Perlman Family Office Fund has been closed to new investors.
A Short History of Predecessor Hedge Fund Scottwood Capital Management
Scottwood Capital Management was a Greenwich, Connecticut-based hedge fund founded by Edward Perlman, and whose investment objective was to produce good risk-adjusted returns, with alpha. Scottwood's investors were rewarded with 10-year net annualized returns of approximately 12% from inception December 2001 through July 2011, when the firm returned all of its investors' capital. That track record outperformed the stock market's flat returns and the 6% average gain of hedge funds. At its peak, Scottwood had almost $1 billion in assets under management.
On the business side, Edward Perlman closely aligned his firm's interests with those of his clients'. Always vigilant about his investors' capital, he went to great lengths to avoid hidden market and business risks. As a hands-on manager running the day-to-day side of the business, he was lauded for keeping fund expenses among the lowest in the hedge fund industry. Always striving for transparency, in 2006 Scottwood registered with the SEC, many years before regulators made such requirements mandatory.
With little fanfare, Mr. Perlman in 2011 made a dramatic call to return all outside capital promptly to his investors. In the months preceding that decision, Mr. Perlman had quietly liquidated all of the fund’s portfolio, thereby eliminating exposure to what he felt was an impending period of poor market conditions and a lack of distressed investment opportunities -- the kind that Scottwood always liked to invest in.
In his letter to investors, Mr. Perlman made it clear at that time in mid-2011 that cash was the safest place to have their money. The timing was prescient, as financial markets immediately began to melt down from the European debt crisis. Scottwood's investors received 100% of their money back before the market turmoil and ended up +1.5% for the year, outpacing the negative returns of the hedge fund industry.
In terms of investment performance, the short history of Scottwood Capital is one of alpha generation and having little correlation with the financial markets, two sought after, and elusive, goals of hedge funds.
Back in 2002, the firm’s first full year in existence, the financial markets were grappling with a recession and were very unstable; most fell between 10 and 20 percent, and nearly all hedge funds and other asset managers mirrored that performance. Scottwood, by contrast, gained a net 10 percent for 2002, Notably, the firm avoided many disastrous investments, like WorldCom, that attracted throes of hedge funds.
In 2008, another year of extreme volatility in the midst of the financial crisis, Mr. Perlman raised Scottwood's cash level to 100% in anticipation of the market’s free fall later in the year. Scottwood only lost 7.65% that year (its worst year ever), compared to 19% for the hedge fund industry and 38% for the S&P 500 stock index.
But, it was Edward Perlman's fair treatment of his investors, not just his returns, that stood out in 2008. While many hedge funds engaged in the practice of “gating,” or limiting investors’ withdrawals, and antagonized investors by placing many of their investments in side pockets, Scottwood Capital Management avoided both practices. In fact, the firm gladly helped out its clients by sending them money back that they could not otherwise redeem from other hedge funds who gated them. Thankful investors rewarded Scottwood by returning to the fund the very next year, loyal actions that are rare in the hedge fund industry.
Mr. Perlman re-entered the markets with a vengeance in the spring of 2009, snapping up bargains and setting the stage for what would be the firm’s best year ever, a 44.05% net return.
Mr. Perlman received recognition from publications, and his peers, within the hedge fund industry. In 2010, Barron's magazine ranked Scottwood in its Top 100 Hedge Funds in the world in its Penta list, based on 1- and 3-year performance. In 2009, Hedge Fund Markets awarded Scottwood First Place as "best event-driven hedge fund" in the U.S. That same year, Absolute Return selected Scottwood as a final nominee for best event-driven U.S. fund, based on its risk-adjusted returns.
Adam Weiss, formerly a co-founder with Brian Rogers of Short Alpha Bear, helped start Scottwood. He was an employee at Scottwood Capital Management, reporting to Mr. Perlman, until the firm parted ways with him by 2007. Mr. Weiss successfully started many internet websites, domains and email addresses like Creditping, Creditforgetit and Tickler. He also co-founded New York hedge fund Cabochon Capital with Gordon Sweely in 2009.