Hedge-fund manager Jamie Dinan is ending 2016 the way he started it: eating humble pie.
The main fund at his York Capital Management, which fell 14% last year, lost another 1% this year through early December. That performance in back-to-back years has pushed Mr. Dinan to crisscross the globe in his most intense client interactions in years, people familiar with the matter say.
He took his private jet to Seoul in January to meet with South Korea’s sovereign-wealth fund. In March and April, he met with investors in Switzerland, Sweden and Norway. More recently, the Abu Dhabi Investment Authority and large investors throughout the U.S. have landed on his itinerary.
He has told clients that investment mistakes as well as unpredictably volatile markets hurt the firm’s performance. He said the main fund would re-emphasize its focus on betting on whether corporate deals go through. He has told investors recently that returns are improving.
Part of that message is similar to what he told investors earlier this year at the New York firm’s annual meeting.
“We need to do a better job and make everyone some money,” Mr. Dinan, 57 years old, said at that meeting. With a personal fortune estimated at $2 billion, he paid $100 million for a piece of the NBA’s Milwaukee Bucks in 2014. He had enough clout to help get wrestling reinstated as an Olympic sport; his sons wrestled in school.
Through a spokesman, Mr. Dinan declined to comment for this article.
Earlier in December 2016, Mr. Dinan told partners at York that he has no intention of closing York.
Hedge funds were once prized by clients as profit machines that could do well even when the market declined. The most ambitious diversified in a bid to become asset managers. But after years of disappointing performance, investors have pulled money from hedge funds for four straight quarters—the longest stretch of outflows since 2008, according to research-firm HFR Inc. By April, roughly 85% of hedge funds were below their high-water marks, or the point at which investment gains make up for losses, and funds can start charging performance fees again, a recent Morgan Stanley report said.
The pressure is particularly visible at the largest funds. Brevan Howard Asset Management, Och-Ziff Capital Management, Pershing Square Capital Management and Tudor Investment Corp. have been plagued by poor performance and investor withdrawals. All four have announced fee cuts this year, and some have laid off employees.
“In some cases, you’ve just seen the emperor has no clothes,” Rhode Island General Treasurer Seth Magaziner said in an interview.
Rhode Island in September decided to halve its hedge-fund investments, and it is redeeming from firms including Brevan Howard and Och-Ziff. It isn’t invested in York. The state plans to redeploy some of its hedge fund money into private equity.
High fees helped drive the decision. Mr. Magaziner said more than half the state’s gross returns from hedge funds was lost to fees and expenses over the three years that ended June 30. The pension’s costs of investing in other fund types relative to their returns were nowhere near as high, he said.
Mr. Dinan is taking steps to retrench at York, where assets under management have slumped to $17 billion this year, down 35% from $26 billion last year.
He has doled out fee discounts to big investors. He has stopped naming new partners, and has met with division heads to identify staff cuts. A person close to York said such meetings are routine and that Mr. Dinan has no plans to lay off employees.
Mr. Dinan tasked a top lieutenant, Christophe Aurand, with helping to right the $3.7 billion flagship fund that Mr. Dinan and York’s chief investment officer, Daniel Schwartz, run. Michael Weinberger, who contributed to the fund and was one of the earliest partners at York, left this year to start his own hedge fund.
The flagship fund bets on deals and other corporate changes around the world, on stocks and on debt. York also manages other hedge, private-equity and collateralized loan obligation funds.
The flagship’s executives are putting stricter limits on “crowded trades,” in which hedge funds own more than 20% of a company’s shares, said a person close to the firm.
Mr. Dinan, a baseball fan, told investors on a recent conference call that York would supersize “fat pitch” bets they think are particularly attractive, as the firm did with a third-quarter wager on biotech company Medivation being acquired.
“I’m quite pleased with portfolio stability as well as the firm’s stability,” Mr. Dinan said on the call.
Some inside York point to the flagship fund’s having made up nearly all of a 7.7% loss it had for the year through February 2016 as a sign it is now on the right track. The fund’s average annualized return since its 1991 start is 12.1%.
Most of York’s other hedge funds are up for the year through Dec. 7, said a person close to the firm.
But the gap between the main fund and its benchmark, the S&P 500, has widened this year and some of the firm’s other funds remain under their high-water mark. Another person close to York described York’s 2016 income as several hundred million dollars, less than in the firm’s boom years.
The plain-spoken Mr. Dinan has overcome setbacks before.
A Wharton undergraduate who worked as a junior banker at Donaldson, Lufkin & Jenrette, Mr. Dinan started York in 1991 with $3.6 million as an event-driven fund. The flagship rebounded after taking steep losses in 2002, 2008 and 2011.
But now the fund is likely to have two underperforming years in a row. By late 2015, investment consultant Cambridge Associates had recommended some clients redeem from the fund, according to people familiar with the matter. Cliffwater, another investment consultant, followed suit.
This year, the fund was hurt by Brexit and the breakup of the planned $150 billion merger of Pfizer and Allergan. Allergan was one of the fund’s biggest positions at the time. Recently, the fund made money on Medivation and a bet that the Marriott International-Starwood Hotels & Resorts Worldwide deal would happen.
Still, earlier this month, the $24.5 billion Texas County & District Retirement System, which manages money for workers including nurses and mechanics, said it was pulling nearly a quarter-billion dollars from York.
People close to York say they expect investors to return if the fund performs well.
Richard Galanti, chief financial officer of Costco Wholesale Corp. and an investor with the fund since its inception, described himself as “a believer” given the fund’s long-term record. He said he was keeping his money at York and that its smaller size might improve performance. “Is a little smaller better? It can’t hurt,” Mr. Galanti said.
–Mark Maremont contributed to this article.
