Citing Tough Market, Manager Calls It Quits

John Botti is shutting down his $402 million Emrose Capital, telling investors he's no longer confident he can preserve their capital in such volatile markets.

During more than 12 years as a hedge fund manager - first at Botti Brown, then at Emrose - Botti has never had a down year. But in an unusually candid letter to investors, Botti said his "substandard results" in recent months have raised doubts about his performance going forward.

"Knowing that I could structure portfolios that would break even and most likely produce gains in declining markets has been something that I could always depend upon," he wrote Sept. 9 from his Mill Valley, Calif., firm. "Our recent losses in the midst of a declining market have cast doubt around this long-standing assumption."

Emrose Offshore Master Fund, which Botti launched in January 2009, gained 6.4% last year and 3.1% this year through August. But his 2010 returns included dips of 0.9% in June, 0.6% in July and 1.4% in August. Botti said he plans to liquidate the fund's long/short equity portfolio by Nov. 30.

The decision marks the second time that Botti has stepped down as a hedge fund manager. He ran San Francisco-based Botti Brown for a decade before resigning about four years ago. The firm has since been renamed Spring Point Capital.

Botti said there won't be a third act as a hedge fund manager. He now plans to use Emrose's strategy to manage his own money. He'll also continue running Mt. Tam Capital, a fund of funds that Botti started with other San Francisco-area hedge fund managers.

Jason Williams, Botti's lieutenant on the investment side at Emrose, now plans to set up his own hedge fund. Botti said he will invest with Williams.

Two other Emrose staffers, Patrick Tenney and Kim Best, will work for Mt. Tam Capital.

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