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Market turmoil splits hedge funds into macro winners and tech losers


Market turmoil pushed by Russia’s invasion of Ukraine and rising inflation has sharply divided the hedge fund trade, with macro hedge funds celebrating considered one of their best-ever begins to a yr whereas know-how and development funds rack up double-digit losses.

The high 10 per cent of hedge funds gained a median of 24.3 per cent within the first quarter, whereas the underside decile dropped by 15.4 per cent, based on HFR, which tracks the sector. The dispersion is among the widest for the reason that monetary disaster.

The trade as an entire suffered losses of 0.3 per cent for the primary quarter, as measured by the HFRI fund-weighted index, and bigger funds tended to do higher than small ones.

“I struggle to think of a quarter with more dispersion in quite a long time,” mentioned Michael Edwards, deputy chief funding officer of Weiss Multi-Strategy Advisers.

Many long-short fairness hedge funds minimize their publicity to US shares and decreased leverage because the market bought off in January and February, nervous that there was additional room for shares to fall. They remained on the sidelines and pared positions additional when the market lastly discovered its footing, based on the prime brokerage arm of Goldman Sachs.

It meant that some funds missed out on a 9 per cent rally within the S&P 500 from its February lows, together with in most of the know-how shares that had been badly hit on the yr’s begin. That drove the HFRI index for fairness funds down 4 per cent.

Tiger Global was among the many hardest hit: it’s down 34 per cent for the quarter. Melvin Capital, Whale Rock and RiverPark’s Long/Short fund all noticed drops of greater than 20 per cent within the quarter, as shopper, know-how and development shares extra usually struggled. The troubles with tech weren’t confined to the US. Accendo Capital misplaced 17.8 per cent, as considered one of its greatest holdings, Swedish telecoms producer Hexatronic, gave again a few of final yr’s positive aspects.

By distinction, computer-driven and macro funds rallied strongly: HFRI’s macro index rose greater than 8 per cent within the quarter.

Those positive aspects, Edwards added, had been due partially to the actual fact macro quant funds traded systematically. Without human sensibilities to be affected by the struggle in Ukraine, surge in Treasury yields and sell-off in markets, computer-driven funds had been faster to re-enter the fray in comparison with some flesh-and-bone hedge fund managers.

“Machines are not subject to the same Fomo [fear of missing out] and wound-licking tendencies that discretionary managers are,” he mentioned.

Among the most important winners this yr have been the BH-DG Systematic Trading fund, run by a three way partnership between hedge fund agency Brevan Howard and former Chase Manhattan dealer David Gorton. The fund gained 23 per cent to late March, based on numbers despatched to buyers.

Meanwhile, Leda Braga’s Systematica was up almost 18 per cent, helped by bets on commodities and bonds, and Aspect Capital is up 21.5 per cent in its Diversified fund.

Bridgewater, the world’s greatest hedge fund with about $150bn underneath administration, gained 16.3 per cent. It advised buyers that its high performances got here in commodities, quick charges and nominal bonds.

Many of the profitable funds use algorithms to foretell and wager on developments and patterns in futures and different monetary markets. They have profited from an enormous sell-off in authorities bond markets this yr, with yields on 2-year US Treasuries rocketing from 0.7 per cent to 2.4 per cent and 10-year yields leaping from 1.5 per cent to 2.5 per cent, because the Federal Reserve strikes to tighten financial coverage.

“So far this year [performance] is spectacular,” mentioned Philippe Jordan, president at Paris-based CFM, which manages round $9bn, and is up round 17 per cent in its Discus technique and seven per cent in its flagship Stratus fund. “The macro backdrop for [quant] futures trading is better than it’s been in the past 10 years.” 

The HFRI commodity funds index soared almost 25 per cent, powered by a one-third rise within the worth of crude oil and a bounce for pure fuel of just about two-thirds. Makuria Investment Management, which invests in commodities and firms concerned within the vitality transition, gained 31 per cent. “The tragic events in Ukraine merely accelerated already existing structural trends across commodity markets . . . by further increasing market tightness,” founder Mans Larsson wrote.

Other merchants have additionally profited from the large market strikes in bonds and currencies. Odey Asset Management’s European fund gained almost 61 per cent to mid-March, helped by bets on long-dated bond yields rising. He believes they’ve additional to go. “There’s nothing holding down yields from here,” mentioned founder Crispin Odey.

Equity hedge funds had a a lot more durable time. Funds that had been positioned for rising costs suffered losses as fairness markets had been affected by the Ukraine struggle and the prospect of upper borrowing prices, and bond markets bought off quickly.

“Extreme volatility in the rates market and the Ukraine situation delivered a difficult risk environment for all asset classes,” mentioned Kevin Russell, chief funding officer on the UBS hedge fund unit O’Connor, which manages greater than $11.2bn in belongings.



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