Ray Dalio was in the news overnight, and picked up by the Aussie press here
Says Trump’s policies would have a “broadly positive” effect on the US economy
Bond prices have likely made a “30-year top”
“There is a good chance that we are at one of those major reversals that last decade”
“We want to be clear that we think that the man’s policies will have a big impact on the world. Over the last few days, we have seen very early indications of what a Trump presidency might be like via his progress with appointments and initiatives, as well as other feedback that we are getting from various sources, but clearly it is too early to be confident about any assessments”
While Russell Clark’s Horseman Global may no longer be the most bearish it has ever been (it was over 100% net short in June), and has since trimmed its bearish bets to “only” 84% net…
… it certainly remains the most bearish $1 billion+ hedge fund in the world. Which means that in August, when the S&P soared back to record high highs, and global stock markets soared, Horseman’s LPs were less than excited with the fund’s performance. Sure enough, as Clark writes in the latest hedge fund letter, “your fund dropped 4.94% net this month. Losses came from the short book, the FX book and the bond book.“
The mea culpa continues:
It was a poor month for the fund, but probably overdue. The MSCI world index is up 3% this year, while MSCI emerging markets are up nearly 12%. Many of the dollar weakness trades that I have had on this year reversed in the final days of the month as the Federal Reserve talked up interest rate rises.
So is Clark finally ready to throw in the towel and take the blue pill? Not even close, although he does admit that active managers are suffering:
Hedge funds, one of the most prominent types of financial market participants and institutionalized investors, are projected to decline in numbers by the year-end for the first time since the 2008 crisis, affecting the volume and composition of global capital flows, according to the recent research undertaken by the London-based bank, Barclays Plc.
Current sentiment among investors generally falls in line with the bank’s outlook, offering two explanations for the hedge funds’ demise amidst the still-growing, albeit slowly, global economy. Either there are too many hedge funds, or they have become too big to be feasible amid the lack of money-making opportunities, the outcome is a decline in capital allocation throughout the globe in the short-term, further hampering growth prospects.
According to Barclays’ estimate, by late 2016, some 340 hedge funds will cease to exist internationally, a 4 percent decline compared to late 2015. Previously, the industry had grown steadily since 2009, when the scale of contraction was the same 4 percent, while in 2008, some 11 percent of hedge funds closed throughout the globe.
In July, there were a total of 10,007 hedge funds operating worldwide, according to a monthly report by the research firm Hedge Fund Research. Meanwhile, Barclays expects 340 of these to close before the year-end.
“[Paulson] is one of a handful of bold hedge fund investors who poured hundreds of millions of dollars into Greece in a wager that the country’s economy would recover after years of economic crisis,” the New York Times wrote late last summer, on the way to explaining why the wealth management arm of Bank of America Merrill Lynch was liquidating its clients’ money from one of Paulson & Company’s funds. “Mr. Paulson is also one of Puerto Rico’s biggest hedge fund investors, betting that the commonwealth will emerge from its own debt crisis,” The Times continued.
Besides Greece and Puerto Rico, Paulson also managed to tie up money in Mallinckrodt, which is down sharply since last summer.
Now, amid a client exodus, the billionaire is putting up his own holdings to secure a longstanding line of credit with HSBC. “The billionaire pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years,” Bloomberg reports, adding that “Paulson is using his wealth to back the firm’s borrowings after investment losses and client defections cut assets by more than half from their peak.”
Essentially, Paulson secured the line of credit with management fees as collateral, but with AUM having fallen by a whopping $18 billion over the last five or so years, HSBC apparently wanted some reassurance. Here’s a bit more from Bloomberg:
First it was Fortress’ once-gargantuan, peaking at over $8bn in AUM in 2007 “macro” hedge fund (which really was an FX trading desk betting on the ‘acumen’ of a rather dubiousformer employee from Citi, Jeff Feig, who has been implicated in the endless currency manipulation story) which unexpectedly shut down a month ago on massive losses mostly in Brazil, and now – moments ago – we learned that another just as vaunted hedge fund is liquidating.
According to Bloomberg, BlackRock Inc., the world’s largest asset manager, is winding down a global macro hedge fund after losses and investor redemptions eroded assets.
The reason for the liquidation: losses of 9.4% this year, cited by Bloomberg according to an October investor document, leading to the worst year for the asset manager since inception in 2003. The fund, which had $4.6 billion in assets just two years ago, has shrunk to less than $1 billion as of Nov. 1.
As noted above, BlackRock, best known for its ETFs and Larry Fink’s crusade against stock buybacks, is joining money managers including Fortress Investment Group LLC and Bain Capital that shuttered macro funds this year.
Human decisions to sell stocks may have been behind the August rout for equity markets after all, with hedge fund and mutual fund managers selling in response to turbulence and fears for the Chinese economy.
The conclusion, based on work by strategists at JPMorgan, is a riposte to those who have attempted to blame esoteric trading strategies such as “risk parity” for the size and speed of the summer correction.
“Discretionary managers were likely the ones responsible for the recent equity market sell-off,” said Nikolaos Panigirtzoglou, global asset allocation strategist for the bank, in a note to clients.
Macro hedge funds and balanced mutual funds, both of which can invest in a variety of asset classes, took abrupt steps to reduce the risk of stock market losses during the month. The aggregate equity beta of portfolios, a measure of the relationship between equity index movements and those for individual investment funds, declined sharply in August.
The bank also found betas for so-called long-short hedge funds, stock market specialists, declined sharply in August as managers reacted to volatility by paring bets. JPMorgan’s work is based on a regression analysis of index movements, such as the HFRX, a hedge fund benchmark, as a proxy for fund holdings.
June was a bad month for most hedge funds. With China crashing, oil prices resuming their slide, volatility returning, and even momo favorite biotechs no longer rising at their conservative 10% monthly clip, few looked forward to writing their monthly investor letters, and nowhere was the carnage more indicative than in our favorite named hedge fund, the Tulip Trend Fund, which after soaring earlier in the year tumbled 15% in June and is now down almost 20% for the year.
Yes, June was not a good month for trends, or tulips, but some other strategies did work: conservative coupon clipping worked for Canyon which was among the best performing funds, as did those HFT silos for Millennium up 1.3% in June and with an AUM of a staggering $30 billion according to HSBC.
Cash flowing into the global hedge funds is at its highest in two years, propelling capital in the industry to a new peak of more than $2.5tn in the third quarter, up $94bn on the previous quarter.
Chicago-based Hedge Fund Research said the increase was distributed across all strategy areas. Investors allocated over $23 billion of net new capital to hedge funds in the quarter, the highest quarterly inflows since the second quarter of 2011.
The HFRI Fund Weighted Composite Index gained +2.2 percent in the quarter and has gained +5.5 percent in the nine-months to end-September, led by strong performances from Equity Hedge and Event-driven strategies.
HFR said third-quarter inflows were led by Equity Hedge (EH) strategies, as investors allocated over $10.6bn to EH funds in the quarter, the highest quarterly inflow for the strategy since before the financial crisis. Total capital invested in EH strategies stands at $686bn.
Investors allocated over $6.4bn to Event-driven (ED) strategies, continuing the powerful growth of – and interest in – Shareholder Activist and Distressed hedge funds. ED has received over $16.4 billion of inflows this year. Read More
The Luxembourg-based company, which is today valued at €18bn (£15.2bn), is being investigated in the French courts over claims of alleged criminal conduct in an escalating legal row with hedge funds and other investors.
No charges have yet been brought.
The inquiry relates to a breach of contract claim initially brought by investors in the civil courts relating to Mittal Steel’s €26bn acquisition of rival Arcelor in 2006.
The Daily Telegraph can now reveal that the litigants also filed a criminal claim in July 2008, with the action joined by hedge funds in early 2012. Evidence relating to the criminal inquiry was handed to the investigating magistrate in December 2011 – though the nature of such material has not been disclosed.
ArcelorMittal made no mention of the potential criminal proceedings until last month in a little-noticed sentence in its 155-page half-year results statement. Read More