Star hedge-fund manager suffers rare setback
Dymon Asia Currency Value Fund lost about 40% of its value this year through August
An Asian hedge-fund firm with a strong record has experienced a surprising loss from a small fund that made mistimed bets on stocks and currencies. The fund managed by Danny Yong’s Singapore-based Dymon Asia Capital Ltd. had lost around 40% of its value in the year through August, following similar declines over the course of 2017, according to two people familiar with its performance. It has also seen redemptions which have reduced its assets under management to around $100 million.
This is more a mark on the firm’s reputation than a major business headache. The Dymon Asia Currency Value Fund is much smaller and separate from the firm’s main Dymon Asia Macro Fund. The latter, which recently had roughly $3 billion in assets under management, takes positions in markets such as currencies, interest rates and futures. It is up around 1% in the year through part of October.
Still, the heavy losses from the currency value fund have surprised investors and marred the strong record of Dymon and its co-founder Mr. Yong, a former Citadel LLC managing director, who is one of the region’s most successful alternative investors. Despite its name, one of the currency fund’s losing bets was a wager that U.S. stocks would fall this year, according to people familiar with the matter.
Mr. Yong previously worked as a currency trader at Goldman Sachs and J.P. Morgan’s outposts in Asia before setting up and running Citadel’s Asia macro trading business from 2005 to 2007. He started Dymon in mid-2008, shortly before the global financial crisis, with about $100 million in seed money from billionaire Paul Tudor Jones’s investment firm and $13 million in other funds.
Dymon now has about $5 billion in assets under management, making it one of Asia’s largest alternative investment managers. The firm oversees hedge funds, private-equity and venture-capital strategies and has a dozen funds, according to its website. It has drawn investors from North America, Europe and Asia, including Singapore’s state investment company Temasek Holdings, which has a stake in one of Dymon’s private-equity funds.
The Asia currency fund, managed by Mr. Yong, was launched in 2011, according to Dymon’s website. It made concentrated bets, often using options, according to two people familiar with its performance. People familiar with the fund said it wasn’t widely marketed to in- vestors, and a large portion of its assets were Mr. Yong’s personal funds. Unlike the bigger Dymon macro fund, the currency fund didn’t have rules governing the size of its positions or stop-loss orders, a type of trading arrangement designed to limit losses on specific trades, according to people familiar with the fund.
The currency fund was lauded as one of the world’s top-performing funds in a ranking compiled by Bloomberg in 2016, when it came in second place for funds with assets between $250 million and $1 billion, with an annual net return of 56.1%. That year, the fund benefited from bets on sterling’s fall after the Brexit referendum and the dollar’s rise after the U.S. election.
More recently, the fund had positions on equities in addition to currencies, wagering that U.S. stocks would decline, the people said. It also had bets that the South Korean won would weaken and that gold prices would rise this year, according to one of the people.
Some of those positions began to pay off in October when the S&P 500 suddenly dipped, recovering a small portion of the fund’s losses.
The S&P 500 rose 8.5% in the year through August, and is still up for the year despite a dip in early October. The Korean won weakened 4.3% against the dollar in 2018 through August, and has continued to decline. Gold futures dropped nearly 8% through August and have since recovered slightly.
It was the second year of poor performance for the fund, which fell roughly 40% in 2017 after betting on a dollar rally. The WSJ Dollar Index, which gauges the U.S. currency against a basket of 16 others, fell 7.5% in 2017.
In response to a list of questions emailed to the firm, a spokeswoman for Dymon said various statements were incorrect, but wouldn’t be specific.
The declines in the Dymon currency fund stand out relative to peers and the industry. An index of Asia-focused hedge funds created by data provider HFRX has returned minus 4.2% in the year to August. Dymon’s macro fund fell 7.79% in 2017. It also suffered in 2015, losing 5.5% after fees in the first quarter, after the Swiss National Bank scrapped its policy of policy of limiting the Swiss franc’s value against the euro, The Wall Street Journal reported at the time.