Hedging bets: the biggest winners and losers of 2018

THE worst year for hedge funds since 2011 is drawing to a close. Returns evaporated, some of the biggest names shut up shop and investors pulled their money. But there were some bright spots. Here are a few who beat the odds -- and who bombed -- in 2018:

US winners

A few marquee managers trading macroeconomic themes were able to sidestep the market turmoil and post double-digit gains.

Jeffrey Talpins’s Element Capital Management soared 26pc through November and Autonomy Capital, Robert Gibbins’s more than $4.5bn firm, is up almost 16pc in its global macro fund, according to people familiar with the matter. The funds were both almost flat last month, with Element down 0.4pc and Autonomy up 0.6pc.

In recent months, New York-based Element has benefited from a bet on rising US interest rates. And earlier this year, when political turmoil in Italy roiled markets, Element profited from hedges in rates and currencies designed to protect against growing stress and volatility in the euro area.

Autonomy’s returns were driven largely by wagers in developing and emerging markets: currency and rate bets in Brazil, China and Mexico helped, as did a rally in Puerto Rican debt, one of the people said.

Element and Autonomy stood out among their macro peers, who saw the largest declines last month among the main hedge fund strategies tracked by Hedge Fund Research. Macro funds on average gained 0.3pc on an asset-weighted basis this year.

“Unlike many of the other hedge-fund strategies that focus on a specific market, global macro managers have much greater flexibility on where they invest,” said Don Steinbrugge, managing partner of consulting firm Agecroft Partners. “This causes much greater dispersion of returns.”

Another top performer has been Gresham Investment Management, the New York-based asset manager focused on commodities.

Gresham Quant ACAR jumped just over 28pc in the first 11 months, including a 2.8pc return in November, according to an investor update. The gains were largely driven by the $105m fund’s exposure to European energy markets. Gresham’s fund is among a subset of trendfollowers trading esoteric markets, like cheese or even obscure chemicals. The niche strategy, which seeks uncorrelated returns, has been gaining investor attention as traditional CTAs (commodity trading advisers) falter amid price swings.

US losers

On the flip side, some equity and quantitative funds have struggled against the more volatile backdrop. At least two such US-based funds are headed toward their worst annual declines on record: David Einhorn’s Greenlight Capital, and Quantitative Investment Management’s (QIM) tactical hedge fund.

Greenlight’s decline has been welldocumented, tumbling 3.5pc last month, extending losses to almost 28pc. Einhorn’s value-investing strategy has underperformed the US stock market, with the S&P 500 Index gaining 5.1pc through November 30, including reinvested dividends.

The New York-based firm has been trying to rebound since 2015, and Einhorn has continued to affirm his commitment to value.

“We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline,” he wrote in a July 31 letter.

QIM’s Quantitative Tactical Aggressive Fund, which uses algorithms to trade stocks and exchange-traded vehicles, is on track for only its second annual loss in 10 years. The fund – one of several strategies run by Jaffray Woodriff’s Charlottesville, Virginia-based firm – has plummeted almost 41pc this year after surging 60.5pc in 2017, according to an investor document seen by Bloomberg News.

Europe winners

The return of volatility has beset scores of hedge funds, but for two of the best-known managers in Europe, it’s brought a muchneeded opportunity to repair some of the damages of the past.

Billionaire Alan Howard, who has suffered an investors exodus, cut fees and started several funds to revive his investment firm, is making a strong comeback.

This year his company, Brevan Howard, saw its Master Fund gain about 12pc through November, reversing its worst-ever annual performance since starting in 2003. The macro hedge fund, which has seen assets plunge to about $2.8bn from $28bn in 2013, is looking at its best year since at least 2011, when it gained 2.2pc.

Crispin Odey, whose main fund lost 65pc in the three years through 2017, has also had a good year. Mr Odey, who for years warned of market chaos and lost money betting on it, returned an impressive 48pc through November via his flagship money pool. A vocal critic of central bank policies, Mr Odey has also made money on his long bets this year.

His fund surged 10pc in September alone, boosted by a surge in shares of Sky Plc after Comcast won the auction for the UK broadcaster, and gains in Randgold Resources Ltd after Canada’s Barrick Gold agreed to buy the miner.

Europe losers

By contrast, some of 2017’s winners have been crushed as their long-biased portfolios suffered a setback amid sharp sell-offs. The Horseman European Select Fund, started in 2005, was down 29pc through December 12, according to a client newsletter.

The $104m hedge fund, run by Stephen Roberts, gained almost 40pc last year.

One of GAM Holding’s quant hedge funds meanwhile plunged 29pc this year through November, wiping out all of last year’s gains. The Cantab Capital Partners unit, acquired in 2016 as interest in algorithm-driven funds boomed, struggled with market volatility in February and again in recent months.

Asia winners

Vanhau Asset Management’s macro hedge fund has gained almost 15pc this year through November, according to a client newsletter. The more than $160m fund generated all of this year’s profits from Asia currencies, rates and equities, according to Vishweshwar Anantharam, chief executive officer of the Hong Kong-based firm.

One source of returns was China. Vanhau made money by being bullish on both the country’s currency and equities until February.

It turned bearish on the yuan and stocks from April as trade tensions escalated, Mr Anantharam said. The firm had forecast for China’s current account to deteriorate with rising labour costs and excess capacities, even before the trade spat intensified.

Another standout in Asia was True Partner Capital’s True Partner Fund, which returned 24pc through November, according to Govert Heijboer, the Hong Kong-based co-chief investment officer.

The $255m fund profited from the return of stock market swings after one of the most subdued periods for volatility last year, making 21pc in February alone and rising another 4.8pc in October.

Among the multi-strategy hedge funds, the $693m KS Asia Absolute Return Fund returned 20pc as of October, chief investment officer Kyle Shin said. A large portion of the gains came from a bet that the US Federal Reserve would raise rates more than the market had priced in.

And near the very top of the ladder in Asia is Dantai Capital, whose stock hedge fund surged 47pc in the 11 months through November.

It produced those gains by keeping the value of bullish bets close to that of bearish ones.

Asia losers

The stock market sell-off has led to doubledigit declines at some venerable China-focused hedge funds. Greenwoods Asset Management’s $1.8bn Golden China Fund swung to a 20pc loss in the first 11 months after 2017’s stellar 52pc gain, an update to investors shows, while the $213m Zeal China Fund shed almost 22pc, having made 32pc last year.

The $1.5bn Quantedge Global Fund sank 24.5pc through November, headed for the worst annual return since its 2006 inception, a newsletter sent to investors shows. The document doesn’t shed any light on why the performance was so bad. Of some comfort to investors, the fund has at least returned an annualised 20pc since inception.

‘We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline’