Via Financial Times

The shock electoral defeat of Argentina’s President Mauricio Macri helped turn 2019 into a tough year for some big-name hedge funds, even as a global stock and bond markets recorded a bumper year.

In a year in which the S&P 500 rose nearly 29 per cent and 10-year Treasury yields tumbled from 2.69 per cent to 1.91 per cent, Argentina wrongfooted several managers when a shock primary election result in August knocked the country’s stock market and sent its currency plunging against the dollar.

Peronist candidate Alberto Fernández went on to win the election in October, defeating incumbent Mr Macri, whose electoral programme was viewed as more favourable towards business.

New York-based hedge fund Autonomy Capital, an emerging markets specialist that manages about $6bn in assets, finished the year down 5.7 per cent, said a person who had seen the numbers, despite the fund clawing back 8.5 per cent in December.

Founder Robert Gibbins told the Financial Times at the end of 2018 that he was making “a huge call” in predicting that Argentina would become a “normal country” in 15 years’ time.

Chart showing Hedge fund winners and losers in 2019, percentage return.

However, the fund lost 16.3 per cent in the first two weeks of August following the primary result. Autonomy, which made 17 per cent in 2018, declined to comment.

Also losing money in 2019 was Crispin Odey’s Odey European fund, which finished the year down about 10 per cent. It also suffered a loss during August’s sell-off in Argentina, although Mr Odey argued in a letter to clients at the time that it made “no sense for the next government of Fernández to default”.

READ ALSO  ECB threatens banks with capital ‘add-ons’ over leveraged loan risks

Mr Odey’s fund nevertheless recouped a 11.4 per cent gain in December. This was helped by “the reduction in some political uncertainty in the UK post-December’s general election”, the firm said in a statement. Some of Odey Asset Management’s other managers performed better, including James Hanbury’s Absolute Return fund, which gained 11.1 per cent during the year, and his Allegra Developed Markets fund, which was up 27.9 per cent.

Meanwhile, London-based Glen Point Capital, an emerging markets-focused macro fund that reportedly raised money from billionaire investor George Soros, lost 3.3 per cent last year, despite gaining 3.4 per cent in December, said people who had seen the numbers. Glen Point, which was set up by former BlueBay fund managers Neil Phillips and Jonathan Fayman, declined to comment.

The losses come as hedge funds recorded their best year of performance in a decade with a 10.4 per cent gain in 2019, according to data group HFR, when simply holding stocks or bonds would have delivered gains for an industry that charges some of the highest fees in the investment world. Many of the trading tactics used by funds, such as betting on falling prices or trading the price of one asset against another, proved relatively ineffective.

“It almost didn’t matter what type of hedge fund you ran in 2019 because most of the asset classes performed well,” said Yeit Lee, analyst at Quilter Cheviot.

A number of big-name managers were able to turn a profit, helped by buoyant asset prices that put the industry on track for its best year since 2013.

Line chart of Merval stock index showing Argentina proved a testing trade for many hedge funds

Bill Ackman’s Pershing Square had a banner 2019 after a four-year run of negative performance. The publicly traded hedge fund was up 58.1 per cent in 2019, outperforming the broader market and many of its peers. At a conference earlier last year, Mr Ackman partly credited the insights that he learnt from his mentor Warren Buffett for the improved results.

READ ALSO  South Korean court sends Samsung head back to jail for bribery

It was “a largely decent year for the hedge fund industry, with those that have the highest net exposure to traditional equity markets enjoying some tailwind,” said Michiel Meeuwissen, co-head of alternative strategies at Kempen Capital Management in the Netherlands. “From what we’ve seen, there were very few managers that lost money for the year,” he said.

Multi-strategy firms had a good year but they continue to lag behind the broader market. Ken Griffin’s Citadel saw its Wellington Fund deliver 19.4 per cent last year while Steve Cohen’s Point72 Asset Management was up 16 per cent. The two firms have been engaged in a war for talent with the two rivals poaching portfolio managers from each other.

Another multi-strategy outfit, Izzy Englander’s Millennium Management, ended the year up 9.75 per cent, its best performance since 2015.

Meanwhile, Bridgewater’s flagship Pure Alpha fund ended the year almost flat, according to a source familiar with the firm, having pared back losses it suffered earlier in the year from bets on bond yields moving higher. The drop in performance at founder Ray Dalio’s group comes after a strong year in 2018 when Pure Alpha delivered a 14.6 per cent return after fees.

Renaissance Technologies, the $60bn quant hedge fund founded by Jim Simons, extended its winning streak with a 14.2 per cent gain in its Institutional Equities fund. The firm’s institutional Diversified Alpha fund returned 4.7 per cent.

Rival quant firm DE Shaw, which this year increased fees back to its previous 3 per cent management fee and 30 per cent performance fee also notched up strong gains across its strategies. The firm’s flagship multi-strategy fund was up 10.9 per cent last year while its global macro fund Oculus returned 12.2 per cent.

READ ALSO  Higher inflation is coming and it will hit bondholders

Additional reporting by Lindsay Fortado in New York and Robin Wigglesworth in Oslo