Hedge funds trading bonds and currencies are on course for their best year since the global financial crisis, boosted by sharp interest rate hikes that have inflicted heavy losses on equity specialists and traditional investors.
The so-called macro hedge fundsmade famous by George Soros and Louis Bacon, endured a barren period when markets were calmed by trillions of dollars in central bank bond purchases after 2008. But this year they have thrived on the seismic movements of global bond markets and a bullish dollar as the US Federal Reserve and other central banks battle runaway inflation.
Among the winners are billionaire trader Chris Rokos, who recovered from last year’s losses to gain 45.5% in 2022, helped by bets on rising interest rates, including during the UK market turmoil in the fall. That leaves the Brevan Howard co-founder on track for his best year since launching his own fund, now one of the world’s largest macro funds with around $15.5 billion in assets, in 2015. .
Caxton Associates chief executive Andrew Law gained 30.2% in mid-December in his $4.3 billion Macro fund, which is closed to new funds, according to an investor. New York-based Haidar Capital gained 194% in its Jupiter fund, helped by bond and commodity bets, having at one point this year risen more than 270%.
“It reminds me of the start of my career when macro funds were the dominant style of investing,” said Kenneth Tropin, chairman of $19 billion asset Graham Capital, which he founded in 1994, making reference to strong periods for macro-traders. in the 1980s, 1990s and early 2000s.
“These were true hedge funds that intentionally did not correlate to people’s underlying exposure to stocks and bonds,” Tropin added.
Global equities have fallen 20% this year, while bonds have posted their biggest drop in decades, making 2022 a year to forget for most asset managers. But hedge funds that can bet against bonds or treat currencies as an asset class have surged. Macro funds have on average gained 8.2% in the first 11 months of this year, according to data group HFR. That puts them on track for their best year since 2007, when the global financial crisis began.
Traders took advantage of bets on rising yields, such as the two-year US debt, whose yield rose from 0.7% to 4.3%, and the 10-year gilt, which rose from 1% to 3.6%. A surprise change by the Bank of Japan to its yield curve control policy, which pushed Japanese government bond yields higher, resulted in a further increase in yields.
“They gave every macro trader a lovely Christmas – even the office security guards are running out of Japanese government bonds, I think,” joked one macro hedge fund manager.
With the “artificial suppression of volatility” of ultra-loose monetary policy now over, macro traders should continue to profit from their economic research, said Darren Wolf, global head of investments and alternatives at Abrdn.
Computer-based hedge funds also benefited, with many market moves providing long-lasting trends. These so-called managed term funds are up 12.6%, their best year of performance since 2008.
London-based Aspect Capital, which manages around $10 billion in assets, gained 39.7% in its flagship Diversified fund. He took advantage of markets including bonds, energy and commodities, with his biggest single win coming from bets against UK gilts. Leda Braga’s Systematica gained 27% in its BlueTrend fund.
“We are in a new era where the unexpected continues to happen with alarming regularity,” said Andrew Beer, managing member of US investment firm Dynamic Beta. Rising yields and fast-moving currencies presented opportunities for trend-following funds, he added.
The gains stand in stark contrast to the performance of equity hedge funds, many of which endured a miserable year as high-growth but unprofitable tech stocks that soared in the bull market were sent into a tailspin by rising interest rates. ‘interest.
Chase Coleman’s Tiger Global, one of the biggest winners from the surge in tech stocks during the height of the coronavirus pandemic, has lost 54% this year. Andreas Halvorsen’s Viking, which pulled out of stocks trading at very high multiples earlier this year, lost 3.3% through mid-December.
Meanwhile, Boston-based Whale Rock, a technology-focused fund, lost 42.7%. And Skye Global, created by former Third Point analyst Jamie Sterne, fell 40.9%, hit by losses in stocks including Amazon, Microsoft and Alphabet. Sterne wrote in a letter to investors seen by the Financial Times that he was wrong about the “seriousness of macro risks”.
Overall, equity funds are down 9.7%, putting them on track for their worst year of returns since the 2008 financial crisis, according to HFR.
“Our biggest disappointment came from these managers, even the best known ones with long track records, who did not anticipate the impact of rising rates on growth stocks,” said Cédric Vuignier, head of managed funds. liquid alternatives and research at SYZ Capital. “They didn’t recognize the paradigm shift and buried their heads in the sand.”
With the exception of 2020, this year marked the largest gap between the top and bottom deciles of hedge fund performance since the aftermath of the 2009 financial crisis, according to HFR.
“Over the past 10 years, people have been rewarded for investing in hedge fund strategies correlated with [market returns]said Tropin of Graham Capital. “However, 2022 was the year to remind you that a hedge fund should ideally offer you diversity as well.”
Additional reporting by Katie Martin