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Odey Hedge Fund Posts Record Gain in April After Bets on Rally

Date: Thursday, May 7, 2009
Author: Tom Cahill, Bloomberg

Odey European Inc., the hedge fund run by Crispin Odey, posted the biggest monthly gain in its 17-year history after betting that “junk” shares would be the biggest beneficiaries in a market rally.

The fund advanced 28 percent in April, according to data compiled by Bloomberg. Odey, 50, reversed his bets on bank stocks falling, and bought shares in Royal Bank of Scotland Group Plc, Barclays Plc and companies such as Avis Europe Plc.

Odey, who’s based in London, purchased shares of some the companies for as little as two times earnings, said an investor familiar with his strategy. Europe’s benchmark Stoxx 600 Index trades at 20 times earnings today. Europe’s weakest companies led April’s record rally in stocks, as investors bet the first global recession since World War II had eased. Barclays jumped 90 percent and RBS 70 percent in London trading during April.

“It’s been a bit of a junk rally with some stocks that were heavily written down rebounding from lows,” said Andrew Lodge, managing director of Nedgroup Investment, which manages about $700 million in hedge fund investments from the Isle of Man. “He’s called this rally right. It’s not something everyone has participated in.”

Odey wasn’t immediately available to comment.

The 67 companies in the Stoxx 600 with debt-to-equity ratios above 50 percent and a return on assets of less than zero added an average of 33 percent in April, more than double the increase for the European benchmark index, according to data compiled by Bloomberg.

Bank Shares

Odey’s funds held about 19 million shares in Barclays Plc as of March 31 and 20 million shares in Royal Bank of Scotland Group Plc as of March 2, according to regulatory filings. He also bought about 30.5 million shares, or 3.3 percent, of car rental firm Avis Europe, on Feb. 5. The stock has since soared five-fold.

April’s gains leave Odey European up about 25 percent this year, according to Bloomberg data. The $1.1 billion fund has returned an average of 15 percent for the past five years. It returned 11 percent in 2008, and 55 percent in 2007 as Odey bet on declines in financial services shares.

Hedge funds have climbed about 3 percent so far this year, according to Chicago-based Hedge Fund Research Inc.’s Global Hedge Fund Index. Hedge funds fell about 19 percent on average in 2008, the worst year since HFR began tracking returns in 1990.

Odey, a former fund manager at Baring Asset Management, started Odey Asset Management in 1991. The firm now manages about $4 billion, according to its Web site. Odey owns about 9.3 percent of Odey European, according to an April 30 filing.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net