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Macro hedge funds fail to profit from crisis

Date: Tuesday, April 6, 2010
Author: Sam Jones, Financial Times

Hedge funds that aim to profit from macroeconomic upheavals have had a lacklustre start to 2010, in spite of some of the biggest international monetary crises in more than a decade.

The Greek debt crisis and steep falls in value for both the euro and sterling have failed to translate into noticeable gains for most macro managers, many of whom predicted a stellar year on the back of huge global economic rebalancing.

So-called global macro hedge funds, which specialise in bets on interest rates, sovereign bonds and currencies, have on average lost 1.25 per cent on investments so far this year, according to industry data compiled by Hedge Fund Research, a Chicago-based index compiler.

Many of the hedge fund industry’s biggest names have so far failed to turn market crises to their advantage – often in spite of fervent political criticism linking them to damaging market “speculation”.

Brevan Howard’s $18bn flagship fund – Europe’s largest – is down 0.53 per cent so far this year, according to performance data seen by the Financial Times.

“We expect a challenging and volatile year and the first two months have already lived up to expectations,” the fund’s managers told investors in their most recent letter.

Meanwhile, the Tudor BVI Global fund – run by the legendary US macro trader Paul Tudor Jones – was down 0.55 per cent to mid-March, according to investors.

Macro funds’ emerging market strategies have also had a tricky first quarter.

Moore Capital’s emerging markets fund, run from London by star trader Greg Coffey, was down 5.88 per cent as at March 18.

Historically, the fund has returned an average of close to 13 per cent on an annual basis.

Moore Capital’s flagship fund has fared better and is up 1.58 per cent so far this year.

Spokespeople for Brevan Howard, Tudor and Moore Capital declined to comment.

The average hedge fund has fared slightly better, according to HFR, and is roughly flat on the year.

Credit hedge fund strategies have continued to outperform. Hedge funds that specialise in trading corporate bonds have returned 2.45 per cent so far this year.

Distressed specialists, which bet on the debt of companies undergoing restructurings, have outperformed, too, returning 1.87 per cent.

Relative value funds – which use strategies similar to those pioneered by Long Term Capital Management in the late 1990s – have enjoyed something of a renaissance, returning 2.03 per cent on average so far this year.