Hedge funds hit by June sell-off even as many still boast 2013 gains

Date: Thursday, July 4, 2013
Author: Svea Herbst-Bayliss and Katya Wachtel, Reuters

Sharp market sell-offs in June tripped up many veterans in the $2.25 trillion hedge fund industry with big name managers including Daniel Loeb, Barry Rosenstein, David Einhorn and Leon Cooperman nursing losses for the month.

Many funds were caught off guard by the deep market sell-off triggered by Fed Chairman Ben Bernanke's comments that the central bank may consider tapering its easy money policies, including billions a month in bond purchases, by year-end.

The losses took a bite out of solid year-to-date gains among many hedge funds that had been fueled by a strong stock market rally at the start of the year coupled with bets that Japan's economy will finally recover.

With more uncertainty looming, investors looking at the second half of the year are eyeing rotating their capital away from fixed income to stock pickers who might be less impacted by speculation about monetary policy, said several investors who allocate money to hedge funds.

"We are putting capital where it won't be affected by swings in interest rates," said Maglan Capital's David Tawil whose hedge fund is up 23 percent this year after dipping 1.2 percent in June. "It is a risk I want to live without, because it is not something you can't plan for or fight."

During the first six months of 2013, the average hedge fund gained 3.4 percent, preliminary data from Hedge Fund Research show, while the broader S&P 500 climbed 12.6 percent.

The list of funds that faltered in June includes Barry Rosenstein's Jana Partners Fund, which slipped 1.3 percent last month but is still up 10.3 percent for the year, and Leon Cooperman's Omega Advisors, which fell about 1 percent in June but is up 10.5 percent for the year, investors in the funds said.

Loeb's Third Point Offshore Fund and Einhorn's Greenlight Capital both lost ground in June too but are solidly in the black for the year to date.

Last month's unexpected selloff in bonds and stocks hit big and smaller funds alike. Corsair Capital Management, with some $500 million in assets, lost 1.9 percent in June but is up 7.1 percent this year. Aaron Cowen's recently launched Suvretta Capital Management is still up 10 percent for the year but dipped 1 percent in June.

Former UBS fixed income head Sal Naro's Coherence Capital trimmed holdings of preferred stocks as that market dropped some 15 percent in three weeks, according to a person familiar with the portfolio. The fund slid 1.4 percent last month, but remains up 10.6 percent for the year.

BTG Pactual's Global Emerging Markets and Macro Fund, one of 2012's best performing hedge funds, estimates it lost about 2.5 percent in June, according to a person familiar with the performance.

Funds with large exposure to bond markets, particularly mortgage credit, were hit particularly hard in June when the yields on Treasuries and agency mortgage securities soared as the prices of bonds fell.

Many mortgage-focused traders are still tallying recent performance numbers. Other managers have said they plan to update investors after the July 4 U.S. stock market holiday.

However, some prominent funds sidestepped the market tumult in June. One of those was Hutchin Hill, a $1.1 billion hedge fund run by former SAC Capital manager Neil Chriss, which inched up 0.1 percent in June, and is up 10.1 percent for the year.

Steven Cohen's SAC Capital Advisors and Kenneth Griffin's flagship portfolios at Citadel also rose in June, adding to yearly gains.

Roy Niederhoffer's $560 million R. G. Niederhoffer Capital Management saw its flagship portfolio jump almost 3 percent for the month through June 21, pushing yearly gains to almost 30 percent, according to an investor letter.

"For hedge funds, June is already the worst month in over a year and could easily be the worst month since 2011 unless equities rally," Niederhoffer wrote in a letter dated June 24.

Some managers said quick reaction to changing market conditions helped cement gains for those who had benefited from the strong stock market in the first five months of the year.