Tiger’s Roberston Says ‘Disaster’ Funds Wrong: Tom Keene

Julian Robertson, founder of Tiger Management LLC, said hedge funds that have positioned themselves for a “disaster” are making a mistake.

“I think right now they are all scared,” Robertson, who once ran one of the most successful hedge funds in world, said today in a television interview on “Bloomberg Surveillance” with Tom Keene. “They are really only going to be profitable in the event of a big disaster.”

Hedge funds have trailed markets this year after cutting risk to protect themselves against losses. The Bloomberg Global Aggregate Hedge Fund Index (BBHFUNDS) gained 3.1 percent through September, compared with a 16 percent increase in the Standard and Poor’s 500 Index and a 4.5 percent advance in the Barclays Capital Bond Composite U.S. Index.

Stock hedge funds, for example, are positioned more conservatively than normal. Their wagers on rising and falling stocks are 22 percent net long, below the average of 35 percent to 40 percent, according to an Oct. 22 report published by Bank of America Merrill Lynch. A net position is the difference between bets on rising stocks and falling stocks.

Managers have become so bearish that “they’re not going to get out of it without a black-swan type event,” Robertson said. “We have to assume that a black-swan event is very unlikely.”

Black-swan events, named after the belief that all swans were white until the discovery of black ones in Australia in 1697, describe extreme outcomes such as the 2008 financial crisis that were previously considered very unlikely to happen.

Tail Risk

Since 2008, several managers have created black-swan funds to protect investors against market shocks. These funds soared earlier this year as Europe’s debt crisis intensified. A $600 million tail-risk fund at Saba Capital Management LP returned about 16 percent in the first three weeks of May after profiting from Europe’s debt crisis and bets tied to trades in credit derivatives by JPMorgan Chase & Co.

Tail-risk funds, another term for black-swan funds, are named for the outlying points, or tails, on bell curves used to plot probabilities of losses and gains in the market.

Fund managers who are “disenchanted” with economies worldwide do not make up the majority, Robertson said. Hedge funds are “still the best place to run money.”

Robertson is bullish on Rolls-Royce Holdings Plc (RR/), which he said should be thought of as an aerospace company, rather than a luxury car maker. Shares of the London-based company have jumped 17 percent this year with dividends reinvested.

To contact the reporters on this story: Saumya Vaishampayan in New York at svaishampaya@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Oct. 26 (Bloomberg) -- Julian Robertson, founder and chief executive officer of Tiger Management LLC, talks about the hedge-fund industry, investment strategy and the outlook for the U.S. presidential election. Robertson, speaking with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance," also talks about billionaire John Paulson’s $100 million donation to New York’s Central Park Conservancy. (Source: Bloomberg)