Hedge Funds Rose 0.9% Last Month on U.S. Budget Agreement

Hedge funds climbed 0.9 percent last month, posting their best gain since September while trailing global equities, as markets rallied in the wake of a U.S. budget agreement and correlation between stocks diminished.

Steven A. Cohen, John Paulson, Boaz Weinstein and John Burbank posted advances. Long-short and multistrategy managers rose and macro funds declined.

The MSCI All-Country World Index, which has beaten the $2.25 trillion hedge-fund industry in five of the past seven years, returned 4.6 percent in January with dividends. The market’s biggest gains came on Jan. 2, when the Standard & Poor’s 500 Index jumped the most in more than a year as U.S. lawmakers passed a bill averting more than $600 billion in spending cuts and tax increases threatening a recovery in the world’s biggest economy.

“January was a very positive month for the hedge-fund industry,” said Don Steinbrugge, managing partner of Agecroft Partners LLC, a Richmond, Virginia-based firm that advises hedge funds and investors. “It was primarily driven by the passing of a budget agreement that averted a fiscal cliff, which would have significantly increased the probability of a recession. This fueled a relief rally in the equity markets and also gave fixed- income investors confidence.”

The Bloomberg Hedge Funds Aggregate Index is down 8.3 percent from its July 2007 peak. The main Bloomberg hedge fund index is weighted by market capitalization and tracks 2,764 funds, 1,287 of which have reported returns for January. The index, with annual data dating to 2006, has fallen short of the MSCI benchmark each year except for 2008 and 2011.

Bullish Views

Managers from David Tepper to Ray Dalio have started 2013 expressing bullish sentiment about U.S. stocks and global economies.

Tepper, who runs the $15 billion Appaloosa Management LP, said last month he’s bullish on U.S. stocks as the economy is set to grow by as much as 3 percent this year. Investors should own stocks because they’re historically inexpensive, U.S. companies have little debt, interest rates are low, credit is fully valued and the major risks to the global economy, such as the debt crisis in Europe, have diminished, he said in a Jan.22 interview on Bloomberg Television.

Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, said 2013 will be a “game changer” for the economy as investors reallocate money after risks such as Europe’s sovereign-debt crisis receded.

“There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift,” Dalio, whose firm oversaw $81.3 billion in hedge-fund assets as of Oct. 31, said last month at the World Economic Forum in Davos, Switzerland. “The complexion of the world will change as that money goes from cash into other things.”

Lower Correlations

The lockstep moves in global stocks that dominated markets for the past six years are breaking down at the fastest rate on record, another sign investor confidence is returning after the 2008 financial crisis.

A measure of how much the 2,073 companies in the FTSE All- World Developed Index swing in unison dropped 31 percent in the six months through Jan. 25, the biggest retreat since at least 1993, according to data compiled by Societe Generale SA and Bloomberg. The indicator ended December at the lowest level since 2007.

Diminishing correlation was a buy signal in 1998 and 2003 and has coincided this year with the strongest January rally for the S&P 500 Index since 1997, according to data compiled by Bloomberg.

‘Diverse’ Drivers

Long-short equity funds, whose managers can bet on and against stocks, rose 1.3 percent in January. Multistrategy funds climbed 0.5 percent and macro funds, whose managers make investment decisions based on their reading of economic and political events, fell 0.1 percent.

“We are encouraged by the fact that return drivers were diverse in January -- not just long equities,” Anthony Lawler, portfolio manager at GAM in London, said this week in a commentary. “Several global macro managers held on to the short Japanese yen trade, and also profited from the selloff in safe- haven rates. Relative-value managers delivered strong performance from long residential mortgage positions and other credit longs even as safe-haven bonds sold off.”

Cohen’s SAC Capital International increased 2.5 percent last month, said a person with knowledge of the matter who asked not to be identified because the fund isn’t public. The fund is run by SAC Capital Advisors LP, the $14 billion Stamford, Connecticut-based firm that was notified in November by the U.S. Securities and Exchange Commission that it may be sued for insider-trading fraud.

Jana, Paulson

Jana Partners LLC’s Jana Partners fund rose an estimated 5.1 percent last month, according to a performance update to investors, a copy of which was obtained by Bloomberg News. The $4 billion New York-based firm’s Jana Nirvana fund returned an estimated 7.5 percent in January, Jana said in the update. Barry Rosenstein is the firm’s managing partner and co-portfolio manager, along with David DiDomenico.

Paulson, the billionaire recovering from two years of losses in some of his strategies, posted gains in most of his funds in January, according to two people familiar with the matter. Paulson & Co.’s Advantage Plus fund, an event-driven strategy that seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, rose 1.4 percent last month, while the firm’s Gold Fund fell 9.7 percent, the people said. The Paulson Enhanced fund advanced 6.5 percent.

Saba, Tudor

Weinstein’s Saba Capital Management LP rose 3.9 percent last month in its Saba Capital Offshore Fund, said a person briefed on the performance. The long-short credit fund has $5.3 billion under management. Weinstein, former co-head of global credit trading at Deutsche Bank AG, started New York-based Saba in April 2009.

Tudor Investment Corp., the $11.6 billion firm run by Paul Tudor Jones, rose 4.3 percent last month in its Tudor BVI Fund, according to a person familiar with the matter. The firm is based in Greenwich, Connecticut.

Kingdon Capital Management LLC, the $2.4 billion firm run by Mark Kingdon in New York, last month climbed 5.5 percent in its flagship Kingdon Associates fund, said a person with knowledge of the matter. The fund is managed by Kingdon. Mike Pohly’s Kingdon Credit fund gained 1.9 percent in January, the person said.

Passport Capital LLC’s $1.3 billion Passport Global fund rose an estimated 3.4 percent in January, according to a performance update to investors obtained by Bloomberg. The $3.7 billion San Francisco-based firm is run by Burbank.

Hedge-fund assets grew 2.8 percent to a record $2.25 trillion in the fourth quarter, according to Chicago-based Hedge Fund Research Inc. Investors deposited $3.4 billion during the period, the firm said in January.

Spokesmen for the firms declined to comment on the returns.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

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

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