Hedge funds run by Och-Ziff Capital Management Group LLC and Brevan Howard Asset Management LLP advanced last week as some of the industry’s largest managers dodged the deepest slump for global stocks since 2008.
The main fund of Och Ziff, the $30 billion firm run by Daniel Och in New York, rose 1 percent, and London-based Brevan Howard’s $25 billion Master Fund, the world’s second-biggest macro fund, gained 2 percent, according to people briefed on the returns who asked not to be named because the information is private.
“Managers who were macro aware have managed to pull their exposures much faster than the stock pickers,” said Alper Ince, a partner at Pacific Alternative Asset Management Co. in Irvine, California, which invests in hedge funds on behalf of clients. “Many people are in a wait-and-see mode. They want to see the dust settle before making massive changes.”
Investor concerns that the U.S. economy may relapse into a recession drove investors out of stocks, triggering a 7.2 percent decline last week in the Standard & Poor’s 500 Index and a 9.9 percent drop in the Stoxx Europe 600 Index. The selloff was the worst since the bankruptcy of Lehman Brothers Holdings Inc. three years ago triggered a global credit freeze.
Hedge funds lost 2.5 percent last week, bringing their loss in 2011 to 4.7 percent, according to Hedge Fund Research Inc.’s HFRX Global Hedge Fund Index.
Macro hedge funds such as Brevan Howard’s typically trade currencies, interest rates and bonds, seeking to profit from broad economic trends. Brevan Howard, run by Alan Howard, departed from the strategy to benefit from tactical moves, making short-term trades when it perceived markets misjudged asset values, said one of the people.
Multistrategy funds such as Och-Ziff’s can use a variety of tactics to try to deliver gains regardless of how markets perform.
Och-Ziff bought options on almost $12 billion of U.S. stocks during the first quarter, according to a May regulatory filing, a move that may generate profits if markets turn more volatile this year.
“One of the issues that concerns me is whether managers get into a situation where they de-risked their portfolios at the bottom and then are unable to capture the potential upside,” said Brad Balter, head of Boston-based Balter Capital Management LLC, which also invests client money in hedge funds. “If markets can hold their gains for the next few days, it is likely managers will be forced to put their positions back on at higher levels.”
Citadel, JAT Capital
Och-Ziff’s main OZ Master Fund lifted its return to 1.2 percent this year, said an investor who asked not to be identified because the information isn’t public.
Citadel LLC’s two largest funds were little changed and gained 14 percent this year through last week, said a person with knowledge of the results, who asked not to be named because the information is private. Citadel, which is based in Chicago and oversees about $11 billion, is run by Ken Griffin.
JAT Capital Management, the New York-based fund run by John Thaler with about $2 billion, was little changed after posting a 32 percent gain this year through July, according to a client who asked not to be named because the returns aren’t public.
London-based Marshall Wace LLP’s $400 million MW Global Opportunities Fund, which is managed by Fehim Can Sever, has risen 5 percent this month, according to a person familiar with the matter who asked not to be named because the information is private. The fund, which invests in stocks, has gained 10 percent this year, said the person.
Investors continued to flee riskier assets on Aug. 8, the first trading session after Standard & Poor’s cut U.S. debt to the second-highest level of AA+ from AAA.
Federal Reserve policy makers met yesterday after the unprecedented downgrade of the government’s top credit rating shook confidence in the U.S. economic recovery.
The S&P 500 surged to close with a gain of 4.7 percent after the Fed pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated. Today, the index retreated, losing 3.6 percent at 10:13 a.m. New York time.
Among funds that suffered losses last week is John Paulson’s Advantage Plus Fund, which fell 11 percent and is now down 31 percent since the start of the year, according to a person familiar with the firm. New York-based Paulson & Co. manages $15.7 billion in various Paulson Advantage funds.
Lansdowne, SAC Losses
Lansdowne Partners Ltd., the $14 billion hedge fund in London, was hurt last week by its holdings in financial firms including Lloyds Banking Group Plc and Wells Fargo & Co.
Its $8 billion U.K. Equity Fund, the biggest hedge fund in Europe that bets on stocks, fell 4.4 percent this month through Aug. 8 and 16 percent this year, according to a person familiar with the matter, who asked not to be identified because the returns aren’t made public.
SAC Capital Advisors LP, the $14 billion hedge fund run by billionaire Steven A. Cohen in Stamford, Connecticut, lost about 4 percent from its main fund this month through Aug. 8, according to a person familiar with the matter. The fund had gained about 10 percent this year through July.
R.G. Niederhoffer Capital Management Inc.’s $22 million Negative Correlation Fund jumped 23 percent this month through Aug. 8, leaving it with a 5.3 percent gain this year, according to a letter to clients of the New York firm.
Officials for the hedge funds declined to comment.