Coatue, Millennium Fall as Computer-Driven Hedge Funds Gain

  • Machine-driven funds beat humans with 3% surge during month
  • Managers climbed 0.5% on average, according to HFR's data

Machine-run hedge funds in the U.S. outstripped humans in February, as stock markets swung from a drop of about 6 percent to a late-month rally that minimized losses.

Coatue Management and Millennium Management were among firms that declined during the period, while computer-driven funds run by Renaissance Technologies pushed gains for the year into double-digits.

The average fund rose 0.5 percent last month, according to Chicago-based Hedge Fund Research Inc., beating stocks and paring this year’s losses to 2 percent. Systematic macro funds, which rely on algorithms rather than manager discretion to bet on macroeconomic trends, climbed 3 percent during February, bringing their 2016 gains to 5.6 percent. Some firms weren’t able to capitalize on the market’s rebound, however.

Stock-focused managers “that had de-risked in the selloff in early February were then unable to participate meaningfully in the end-of-month relief rally,” Anthony Lawler, a money manager with GAM Holding AG in London, said in a note March 3.

The Standard & Poor’s 500 Total Return Index, which includes reinvested dividends, fell 0.1 percent during February and 5.1 percent for the first two months of the year.

Last month took a toll on some high-profile hedge funds that make bets on stocks and around corporate events. 

Jana Partners

Philippe Laffont’s Coatue, which is known for wagers on technology companies, lost about 5 percent in February, according to a document obtained by Bloomberg. The fund has fallen 2.2 percent this year. Jana Partners, which focuses on corporate events, fell 3.6 percent in February, said a person with knowledge of its results.

Millennium Management, the multistrategy firm led by Izzy Englander, dropped 2.7 percent last month in its main fund, according to a person briefed on the matter.

Some funds that wager on macroeconomic moves also declined. The main share class of Bridgewater Associates’ Pure Alpha fund lost 3 percent this year through March 2, according to an investor. The fund had gained 0.8 percent in January, another person said.

Systematic funds were better able to pick up market moves. The Renaissance Institutional Equities fund, which makes computer-driven bets on stocks, gained 2.9 percent during the month, while another fund that allocates money to several asset classes, the Renaissance Institutional Diversified Alpha fund, rose 2.6 percent, according to a person with knowledge of the performance. Both funds are up about 10 percent this year.

“Since the end of QE in the U.S. we have seen an increase in volatility among all asset classes: equities, fixed income, commodities and currencies,” said Ronen Schwartzman, chief investment officer for Ten Capital Advisors, which constructs portfolios of hedge funds for institutional clients overseeing about $300 million. In an environment that “machines love,” said Schwartzman, trends such as a drop in the price of oil or a sharp decline in equities create “the perfect recipe for these strategies to outperform.”

Polygon Global Partners’ European Equity Opportunity Fund, which makes bets around corporate events in Europe, also managed to gain. The fund rose 6 percent in February, bringing returns to 2.6 percent this year, according to a person with knowledge of the matter. The $650 million fund, led by Reade Griffith, rose 10 percent in 2015.

Representatives for the firms declined to comment on the performance.

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