Red Bull-Fueled All-Nighters Put Fortress Fund on Top

As Friday night turns to Saturday morning in Singapore, Adam Levinson regularly stays up drinking Red Bull until 4 a.m., waiting for U.S. jobs data and the close of the trading week halfway around the world in New York.

“While there is a distinct advantage in being in Asia, demands on your time here are extraordinary,” said Levinson, 43, chief executive officer of the Singapore unit of Fortress Investment Group LLC and chief investment officer of the Fortress Asia Macro Funds for the New York-based firm with $55.6 billion under management.

Two-and-a-half years ago, Levinson made the unusual decision to move an eight-person team of traders and analysts from headquarters to Singapore to start Fortress’ Asia-focused macro hedge fund instead of building a team locally.

It’s paying off. His Fortress Asia Macro Fund has grown to about $1.7 billion, reaching its asset cap for 2013. It’s more than 10 times the average size of Asian hedge funds. The fund returned 21 percent last year, beating the 2.8 percent gain by the Eurekahedge Macro Hedge Fund Index, and is up 12.9 percent this year through June, outperforming peers.

Levinson is one of the few global hedge-fund firm successes in a region where managers have struggled to raise funds and keep up performance. As the first American sent by Goldman Sachs Group Inc.’s securities division to Hong Kong in 1993, Levinson moved around the world, including to Tokyo and London, before landing at Fortress in New York in 2002. Global experience has helped him as a macro trader wagering on economic trends through investing in stocks, bonds, currencies and commodities, he said.

Early Call

A primary reason for his high returns was his early call on Japan’s turnaround in late 2011, more than a year before the election that led Prime Minister Shinzo Abe to power. Stimulus policies aimed at reflating the economy, termed Abenomics, have helped the benchmark Nikkei 225 Stock Average rally 50 percent and the yen fall 16 percent versus the dollar since Abe took power in December. Levinson bought stocks and shorted yen, according to his monthly newsletters to investors.

“The most controversial theme we’ve pursued is a shift toward a more coherent set of policies in the desired direction of reflation in Japan,” Levinson said. “The connection to all of it is my perspective on life. Things can change very radically in not that long a time period.”

Levinson said he remains “optimistic” about the Abe administration and Bank of Japan stimulus measures, including a two-year horizon to achieve a 2 percent annual inflation goal to revive the world’s third-largest economy. Japan is currently in the second of the three-stage phases of Japan’s reflation timeline awaiting implementation of the measures.

Challenge, Opportunity

“There’s a tremendous perception hurdle for them to get over, but that’s both the challenge and the opportunity as well,” Levinson said. “The upside potential in Japan is much greater than what most people expect. So, do I think it would be flawless? No. Do I think they will make mistakes? Yes. But I do believe in their intent.”

To navigate through the recent volatility in the Japanese markets, Levinson said he’s increased his trades and turnover. In May, the fund “significantly reduced” its short yen position of over 102 and then re-established some new ones at 95 in June, contributing to “small gains” in the portfolio, monthly newsletters sent to investors showed.

“If you’re here and you’re close to the source of influence and cyclicality, that’s an edge,” said Levinson, who typically can be found wearing jeans and a crisp, button-down shirt with the sleeves rolled up.

Europe’s Path

His years as a proprietary trader in Tokyo at Goldman Sachs also helped him predict the path that Europe would follow through its debt crisis, Levinson said, and guided investment decisions there, such as shorting the euro.

Levinson also made an early call to go bullish on China’s yuan and equities in September 2012 on expectations for the new leadership to boost growth. He exited the trade early this year and shifted his strategy to focus more on companies that provide services for Chinese consumers including travel, health care, education, information technology and clean energy, according to information he sends to investors.

The benchmark Shanghai Composite Index has declined 9 percent this year, after gaining 8.8 percent in the three months ended Dec. 31.

The Asia Macro Funds have helped Fortress reach a “new set of clients who favor investment strategies specifically linked to the Asia region,” Stu Bohart, the New York-based president of Fortress’s liquid-markets business, said in an e-mail. Levinson’s fund, which invests daily in currency, interest rate, stocks and derivatives markets worldwide, is “an important component” of the business.

High Expectations

“Coming off a truly exceptional 2012, and with a two-year record of consistently strong performance, we have high expectations for the fund going forward,” Bohart said.

Fortress has recouped its assets since the 2008 global financial crisis that was exacerbated by the collapse of Lehman Brothers Holdings Inc. and forced the hedge-fund manager to meet withdrawal requests from clients as well as shelve some plans to start new funds.

Robert Kauffman, who retired in December, founded Fortress as a private-equity firm in 1998, along with Wesley Edens and Randal Nardone. The company, which after expanding into hedge funds, real estate and debt securities, became the first large U.S. alternative-asset manager to go public, in February 2007. As of March 31, it managed $55.6 billion in assets.

Choosing Singapore

Levinson chose to move his team to Singapore instead of Hong Kong in January 2011, saying it’s become the center of the macro business of Asia’s biggest hedge funds, including Dymon Asia Capital (Singapore) Pte, which managed to grow its assets to more than $2.5 billion in 2012. The city-state had 14 percent of the region’s hedge-fund assets at the end of 2012, compared with 32 percent for Hong Kong, according to HedgeFund Intelligence’s AsiaHedge trade journal.

Other global hedge-fund firms such as Capula Investment Management LLP, a London-based hedge fund founded in 2005 by former JPMorgan Chase & Co. trader Yan Huo, and AM Investment Partners LLC, a New York-based hedge fund firm set up by two former Deutsche Bank AG executives, have built their presence in Asia through hiring locally.

Capula hired former Bank of America Corp. banker Antony Hung last year to help set up an office in Hong Kong. AM Investment opened its first international office in Hong Kong in September 2008, hiring Craig James from Deutsche Bank AG’s Hong Kong office.

Algebris Investments LLP, a London-based hedge fund with $1.5 billion in assets, sent Ivan Vatchkov to Singapore in 2010 as it opened its first office in Asia.

Company Culture

“It is difficult to transfer the established culture of an organization to a new employee or team from a distance,” Vatchkov said. “It’s critical for success that the company culture originates from an individual that has this experience from the home office.”

Levinson is at his desk daily before 7 a.m., monitoring four screens that track everything from currency fluctuations to employment data to stock prices around the world, and speaking to colleagues back home as they “pass the baton” from New York’s day to Asia’s, he said. His morning is spent executing trades in Asian markets, including Japanese yen, Chinese stocks and the Korean won. After a “lull,” he said, he’s ready for the London opening.

Later, the 5’10”, salt-and-pepper-haired Levinson hits the gym before going home to the wife he met in New York and their three children. In the second lull ahead of New York’s opening, he helps put his kids to sleep. Then he’s back on video conferences with New York from home, he said.

Longer Weeks

“This is a business where there’s no substitute for the time you have to put in to remain competitive, but the tax is high here because you work about 0.7 days a week longer,” he said, with a precision indicating a calculation of the extra hours his team puts in. “A tremendous amount of market trading activity still occurs outside of this time zone.”

That means monitoring around the clock global events that can influence markets Asia. When he stays up late on Friday nights with the aid of energy drinks, the sugar-free version, it’s for such data as the results of employment and consumer sentiment data, in case he needs to alter his focus or confirm the direction of his market outlook.

What puts Levinson ahead of competitors is his strategy of “diversification” in making more trades “instead of having one or two big trades,” said Colin Teichholtz, a New York-based partner and co-head of fixed income at Pine River Capital Management LP, a Minnetonka, Minnesota-based hedge fund.

Detroit Upbringing

“As Adam developed into a hedge-fund trader, he distinguished himself from the risk-takers,” said Teichholtz, who started with Levinson in the same training program at Goldman Sachs in 1992.

Levinson first got the taste of the rising power in Asia while growing up in Detroit, where Japanese carmakers were beginning to pose a challenge to the U.S. automotive industry.

“Having grown up in Detroit, I always regarded the auto industry as a laboratory for the stresses of globalization,” says Levinson, who moved on to Paul Tudor Jones’s Tudor Investment Corp. after Goldman Sachs and before joining Fortress. “It was a live case study playing out on my doorstep, and it became the source of my fascination with Asia because in this case, Asia was the fulcrum of change that threatened the lifeblood of the city of Detroit.”

Asia’s Challenge

After graduating from Cornell University in 1992 with a Bachelor of Arts degree in government, he joined Goldman Sachs as a fixed-income salesman. Eight months into the job, Levinson was asked to move to Hong Kong, and later to Tokyo. He then came back to Hong Kong to start proprietary trading for Goldman Sachs in a push to expand in Asia.

The challenge in Asia is to grow the fund by keeping up performance in Asia’s underdeveloped and relatively illiquid regional markets, Levinson said. Investment slumps and client defections are common among Asian hedge funds that grow quickly after posting a year or two of strong returns.

Asian hedge-fund assets are 20 percent below their 2007 peak, according to Eurekahedge Pte. The average size of Asian hedge funds has shrunk to $105 million, compared with $138 million in mid-2008, data from the Singapore-based provider show.

According to Levinson, the “sweet spot” for Asian hedge fund size stands at around $2.5 billion.

“You should grow in line with what the market can bear instead of trying to force liquidity, or demand liquidity in the market that is really non-existent,” Levinson said. “Historically in Asia, if you get well over $2 billion you have seen meaningful performance degradation, where the business model becomes more challenging.”

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