Pine River’s Kuhn Diversifies to Bet Against ‘Drunk Businessman’

In a time with no “home-run trade,” investors should look for sell-offs that aren’t driven by logic, which Pine River Capital Management LP’s Steve Kuhn likened to betting against a card player who’s had too much to drink.

When investors pull money for illogical reasons, “it’s as if we’re sitting at a poker table and a drunk businessman walks into the casino and sits at our table,” Kuhn, whose Pine River Fixed Income Fund was the second-best performing hedge fund last year, said in a Bloomberg Television interview today. “That’s a good day for you, when people are making decisions for less than logical reasons, and you can sit there and calmly try to decide what true value is.”

Kuhn’s fund, which returned 35 percent last year in part by investing in mortgage bonds, is “much more broadly diverse,” and is allocating more money to municipal debt and convertible bonds, while reducing holdings in mortgage markets.

After the Federal Reserve said on Sept. 18 it would refrain from reducing its $85 billion of monthly bond purchases because it needed more evidence of lasting improvement in the economy, global bond funds tracked by data provider EPFR Global snapped eight weeks of investor withdrawals. Municipal debt last month had the biggest rally in almost two years. The $3.7 trillion market had been on pace for its steepest losses since 1999 after Detroit’s record bankruptcy fueled the largest investor withdrawals since 2011 from mutual funds.

Pine River, which is based in Minnetonka, Minnesota, and has about $13.7 billion under management, was founded by Brian Taylor in 2002. Kuhn ranked second in performance among hedge funds managing at least $1 billion, according to Bloomberg Markets. Deepak Narula’s Metacapital Mortgage Opportunities Fund was first, generating a 41 percent gain.

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