Fortress to Tudor Lose in First Quarter as Macro Misfires

Paul Tudor Jones, Michael Novogratz and Louis Bacon, hedge-fund managers that profited last year from bets on macroeconomic trends, posted losses in the first quarter as some of those trades turned against them.

Markets gyrated in the first three months of the year as investors fled developing countries in anticipation of further reduction in U.S. monetary stimulus, Russian President Vladimir Putin annexed Ukraine’s Crimea region and Japanese stocks tumbled. The losses for macro managers have caused them to cut some of their bigger bets, Anthony Lawler, a money manager at the $120 billion Swiss firm GAM, wrote in a report last week, though their views -- including that Japanese stocks will rise and the U.S. dollar will gain -- could make money later in 2014, he said.

“The directional conviction trades did not play out in the first quarter, despite a strong underlying thesis,” Lawler wrote. “Later this year there may be upside for some of these larger trades such as long US dollar positioning, the Japan reflation trade and the China slowdown risk.”

Jones’s $13.5 billion Tudor Investment Corp. fell 3.2 percent in its Tudor BVI Global fund in the first three months of this year, according to clients, who asked not to be named because the returns are private. Bacon’s Moore Capital Management LLC, which runs about $15 billion, slid 2.8 percent through March 27 in the Moore Global Investments fund, an investor said. Novogratz’s Fortress Macro fund lost 5.5 percent in the quarter, according to investors in the fund. New York-based Fortress Investment Group LLC oversees about $4 billion in macro strategies.

Discovery Losses

Officials for the firms declined to comment on performance.

Macro funds on average declined 0.2 percent during the quarter, according to data compiled by Bloomberg. Across all strategies, hedge funds averaged gains of 1.4 percent in the quarter, helped by a 0.7 percent last month.

Among macro managers who struggled was Robert Citrone’s Discovery Capital Management LLC, which focuses on emerging markets. It dropped 7.5 percent in the first three months in its global opportunity fund, after losing 9.7 percent in March, according to a person with knowledge of the returns. BH Macro, an investment trust which feeds exclusively into Alan Howard’s Brevan Howard Master Fund, lost about 2.8 percent. Brevan Howard Capital Management LP oversees $40 billion in assets.

The losses come after a relatively strong 2013, when funds run by Tudor, Moore and Fortress returned between 14 and 19 percent, helped by large wagers that Japanese stocks and U.S. shares would jump, the dollar would climb against the yen and currencies of countries like Brazil and Australia.

Trends Reverse

Japan’s Nikkei 225 index returned 59 percent, with dividends reinvested, in 2013, while the Standard & Poor’s 500 Index jumped 32 percent. The Brazilian real, the Australian dollar and the Japanese yen all fell more than 13 percent against the dollar last year.

In the first quarter, those trends reversed, with the Nikkei tumbling 8.3 percent and U.S. shares inching up less than 2 percent. The Brazilian real and the Australian dollar both climbed almost 4 percent against the U.S. currency and the yen strengthened by 2 percent.

A few macro managers have bucked the losing trend, according to investors. Robert Gibbins, who runs the $3.3 billion Autonomy Capital Research LLP, gained 3.3 percent in the first quarter, and Ian Banwell’s Round Table Investment Management Co., which oversees about $440 million, climbed 1.3 percent.

Paulson’s Strategies

Funds focused on corporate activism and events such as mergers and spinoffs beat the U.S. stock market this year, as long as they stayed away from technology shares. Stock hedge funds on average returned 2.2 percent in the quarter, according to data compiled by Bloomberg, while the S&P 500 rose 1.8 percent with dividends reinvested.

Paulson & Co., the $22.8 billion New York-based firm run by billionaire John Paulson, posted gains in all funds even after losses in March. The firm’s merger-arbitrage fund Paulson Partners Enhanced, which uses leverage to amplify returns, rose 2.2 percent last quarter, and the Advantage Plus fund, an event-driven strategy that uses leverage, gained 4.3 percent. Both funds slumped in March, with Paulson Partners Enhanced declining 6.1 percent and Advantage Plus losing 7.4 percent.

Activists Jump

Activist Bill Ackman’s Pershing Square LP returned 10.7 percent in the quarter and Dan Loeb’s Third Point Offshore Fund rose 3.3 percent, according to investor reports. Randy Smith, who runs the $2 billion Alden Global Capital, saw his main fund jump 15.5 percent, said a person familiar with the firm.

Funds that invested heavily in technology shares took a beating as popular holdings such as Chinese Internet company Baidu Inc. fell 14 percent and online retailer Inc. tumbled 15 percent. Coatue Management LLC, run by Philippe Laffont, lost 7.4 percent in the first three months of the year after his fund tumbled 8.7 percent in March, according to a person briefed on the returns.

The Nasdaq Composite Index, which returned 0.8 percent in the first three months of the year, has slumped 2.4 percent since March on concern that valuations on the world’s best performing industry have advanced too far.

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