Carlyle ESG Funds Tumble With Wrong-Way Europe, U.S. BetsKelly Bit
Emerging Sovereign Group LLC, the $5 billion hedge-fund firm owned by Carlyle Group LP, posted losses this year in two of its funds after wrong-way bets on emerging markets, Europe’s recovery and U.S. Treasuries.
The ESG Credit Macro Event Master Fund fell about 6 percent this year through April 11, according to letters and performance updates obtained by Bloomberg News, after tumbling 18 percent last year. The firm’s ESG Treasury Opportunities Master Portfolio dropped 22 percent in 2014 through the same period after rising 33 percent in 2013.
The multistrategy hedge-fund firm founded in 2002 by Kevin Kenny, struggled with the two strategies as hedge funds that bet on macroeconomic trends posted the worst first-quarter performance since 2009, according to data compiled by Bloomberg. Still, the New York-based firm’s losses exceeded the 0.2 percent decline for macro funds on average during the period.
Randall Whitestone, a spokesman for Washington-based Carlyle, declined to comment on returns and positions taken.
Carlyle agreed to purchase a 55 percent stake in ESG in June 2011. The acquisition was part of a broader shift to diversify the business beyond private equity and came months after buying a majority holding in Claren Road Asset Management LLC, which now oversees $8.3 billion. The Claren Road Credit Master Fund has gained 2.8 percent this year through March 31 after returning 5.4 percent in 2013, according to a letter to investors.
ESG, which was seeded by Julian Robertson’s Tiger Management LLC, has a range of funds betting on fixed income, equity, credit, currency and commodity markets globally, with a focus on emerging markets. The Treasury Opportunities strategy has $128.1 million under management and the Credit Macro Event has $203.8 million.
Developing countries performed better than ESG anticipated with stocks in the regions climbing more than 4 percent since February. ESG said in the credit macro event fund letter that month a crisis in emerging markets would intensify as growth slowed in China and the Federal Reserve’s reduction of stimulus would weigh on investor sentiment.
ESG was also caught off guard in its Treasury Opportunities fund by weaker-than-expected December U.S. employment data after wagering the gap between short and long-term interest rates would widen, according to a letter sent to investors.
According to the CME Fund letter, the firm predicted the Eurozone’s economic recovery would likely fade in coming months and that it doubted any kind of monetary stimulus would be implemented, a thesis challenged this month by European Central Bank President Mario Draghi.