Hedge Funds Sideswiped by Oil, Stocks, Credit, Merger BreakdownKelly Bit, Saijel Kishan and Simone Foxman
Hedge-fund managers trading across markets are suffering losses as a bear market for oil converges with a global stock rout and a drugmaker merger unravels.
Robert Citrone, who runs the $15 billion Discovery Capital Management LLC, told clients that his macro fund slumped 8 percent in the first two weeks of October. Credit manager Claren Road Asset Management LLC is down 11 percent in one of its funds this month. Billionaire John Paulson, whose firm reported a similar-sized decline in one of its funds in September, is among Shire Plc shareholders who lost out today after AbbVie Inc. said it was reconsidering its offer for the drugmaker.
The Standard & Poor’s 500 Index of U.S. companies erased its gains today for the year and has plunged more than 8 percent within a month on concern that global growth is slowing. European shares entered a correction, while a benchmark for crude oil traded near the lowest level in more than two years. Junk bonds are handing investors their biggest losses in more than a year, led by energy company offerings.
“The broad selling we are seeing can be partly a contagion effect caused by some commonly held trades selling off at the same time,” said Anthony Lawler, a money manager for GAM Holding AG.
Hedge funds, which are meant to profit in rising and falling markets, have lost 2.6 percent this month through Oct. 13 and 1.4 percent this year, according to Hedge Fund Research’s HFRX Global Hedge Fund Index.
Investors have also been pummeled by specific events. Fannie Mae and Freddie Mac securities have tumbled since Sept. 30 when a U.S. District Judge threw out a lawsuit that would have forced the government to share the companies’ profits with shareholders.
Claren Road, which held preferred stock of the mortgage companies, has also lost this month on energy stocks, said a person with knowledge of the returns, who asked not to be identified because the information is private. The New York-based firm as of June 30 had stakes in liquefied natural gas companies Golar LNG Ltd. and Cheniere Energy Inc. and stocks including oil shippers Teekay Corp. and Scorpio Tankers Inc.
Energy investments have suffered as crude oil prices have fallen into a bear market as shale supplies boost U.S. output to the most in almost 30 years and global demand growth weakens.
Hall Commodities LLP, a $100 million fund run by Tony Hall and Arno Pilz, told clients last week that it will liquidate as “recent months of trading have proven very difficult,” according to a letter to investors. The fund, which had lost 11 percent this year through September, plans to return money to clients by the end of this month.
In the latest blow to hedge funds, Shire fell 22 percent today as AbbVie weighed abandoning its $51 billion takeover of the Dublin-based drugmaker. AbbVie is convinced that recent tax-rule changes would undermine the deal, people familiar with the matter said. Paulson has more than a 4.7 percent stake in Shire’s common stock, according to data compiled by Bloomberg.
This year’s losses at Discovery mark a turn in fortune for Citrone, who last year posted a 28 percent profit from his main Discovery Global Opportunity Fund. The firm predicted at the start of 2014 that a crisis in emerging markets would worsen and shares of technology companies would rise. Citrone started South Norwalk, Connecticut-based Discovery in 1999.
While some hedge funds suffered, others made money as markets retreated. Brevan Howard Asset Management LLP curbed annual losses in its commodity hedge fund by gaining 4.8 percent this month through Oct. 10, according to an investor. The $700 million fund, run by Stephane Nicolas, has fallen 3.6 percent this year. Brevan Howard, which oversees $37 billion, is based in St. Helier on the island of Jersey.