Macro Funds That Lamented Boring Market Lose in October

Hedge-fund managers Paul Tudor Jones and Michael Novogratz said in May that calm markets made it hard to make money.

In October, investors that bet on macro-economic themes got their desired volatility. By the end of the month, some of the biggest managers, including Ray Dalio’s Bridgewater Associates LP, Fortress Investment Group LLC and Jones’ Tudor Investment Corp., posted losses. The strategy had its worst performance in more than a year and two smaller firms said they were shutting.

Managers were blindsided as stock and credit markets slumped in the first two weeks of the month because of concerns over global growth, a decline in oil prices and the surprise departure of Bill Gross from Pacific Investment Management Co. Equities then rebounded, with the Standard & Poor’s 500 Index rallying more than 8 percent from its intraday low on Oct. 15. The VIX, a measure of expected volatility, started the month at 16.7, rose to 26.3 on Oct. 15, then tumbled to 14 by the end of October after the Bank of Japan expanded stimulus.

“When the volatility did spike up it was a bear trap,” said Sean Bill, trustee on the City of San Jose Police and Fire Retirement Plan, which invests in hedge funds. “Part of the challenge for macro guys was to capture volatility. One thing they might have needed was for the market not to retrace its entire move in two weeks.”

Low Volatility

Jones, speaking at an investment conference in New York in May, said macro-economic investing had been “boring” as global monetary policy kept interest rates depressed for long periods of time and that hedge funds needed “a macro doctor to prescribe central bank Viagra.” Fortress’s Novogratz, speaking a the same event, pointed out that volatility was at “generational lows.”

Fortress, the $66 billion private equity and hedge fund manager, fell 1.8 percent in October in its Fortress Macro Fund Ltd. and 6.6 percent this year, according to a regulatory filing. Tudor’s main fund declined 1.6 percent in October and 0.5 percent this year, said the person. The $13 billion Greenwich, Connecticut-based firm was founded by Jones in 1980.

Both managers reduced losses at the end of October with Japan-related bets. Novogratz recommended the country’s stocks at a conference in New York in July and Jones said on Oct. 20 that he was short the currency.

Bridgewater, which manages $160 billion based in Westport, Connecticut, fell 2.4 percent through Oct. 28 in its Pure Alpha II fund, paring yearly gains to 7.5 percent, according to a person with knowledge of the returns, who asked not to be identified because the information is private.

Citrone Declines

Robert Citrone’s $15 billion Discovery Capital Management LLC lost 6.6 percent in its Discovery Global Macro Fund to bring its 2014 decline to 16 percent, according to a person with knowledge of the matter, who asked not to be identified because the information is private. At one point in October, the fund was down more than 11 percent for the month.

Losses were driven in part by Discovery’s investments in U.S. GSEs, or government-sponsored enterprises, according to a person familiar with its holdings. Fannie Mae and Freddie Mac securities declined after U.S. District Judge Royce Lamberth threw out a lawsuit at the end of September that would have forced the government to share the mortgage companies’ profits with shareholders.

Funds Closing

For some, losses had more dire consequences. Kingsguard Advisors LP, a New York-based macro fund that fell 8.3 percent last month, is closing down, according to two people with knowledge of the matter.

Keith Anderson, a BlackRock Inc. co-founder who also was once chief investment officer for billionaire George Soros, is also shutting his macro hedge fund firm after less than three years.

Overall, macro managers, who can trade across stocks, bonds, currencies and commodities, fell 1.1 percent in October, according to data compiled by Bloomberg, trimming gains to 1 percent in 2014.

Funds that were profitable during the month include Dymon Asia Capital (Singapore) Pte and Autonomy Capital Research LLP.

Dymon Asia Macro Fund, a $3.4 billion fund, returned 6 percent in October, extending gains in the first 10 months of this year to 17 percent, said a person with knowledge of the matter who asked not to be identified as the information is private.

Autonomy Gains

Autonomy posted a 0.4 percent gain in its Autonomy Global Macro Fund, bringing year-to-date returns to 12 percent, according to a person familiar with the matter. The $3 billion firm is run by Robert Gibbins in New York.

Hedge funds on average fell 0.3 percent last month, reducing gains for the year to 2 percent, according to data compiled by Bloomberg. Long-short equity hedge funds fell 0.9 percent in October, cutting gains for the year to 1.3 percent, according to data compiled by Bloomberg. Multistrategy funds decreased 0.1 percent and rose 3.5 percent in 2014.

Spokesmen for the firms declined to comment on the returns.

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