Turmoil Boosts Hedge Funds That Bet Against Russia, OilKelly Bit and Sabrina Willmer
Randy Smith’s Alden Global Capital has been betting against the ruble for the past month and a half. Yesterday, it paid off when Russia’s currency fell as much as 19 percent.
Alden, a $1.8 billion New York-based hedge fund firm, is emerging as one of the winners from a recent spike in geopolitical turmoil.
Pierre Andurand, who foresaw the oil market’s peak in 2008, made an 18 percent gain for his hedge fund in November by predicting OPEC’s refusal to cut crude production and how that would strengthen the U.S. dollar against other currencies, including the Japanese yen, according to a letter to clients, a copy of which was obtained by Bloomberg News. Warren Naphtal’s $3.9 billion currency fund is up about 24 percent this year after recent bets on a stronger dollar, according to an investor report.
The hedge funds are making money from the trades at a time when many competitors are struggling to eke out a profit. This year’s more than 40 percent decline in oil prices has curbed global growth and hobbled Russia’s economy. Bill Gross, who ran the world’s largest bond fund at Pacific Investment Management Co. before joining Janus Capital Group Inc. in September, said an excess of leverage, or borrowed money, is making markets more volatile.
“When levered money moves and tries to seek a safe haven basically you have violent price movements,” Gross said in a Dec. 12 Bloomberg Surveillance interview with Tom Keene.
A $3.3 billion fund at Gross’s former firm has been one of those hit. The Pimco Emerging Markets Bond Fund held $803 million of Russian corporate and sovereign bonds at the end of September, equal to 21 percent of total assets, an amount that’s more than double that of the benchmark it tracks, according to data compiled by Bloomberg. The fund has lost 7.9 percent in the past month, trailing 95 percent of its peers.
Alden, in addition to betting against the ruble, has also been profiting from a decline in Russian stock indexes, said two people familiar with the trades, who asked not to be identified because the information is private. Russian equities are down 42 percent in the past month and a half, according to the dollar-denominated RTS Index.
Andurand, the 37-year-old London hedge fund manager, said earlier this month Brent crude will continue its collapse into next year as the Organization of Petroleum Exporting Countries stops balancing the global market. His firm’s bearish stance on oil in October helped his fund reverse losses in 2014 after Brent slumped during the month.
Oil futures continued their slide today after Russia, the world’s largest crude producer, said it would refrain from cutting supply to tackle the global surplus. West Texas Intermediate dropped 2.7 percent to $54.44 a barrel in New York. Brent crude for February settlement fell 1.7 percent to $59.02 a barrel in London.
Naphtal’s Boston-based P/E Investments benefited indirectly from oil’s plunge as it bet on currencies with little exposure to commodities, according to two people familiar with the matter, who asked not to be identified because the information is private. The firm’s main fund, which relies on computer models to trade, rose 4 percent in November, helped by the U.S. dollar and by wagers against the Canadian and Australian dollar, the euro and the Swiss franc, according to one of the people.
The firm joins other quant funds in using computer programs to beat star managers this year, in part from the plunge in oil prices that some human traders dismissed. Hedge funds on average are trailing the Standard & Poor’s 500 Index for a sixth year. Hedge funds returned 1.7 percent this year through November, according to data compiled by Bloomberg, compared with a gain of 12 percent for the S&P 500.