Shorting Pound Helped One Hedge Fund Make 10.5% on Brexitby , , and
The gain brings Tokyo-based GCI’s year-to-date return to 24%
Another fund, PruLev, gained 6.4% preparing for ‘black swan’
As the market reeled from a historic jolt on Friday that sent the pound to a three-decade low and reverberated across global markets, some hedge fund managers were racking up gains.
The GCI Systematic Macro Fund surged 10.5 percent on Friday, thanks in part to a short bet on sterling and a wager that the yen would surge in value, said Kyo Yamamoto, the head of the quantitative research and strategy group at Tokyo-based GCI Asset Management. The PruLev Global Macro Fund in Singapore gained 6.2 percent on June 24, largely because of a surge in bonds in the U.K., the U.S., Australia and South Korea, as the fund positioned itself for a "black-swan" event, the fund’s manager Norman Tang wrote in an e-mail.
The U.K.’s decision to leave the European Union shocked the markets, sending global equities lower and triggering large swings of major currencies. Some hedge funds have emerged as early winners from the carnage. Crispin Odey gained more than 15 percent in his hedge fund on Friday after profiting from short positions, a person familiar with the matter said last week. Several hedge funds that use computers to follow trends also reported gains.
George Soros, the billionaire famed for his 1992 wager against the pound, didn’t repeat the bet ahead of sterling’s record tumble. Soros was “long” the currency before Britain’s vote to leave the EU, although he did profit from other investments “because of his generally bearish outlook on world markets,” according to a spokesman.
“We positioned our portfolio in a way that we can get high returns in case of the ‘leave’ vote and wouldn’t suffer big losses with the ‘remain’ vote,” said Yamamoto. “Our fund tends to have higher profit as the market becomes more volatile.”
The GCI fund also benefited from futures positions in Japanese government debt and European sovereign debt, Yamamoto said. Friday’s increase brought year-to-date gains in the fund to 24 percent, he said. GCI’s fund, which had 10.2 billion yen ($100 million) in assets as of May, targets an annual return of 40 percent to 50 percent.
On Tuesday, the yield on the 20-year Japanese government bond slid to an unprecedented 0.04 percent. The pound stopped declining after falling 11 percent for two trading days since Friday and was up 0.6 percent to $1.3303 as of 11 a.m. Tokyo time, while the yen little changed at 102.07 yen per dollar.
At PruLev, Friday’s gains helped push returns so far this year to 38 percent, according to Tang. The fund had $70 million in assets as of Friday.
“When the crowd thought that Brexit was unlikely (initially markets and punters seemed to agree on that point), this was the time when the Fund needed to question the prevailing wisdom and prepare itself to face the alternative scenario, and also be on the right side in case of a black-swan event,” Tang wrote.
Britain’s surprise vote to leave the European Union spurred a rush for the safest assets, including U.S. Treasuries. U.K. government bonds surged amid speculation that the Bank of England will maintain an easy monetary policy.
Sterling fell to the lowest since 1985 on Friday, dropping a record 8.1 percent against the dollar, while the yen surged, the only major currency to strengthen against the dollar since the Brexit vote. Yields on Japanese government bonds dropped to record lows as a rallying yen and plunging stocks added to expectations that the Bank of Japan will step up stimulus.