Hedge Fund Prologue to Close After Political Bets Misfire

Updated on
  • Macro hedge fund shutting down after losing 1.8% last year
  • ‘We got the big political events wrong,’ co-founder says

Prologue Capital, the $775 million macro hedge fund run by David Lofthouse and Graham Walsh, is closing after more than a decade as clients pulled their money amid poor performance.

“Last year we started well but we got the big political events wrong, it’s as simple as that,” Walsh said in an emailed statement Wednesday. “We tried to secure a one-year commitment from our big investors, but that didn’t come through. The timing is unfortunate, but I fully understand investor disappointment with recent performance.”

Prologue, based in Greenwich, Connecticut, with offices in London and Miami, was founded in 2005 by Lofthouse and Walsh, former colleagues at RBS Greenwich Capital, to wager on macroeconomic trends with a focus on sovereign debt and currencies. Macro hedge funds have suffered withdrawals after years of middling performance, with managers blaming low interest rates and other central-bank policies for restricting their ability to make money.

Prologue lost 1.8 percent in 2016 and has been little changed over the previous three years, according to the statement. The fund returned an annualized 8.7 percent from 2006 to 2013. Prologue’s best years were during the financial crisis, when it returned 19 percent in 2008 and 12 percent in 2009, according to an investor letter.

Funds Shutter

About 782 hedge funds shuttered in the first nine months of last year, the fastest pace of closures since the aftermath of the financial crisis, according to the latest data from Hedge Fund Research Inc. The $3 trillion global industry has suffered a widespread backlash over poor returns and high fees, forcing some large macro firms such as Tudor Investment Corp., Brevan Howard Asset Management and Caxton Associates to cut charges.

Investors pulled $111.6 billion from hedge funds last year, including almost $10 billion from macro trading strategies, according to data from eVestment.

Prologue is closing as the outlook for macro funds is improving amid monetary policy divergence between leading central banks and investors allocating money to outperformers. EDL Global Opportunities Fund, run by Edouard de Langlade, boosted assets by 500 percent last year to about $500 million as it returned 18.4 percent, while billionaire Chris Rokos raised about $2 billion in additional capital for his hedge fund ahead of its scheduled reopening on Feb. 1, boosting assets to about $7 billion.

“Macro managers have experienced a positive start to the year," said Philippe Ferreira, a senior strategist at Lyxor Asset Management in Paris, which invests in hedge funds. “They are likely to continue to generate gains over the next quarters as long as the macro divergence theme between Europe and the U.S. holds true. With the Fed on track to hike rates as soon as mid-Match and the U.S. dollar still trending upward, their positioning has proved right so far."

(Updates witth fund flow data, comment after fifth paragraph.)
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