Hutchin Hill Is Exiting Its Credit Portfolio

  • Hedge fund shifts focus to macro, quant and equity investing
  • Founder tells investors he expects 25%-35% market correction

Hutchin Hill Capital is disbanding its credit portfolio and shifting focus to equities, macroeconomic trading and quantitative investing, according to an investor letter.

The $2.7 billion hedge fund firm experienced the largest losses from credit bets in its history, leading to a 3.1 percent loss this year through August in its flagship fund, according to the letter seen by Bloomberg. The New York-based company instead plans to devote more resources to its quantitative business and add to macro bets, which it says has been the most profitable strategy within its fixed-income and currencies group in 2017. A spokesman for Hutchin Hill declined to comment.

Neil Chriss

Photographer: Patrick T. Fallon/Bloomberg

“Our performance year-to-date has been disappointing,” Neil Chriss, the founder of Hutchin Hill, said in the letter, dated Sept. 14. “We are now in a position to patiently complete the reduction and we expect to be substantially out of the portfolio by year-end,” he said, referring to the long-short credit holdings.

The fund fell 1.5 percent in August, according to the letter. The month’s losses in the credit portfolio were led by North American investment-grade and high-yield debt, primarily among energy and telecommunication companies.

The losses on the company’s credit wagers come at a time when all key indicators of the broader market show gains across the board. A benchmark high-yield bond index is up almost 7 percent this year, and a high-grade debt gauge is on track to post its best performance in three years.

As of June, when Hutchin Hill first began reducing the size of the portfolio, the fund had about a fifth of its capital allocated to credit positions, according to the letter. That number was down to about 17 percent in August. Losses in credit contributed net losses of 3.5 percent to the Diversified Alpha Master Fund this year, offsetting the money made from macro trading and equities.

Market Correction

Also in the letter, Chriss said he estimates “a market correction of between 25 percent and 35 percent at some time in the future is likely,” based on his models. The firm has tuned its hedges for larger market moves. The cost of hedging will be eased with the elimination of the long-short credit strategy, the letter said.

For more on hedge fund managers’ calls for a correction, click here.

Hutchin Hill, which invests across markets and is composed of teams that trade different strategies, started a new macro team last month and hired another that’s “in the process of getting their strategy ready for launch,” the letter said. The hedge fund is aiming to expand its allocation to macro strategies to 22 percent by the end of the year from 17.7 percent in August.

The firm is also looking to expand its equities business, which is hiring analysts to support its teams of stock-pickers. It hired Alex Goodman from Davidson Kempner Capital Management to lead global equities trading.

Hutchin Hill is revamping its quant business “after a frustrating period of underperformance,” Chriss said. In doing so, the firm is focusing on building out its signals, portfolio construction and trade execution. The company created a proprietary trade execution system called “Monocle” that began running at the start of this year.

Chriss, 50, who started Hutchin Hill in 2007 with $300 million from Renaissance Technologies founder James Simons, has a background in quantitative investing. Prior to starting his company, Chriss began the quantitative strategies division at Steven Cohen’s SAC Capital Advisors.

Last year, Hutchin Hill decided to close its Hong Kong office after 19 months and liquidated its Pan-Asian Event Driven Strategy. In 2015, it closed an event-driven portfolio run by Steven Mermelstein.

— With assistance by Katherine Burton, and Hema Parmar

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