Stock markets are plunging. The price of oil is in turmoil. And hedge funds just came off their worst year since the peak of the financial crisis in 2008.
But Adam Sender, a well-known collector of contemporary art who shuttered his hedge fund two years ago, just got back into the game. He is bucking the trend at a time when the establishment of new hedge funds is sharply lower than a year ago, according to the data provider Preqin.
It may seem like an odd time to be landing investments for new hedge funds, but a handful of big-name managers are hauling in money from investors.
Scott Bessent recently left George Soros’s family office to start a $4.5 billion firm called Key Square Group. Eric Cole, a former trader for David Tepper’s Appaloosa Management, has raised about $1 billion for his new firm, Warlander Asset Management.
Anil Prasad, a former Citigroup foreign exchange trader, raised nearly $300 million with a co-founder for Silver Ridge Asset Management, regulatory filings show. Even John Paulson, who posted losses in several portfolios in 2015, has raised $600 million for a new distressed fund.
These new funds stand in contrast to the rising number of hedge funds — in particular those that made wrong bets on foreign currencies, central bank interest rate moves and the price of oil — that are closing their doors to investors and winding down. The pace of hedge fund liquidation picked up in the last quarter of 2015, especially among funds that loaded up on the oil and gas junk bonds that got slammed by the collapse in energy prices.
This year has gotten off to an even rougher start for hedge funds: The broadest measure of performance in the nearly $2.9 trillion industry, the HFRI Fund Weighted Composite Index, revealed a 1.7 percent decline after falling nearly 1 percent in 2015. The research firm HFR, which compiles the index, said the January performance decline was the worst start for the hedge fund industry since 2008.
Yet some of the managers who have waited patiently for years as the stock market hit one new high after another, now sense opportunity in the market turbulence and a chance to make big, bold bets on the volatility in stocks, bonds and commodities.
“It appears a major sea change in the way the markets work may be at hand,” Mr. Sender wrote to investors in January. His new fund, called Global Volatility Voyageur, began trading last month and has taken advantage of volatility in the market, according to someone with knowledge of the firm but not authorized to speak publicly about it.
It is Mr. Sender’s first fund since he shut down Exis Capital Management in 2014. At its peak, the fund managed $1 billion, but by the end of 2013 it had under $100 million in assets, after a period of poor performance and redemptions. Mr. Sender’s new fund has a strategy similar to that of Exis. But Mr. Sender, who was an early employee of the billionaire investor Steven A. Cohen, plans to operate his new firm with about $250 million.
Mr. Bessent, who was chief investment officer at Soros Fund Management, told investors in his new firm that the combination of a global slowdown, market anxiety surrounding the Chinese currency and a tumbling stock market made it the perfect time to make money.
Key Square Group, the new firm, has made investments in government bonds like United States Treasuries. Mr. Bessent began raising money last fall, but got a big head start when Mr. Soros invested $2 billion of his own money into the upstart firm.
Chris Rokos, who co-founded Brevan Howard Asset Management, has raised $3.5 billion for his Rokos Capital Management since it began trading in October. Mr. Rokos left Brevan Howard four years ago and focused on managing a family office before he began raising money from investors last year for a macro hedge fund that makes bets on global economic and political trends.
Mr. Cole has raised $1 billion for his new firm, Warlander, which will focus on buying and shorting global credit. Mr. Tepper committed an unspecified sum of money to his former protégé.
It is unsurprising that hedge fund managers are looking to start new portfolios in a tough market environment, said Putri Pascualy, a managing director and credit strategist at Pacific Alternative Asset Management. For traders, a “dislocation means there is a lot of stuff to buy,” she said. This makes sense as long as the upheaval in the stock and bond markets does not signal the start of a severe economic slowdown, Ms. Pascualy said, adding that this was unlikely in her view.
Still, some hedge funds continue to get caught in the riptide of volatile markets.
A onetime $1 billion structured credit fund operated by Candlewood Investment Group is being wound down and merged into another fund managed by the firm that invests in similar distressed securities, according to a December letter to investors. The New York-based firm has given investors in the Candlewood Structured Credit fund the opportunity to either redeem their money or move it into the firm’s Structured Credit Harvest fund. The portfolio Candlewood is winding down lost 9.4 percent last year.
Yet despite these moves, Candlewood has plans to raise money for a new private-equity-style fund that will have a longer holding period for customer money than its hedge fund portfolios.
In early January, Nevsky Capital’s $1.5 billion hedge fund announced it was closing, telling investors in a year-end letter that it was getting harder to compete with computer-driven algorithm trading programs.
Some of the best-known hedge fund managers, especially those focused on stocks, continue to struggle this year, just as they did in 2015.
William Ackman’s Pershing Square Holdings has told investors it is down 18.6 percent so far this year after posting a 21 percent decline in 2015. A large portfolio managed by Larry Robbins’s Glenview Capital Management was down 13.6 percent at the end of January, after falling just over 18 percent last year, according to an HSBC hedge fund report. Leon Cooperman’s Omega Advisors which lost about 10 percent last year is off to a rough start again, sliding another 10 percent during the first month of this year, according to the same HSBC report.
Among some investors, however, the steady flow of hedge fund pitches may fall on deaf ears as long the markets continue to plunge — especially pitches from managers with limited track records.
“Young portfolio managers may be disappointed in the reception they receive in this environment,” said Todd E. Petzel, chief investment officer at the private wealth management firm Offit Capital Advisors. Most investors these days, “have higher priorities” than researching new opportunities, he said.