Market turmoil causes sharp losses at US hedge funds
Some of the largest and well known US hedge funds have suffered further sharp losses from this year’s rout in equities and commodities, raising the prospect that investors pull more money from the industry.
Popular bets in equities, currencies and commodities have backfired on a number of hedge funds this year, confounding some of the industry’s highest profile investors such as Bill Ackman’s Pershing Square, Glenview Capital run by Larry Robbins, while Carl Icahn has been hit hard by the slumping energy sector.
The current market turmoil follows poor results for many hedge funds during 2015, increasing worries for managers about rising redemptions, a process that intensifies further selling of assets like equities.
“It has been a challenging short-term period for many hedge fund managers,” said Adam Blitz, chief executive of Evanston Capital Management. “High levels of market volatility, and in some cases illiquidity, have caused the prices of many individual securities to become divorced from their fundamental value.”
One of the biggest losers since the start of the year has been Mr Ackman, adding a further 18.6 per cent loss as of February 9, to the 20.5 per cent his Pershing Square hedge fund dropped last year. Shares in Pershing Square Holdings, a publicly traded vehicle, have tumbled more than 20 per cent this year, a decline that mirrors the drop for all of 2015.
Mr Robbins’s Glenview Capital recorded losses of more than 13 per cent in January, while Senvest Management’s fund was down 12.6 per cent in the same month. It sustained losses of 17 per cent last year.
While many of these losses remain on paper, as the hedge funds have not yet exited their positions, they will require a significant rebound in asset prices to return them to profit.
Equities that at one point were popular with hedge funds, such as SunEdison, the renewable energy company, and Community Health Systems, the healthcare group, have spurred industry losses, as investors dumped holdings.
Activists such as Mr Ackman are having particular difficulty, as they are often concentrated on certain stocks, such as Valeant, the drugs company, and not heavily hedged.
Icahn Enterprises, Carl Icahn’s publicly traded investment vehicle, has slid to its lowest level in three years, after the veteran activist made a string of losing bets on energy companies, including Chesapeake Energy and Cheniere Energy.
Hedge funds that focus on predicting the direction of interest rates and currencies have seen one of their biggest trades reverse as the Japanese yen has risen sharply against the US dollar since the start of this year.
In contrast to losses suffered by activists, global macro funds have been challenged by an inability to anticipate the recent market sell-off.
Hedge funds such as Brevan Howard had already been wrongfooted by the market reaction to the European Central Bank’s pronouncements late last year — pushing its flagship fund to its second consecutive annual loss.
It has now been forced to reassess its once strong belief that the Bank of Japan would succeed in driving down the value of the yen.