Double-digit losses suffered by several star traders last week is a dramatic reminder why investors are rapidly migrating towards bigger hedge funds run by an army of risk takers.
They may be less glamorous, but multi-strategy hedge funds such as Eisler Capital, Citadel, Verition Fund Management and Millennium Management have escaped the worst of the volatility sparked by the collapse of Silicon Valley Bank. They’ve recorded small gains to low single-digit losses, softening blows to portfolios hit by declines elsewhere.
By contrast, last year’s star performers from Pierre Andurand and Said Haidar to billionaire Chris Rokos were hit by double-digit losses and gave up a large part of their gains in a matter of days. One veteran macro trader, Adam Levinson, erased more than the money he’s ever made since he spun off his Graticule Asia macro hedge fund in 2015. The fund is now shutting down.
The wild week is set to strengthen the prime position firms like Citadel and Millennium enjoy in the $4 trillion hedge funds industry. They’re able to charge high fees, lock in investors’ cash for longer and even turn clients away.
Last year, multi-strategy firms raised $6 billion even as the industry suffered $112 billion of outflows, data compiled by eVestment shows. The trend has largely continued in 2023.
“If you are invested with a number of multi-strats that are very professionally run and that are abiding by the risk management that they’ve imposed on all the teams, you can sleep at night,” said Pieter de Weerdt, founder of Antarctica Asset Management that oversees about $2 billion. “So it becomes boring. But the good thing is they’re consistently boring.”
The last few weeks were the latest shockwave to hit an industry traditionally built around big name traders. Multi-manager hedge funds are showing the merit of diversifying bets across asset classes, binding high-flying traders in tight risk limits and even firing them when they breach those limits.
Hedge funds last week faced one of the wildest trading conditions in the recent history of finance as fears of a banking crisis emerged from the collapse of SVB and quickly spread across continents. Four banks including Credit Suisse Group AG have collapsed. Another, First Republic Bank, is wobbling while Friday saw another selloff in financial shares.
The effects reverberated across markets with bank stocks, corporate debt, commodities and US Treasuries all seeing sudden moves that took many traders by surprise.
One of the most damaging trades, at least for the macro hedge funds, was tied to the short-term interest rates market which swung violently to even top big moves like those triggered by the collapse of Lehman Brothers, the 9/11 terrorist attacks, the bursting of the dot.com bubble and the emerging-market crises of the 1990s.
Haidar Jupiter fund slumped an estimated 32% this month through March 17, on course to record its biggest ever monthly decline in more than two decades of operations. Rokos lost 15.3%, which if sustained will mark his second-worst monthly loss. Declines at oil trader Andurand’s hedge fund deepened to 40% this year.
While multi-manager hedge funds specializing in rates trading did suffer some losses, with fixed income-focused BlueCrest Capital Management and Brevan Howard Asset Management losing money, broader multi-strategy peers fared much better.
Michael Gelband’s ExodusPoint Capital Management, Izzy Englander’s Millennium and Verition Multi-Strategy Fund suffered small losses this month. Eisler and Citadel’s hedge funds made money and are up for this year.
Representatives for the investment firms declined to comment.
—With assistance from Hema Parmar.
This article was provided by Bloomberg News.