Money managers were positioned relatively
defensively coming into the vote, meaning they had reduced the amount of
capital exposed to market turbulence, and even used the resulting
sell-off as a buying opportunity, according to a report from Credit
Suisse's prime brokerage division late on Friday. "I don’t want to say
it’s a non-event, but we’re not seeing panic,” said Eric Siegel, head of
hedge fund investments at Citi Private Bank. "It’s just a bad day in
Hedge funds that bet on or against European stocks
were hit hardest on Friday, with most losing between 2 and 4 percent,
two investors familiar with the numbers said.
For some the pain
was even worse. The London-based Adelphi Capital's $1.9 billion European
fund was off 8 percent at one point on Friday, a person familiar with
the fund's performance said. The fund was already down 9.5 percent for
the year through late last week.
How the approximately
8,400-fund industry fared during the Brexit turmoil will not be clear
until early July when clients get their monthly performance reports.
funds were relatively well prepared for gains in U.S. Treasuries and a
fall in the pound, they remained exposed to the steep declines that hit
equity markets, according to weekly data sent by traders to the U.S.
Commodity Futures Trading Commission.
Yet many funds appeared to have fared relatively well.
managers that use macroeconomic theories and computer-guided
"systematic" predictions to invest generally saw their funds remain
steady or turn a small profit following news of the "Leave" vote,
according to interviews with hedge funds and their clients.
using such strategies can quickly adjust portfolios and react to data,
unlike so-called fundamental managers who are often forced to stick with
individual stocks and bonds.
For example, the main fund managed
by Sweden-based $6.5 billion Lynx Asset Management gained 5 percent as
of Friday afternoon on the British vote, according to a person with
knowledge of the matter. The fund's computers recently positioned it in a
short against the British pound, a lucrative bet given the currency's
record plunge following the vote.
Alcova Asset Management, a
small London-based quantitative firm, benefited from its short stock
bets, and its main fund gained about 1.5 percent following the
referendum result, according to a person familiar with the situation.
larger London-based peer Winton Capital, said its main systematic
trading strategy produced a 3.1 percent gain early on Friday, driven in
part by "long-standing" short bets on the pound and euro, according to a
note to clients seen by Reuters.
Crispin Odey, a hedge fund
manager who backed the "Leave" campaign, could turn out to be one of the
biggest financial winners of the vote to quit the bloc.
of Odey Asset Management had bet his $10.2 billion firm's assets on a
fall in financial markets, including a series of "short" trading
positions and a punt on gold.
Other winners, according to people
familiar with the firms, included funds managed by Millburn Ridgefield
Corporation, which gained 2.6 percent before fees as of Friday morning;
Welton Global Directional Portfolio, which was up 2.3 percent on the day
thanks to short selling the pound and euro and going long U.S., German
and UK government bonds; and volatility-focused Argentière Capital,
which had one of its funds rise 2 percent Friday.
volatility in the broader markets, hedge fund managers are holding up
quite well," said Raymond Nolte, chief investment officer at SkyBridge
None of the hedge funds mentioned would speak publicly on the returns or did not respond to requests for comment.
To be sure, many hedge fund clients headed into the weekend frustrated.
anyone predict this correctly? Anytime the equity market moves 7
percent in one day, the answer is no," said one investor in some of the
world's biggest hedge funds.
An executive at a Europe-focused
stock picker said its fund was down about 2 percent despite holding
hedges against steep stock and currency declines.
Other hedge fund investors welcomed the Brexit-induced volatility.
Soh, portfolio manager at GAM Alternative Investments Solutions, said
he was pleased that "something" finally happened in the market, giving
hedge funds the chance to benefit from dislocation.
"This," he said, "will wind up being a good thing for managers."