While hardly news by now, the latest proof that hedge funds are generally having a woeful year in a world where few financial relationships make sense, comes from UK-based Lansdowne Partners, one of the world’s largest hedge funds, which according to the WSJ extended its losing run last month, after its flagship Developed Markets fund suffered another 2.3% in September losses. That equates to a loss of about $250 million.
The recent string of losses is an unpleasant – and unexpected – development for the fund, run by Peter Davies and Jonathon Regis, and its LPs as it has been one of the best-performing hedge funds in recent years. The latest monthly drop brings its YTD losses to 14.7% this year. According to the WSJ, the fund has now lost $1.8 billion YTD which places it among the worst-performing funds this year. The firm now runs about $20 billion.
Putting the performance in context, equity hedge funds gained 1.5% on average in September, according to early numbers from Chicago-based Hedge Fund Research, although they still continue to underperform not only the broader market, but also the X-axis, and are now down 0.5% for the year to Oct. 4. Overall, hedge funds gained 0.6% during the month and are up 1.4% this year. Many have struggled to cope with market reversals and the influence of central bank money-printing on financial markets. Investors pulled a net $5 billion from hedge funds in the first two quarters of the year.
The biggest catalyst for the fund’s disappointing performance, which made double-digit returns for four straight calendar years to 2015, was a wrong-way, short bet on miner Glencore, which rebounded strongly in September. It benefited from the shares’ steep fall in the second half of last year on worries about the company’s debt levels. However, this year the mining giant’s shares have come roaring back. They are up around 140% this year, hurting those hedge funds that continue to hold a ‘short’ position and bet on a price fall.
The media-shy hedge fund firm said in its latest letter to investors, reviewed by the Journal, that it had also suffered losses on stocks such as International Consolidated Airlines Group and Lloyds Banking Group, and that it was “clearly frustrated” by its performance. It added that in previous years it had recovered from midyear losses to post strong profits by the year-end.
With many hedge funds shuttering in recent months, on losses far less than Landsdowne’s, we wonder if this iconic name won’t soon be following the Perrys and Nevskys of the world into an early retirement.
As to how some other prominent hedge fund outperformers are doing in 2016, here is latest HSBC hedge fund report, showcasing the the best and worst performing hedge funds in 2016.