We had previously dubbed Horseman Capital the world's most bearish hedge fund for one reason: as recently as a few months ago the firm's Global Fund had taken its net equity short position to an unprecedented -100%. Horseman is now in the news once again as it is liquidating an emerging markets focused hedge fund following losses totaling 17% this year and difficulties raising capital, according to a letter sent to investors.
“In light of fund returns and lack of investor interest, the directors of the fund have sadly decided to close the Horseman Emerging Market Fund Ltd.,” according to the letter seen by Bloomberg News. A spokesman for the London-based firm confirmed the contents of the letter.
“The resulting performance squeeze since February has made holding short positions a near impossibility for many funds and is typical of a true bear market,” Burke said in the letter.
“Returns are customarily destroyed in both long and short funds as the market cycle plays out.”
As Bloomberg reports, the fund, which managed $28 million and is led by John-Paul Burke, lagged a 13.8 percent advance in the MSCI Emerging Markets Index through September this year.
Horseman Capital manages $2.4 billion across a number of hedge funds and the firm is joining a growing number of money managers closing down funds in Europe where poor returns, the mounting cost of regulatory compliance and investors’ reluctance to allocate capital has led to more funds shutting than starting since 2015.
About 557 hedge funds have closed in the region since the start of 2015 through September this year, while only 476 have started, according to Eurekahedge data. Investors redeemed about $5.5 billion from hedge funds focused on Europe in the third quarter of the year, the most since they pulled $9.3 billion in the third quarter of 2012, according to a report from data provider eVestment.
However, as CIO Russell Clark noted,
My other observations about fund management has been that investors are pulling out of active strategies and buying passive strategies. There are good reasons for this, as the unpredictable shifts in momentum in the markets have caused active fund management to underperform significantly. However, it feels to me that passive strategies have grown too fast too quickly. I think active fund management is about to have its day in the sun.
Given that the Horseman Global fund is short equities and long bonds, that is about as active as you can get. Or in other words, I am getting bullish on bearishness!