Macro Hedge Funds Cashed In on Mess From Italy, Trade Wars

(Bloomberg) -- Some boldface names at macro hedge funds, a sector that’s struggled in recent years, are posting big results.

Alan Howard is up 44 percent this year through May. Dharmesh Maniyar, who uses machine learning at Tudor Investment Corp., saw his fund jump 13 percent. And Jeff Talpins’s fund, among a handful that have notched gains in recent years, rose 18 percent.

Five months of profits do not make up for years of lackluster returns for many macro traders. But they seem to be making good on their promise to bounce back to life once volatility returns. Investors’ fears of inflation and trade wars with China and populist politics in Italy have given these traders spreads to exploit.

“I am happy that the loyalty and confidence shown by my investors has been rewarded with a very positive result,” Howard said by email.

London To New York To Asia

Howard saw a 37 percent surge in May in his own fund, AH Master Fund, which makes riskier bets. A short position against Italy was among the wagers that contributed to returns, along with trades designed to profit from volatility that rocked markets worldwide last month, according to people familiar with the matter, who asked not to be identified because the information hasn’t been publicly disclosed.

That marks a comeback for Brevan Howard Asset Management, with offices in London, Jersey and other locations, which has posted subpar performance and has suffered big redemptions in recent years.

Talpins’s Element Capital Management booked gains as markets were roiled by the political turmoil in Italy. The $14 billion macro hedge fund rallied 4 percent for May. The New York-based firm declined to comment.

Not all macro traders are thriving. As a group, the funds lost 2.3 percent for May and 2 percent for the year, according to data compiled by eVestment and released Thursday.

Field Street Capital Management suffered stunning losses from the meltdown across Italian assets amid the uncertainty over the election. Following the market selloff on May 29, the firm’s Global Investments fund extended losses for May to 50 percent from wagers on Italian debt. A spokesman for New York-based Field Street, which oversees about $4 billion across strategies and has since exited the money-losing position, declined to comment.

The GCI Systematic Macro Strategy in Tokyo slid an estimated 4.2 percent in May as a short position on U.S. Treasuries was among bets that got hurt in a “risk off” market near the end of the month, the firm said in an investor update.

There were some macro winners in Asia. The $144 million PruLev Global Macro Fund gained 15.4 percent in May, according to preliminary figures in a newsletter obtained by Bloomberg News, recouping almost all its losses this year. Returns at the Singapore-based firm were mainly helped by the fund’s fixed income investments amid the market turmoil spurred by elections in Italy, according to the newsletter.

Macro Investments

“The Fund timely sold derivatives of Italian bonds and bought derivatives of Eurozone (German) fixed income, ahead of the political deadlock on Sunday, 27 May that roiled the markets in the subsequent days,” PruLev said in the newsletter.

Investors, anticipating more interest-rate increases in the U.S. and political risks globally, have been upping their bets on big macro funds. They poured nearly $12 billion into the strategy during the first four months of the year, surpassing the inflows from all of 2017, data compiled by eVestment show.

“The primary beneficiaries continue to be the largest managers in the space, while many others faced outflows,” according to eVestment’s April report.

--With assistance from Katia Porzecanski, Saijel Kishan and Suzy Waite.

To contact the reporters on this story: Nishant Kumar in London at nkumar173@bloomberg.net;Klaus Wille in Singapore at kwille@bloomberg.net;Josh Friedman in Los Angeles at jfriedman25@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski, Sree Vidya Bhaktavatsalam

©2018 Bloomberg L.P.