Citrone's Discovery Strikes a Comeback With Italian Short Wager

(Bloomberg) -- Rob Citrone is seeing a comeback in his hedge fund Discovery Capital Management after profiting last month from the market turmoil in Europe.

His main fund surged 10.6 percent in May, paring losses this year to about 2 percent, according to a person with knowledge of the matter. The fund had been down about 11 percent until May’s rebound and lost about 8 percent last year, said the person, who asked not to be identified because the matter is private. Citrone’s Global Macro fund erased losses this year after gaining about 13 percent in May. That fund is now up 1.8 percent. A representative for Discovery declined to comment.

The turnaround is a vindication of sorts for Citrone, a Tiger cub who’s seen client withdrawals at his $5.5 billion firm amid recent losses. A wager against Italian bonds that Discovery has held since last year paid off in May as investors dumped the nation’s assets on concern it was headed toward new elections that could threaten membership in the euro.

Citrone also profited from bets against Spanish and Greek debt, as well as European bank stocks and Turkish assets, including the lira -- which plunged 10 percent in May -- the person said.

Discovery’s holdings in U.S. oil companies, which rallied as crude touched a four-year high, also added to gains, as did wagers on Chinese and Russian Internet-platform companies. The profitable trades helped offset losses from investments in Brazilian interest rates and Argentine bonds, the person said.

Italian Bets

Citrone, who founded Discovery in 1999 after working as a money manager at Julian Robertson’s Tiger Management, ramped up his bet against Italian bonds going into the nation’s general election in March, on the expectation that the anti-establishment Five Star Movement would win.

When the vote instead left the legislature divided, Citrone further added to the position. The Italian market -- as well as those of some other European nations -- sank in May as the Five Star Movement formed a coalition with the League, an anti-immigrant, euro-skeptic party.

Discovery, based in South Norwalk, Connecticut, has since scaled back the positions that made money in May and is now focused on trading around the impact from rising U.S. interest rates on emerging markets. Citrone is also betting against Mexican equities and the peso, as the nation heads toward presidential elections that pollsters say Leftist candidate Andres Manuel Lopez Obrador will probably win.

Citrone is among multiple macro traders who profited off the shakeout across global markets from Italy’s turmoil. Alan Howard, co-founder of Brevan Howard Asset Management, saw a 37 percent surge in May in his own fund, AH Master Fund. Tudor Investment Corp. posted a 7 percent gain in its Maniyar Macro Fund, which is overseen by one of Paul Tudor Jones’s top traders, Dharmesh Maniyar, who uses machine-learning algorithms to help make macro bets. Jeff Talpins’s Element Capital Management rose 4 percent.

Discovery’s European-dedicated fund, which manages about $500 million, surged 20 percent in May, bringing year-to-date gains to about 15.7 percent, said the person. On average, macro hedge funds fell 0.3 percent in May on an asset-weighted basis, according to Hedge Fund Research.

©2018 Bloomberg L.P.

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