Hedge Fund P/E Investments Surges 34% in Wild Stretch for FX

(Bloomberg) -- One of the most volatile quarters for currencies on record proved to be a boon for hedge fund P/E Investments.

The $10 billion firm posted a return of about 34% in its FX Aggressive Strategy fund in the first three months of the year, bringing the program’s annualized gain since 2003 to around 13%, according to a letter to investors seen by Bloomberg News. P/E’s FX Standard Strategy gained roughly 22% in the first quarter, while the FX Low Volatility Strategy rose 5.4%.

Boston-based P/E Investments, which employs statistical models to determine FX positions, benefited from a well-timed wager against commodity-linked currencies at the start of March. Crude oil plunged -- and then rebounded-- after a price war erupted between Saudi Arabia and Russia, crushing currencies such as the Australian dollar, Mexican peso and South African rand.

“The portfolio shifted away from short European currencies to short commodity currencies at the beginning of March,” Chief Investment Officer Warren Naphtal wrote in the April 7 letter. “The FX Strategy is positioned for continued crisis, remaining bullish safe havens, versus commodity currencies.”

A JPMorgan Chase & Co. gauge of currency volatility soared to its highest level since 2011 last month as fears over the coronavirus gripped global markets. That buoyed currencies such as the yen, Swiss franc and the dollar, which investors tend to favor during market turmoil.

Volatility has since subsided as central banks and governments have rolled out measures to support markets and cushion the global economy against the disease’s economic fallout. The Bloomberg dollar index, while still up about 6% in 2020, is declining this week as risk appetite has bounced back on signs that the virus’s spread may be slowing in some hot spots. On Tuesday, the dollar’s losses were steepest against commodity-linked currencies like the Norwegian krone and the Australian dollar.

Naphtal started P/E in 1995 with his wife, Mary Stephens Naphtal, the firm’s chief operating officer, and J. Richard Zecher, chairman of the fund’s advisory board. David Souza, who joined in 2000, is a portfolio manager who focuses on developing quantitative models.

Christin Luttrell, a spokeswoman for the fund, declined to comment on returns.

The virus-fueled volatility outbreak in markets has been an episode of feast and famine for the $3 trillion hedge-fund industry. Titans such as Dan Loeb’s Third Point and Ray Dalio’s Bridgewater Associates have stumbled this year. Meanwhile, Boaz Weinstein’s Saba Capital Management gained around 70% last quarter.

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