Caxton Is Said to Plan Fund Run by Law After Record Loss

(Bloomberg) -- Andrew Law, Caxton Associates’ beleaguered chief, is grappling with one of the worst losses in the macro-trading world this year. His message to investors: trust me alone with more of your money.

Law is planning to start his own fund at Caxton next month that will use borrowed money to amplify bets that he already makes in the firm’s current portfolio, according to people with knowledge of his plans. Law is the largest risk-taker at Caxton, which has slumped 12.8 percent this year through Dec. 5. The firm will start next year will about $5 billion after assets plunged by more than a third since January.

Law, an unassuming 51-year-old who New York billionaire Bruce Kovner entrusted six years ago to run Caxton, isn’t the first macro trader to take a go-it-alone approach in the face of losses and client withdrawals. Alan Howard started his own fund at his Brevan Howard Asset Management earlier this year, and Paul Tudor Jones last week shuttered a pool run by teams of managers that didn’t include him, saying he was going to take most of the risk at his Tudor Investment Corp.

Macro hedge funds have suffered five years of subpar returns, forcing them to cut fees and headcount. Managers are now looking to profit by making fewer and larger wagers, arguing that opportunities should improve as the U.S. raises interest rates and other central banks slow asset purchases.

$500 Million Cap

Law’s new fund will begin trading Jan. 2 and be capped at $500 million, said one of the people, who asked not to be identified because the information is private. Caxton is also considering a fixed-income fund run by a team of money managers, the person said. Kelly Griffin, an executive at $5.6 billion Caxton, which is based in New York, declined to comment.

Read More: Caxton’s Berkowitz and Six Others Leave as Fund Declines 8%

Hedge fund chieftains running stand-alone funds aren’t unusual. Louis Bacon for decades has run his own pool at Moore Capital Management. Jones oversaw his own fund, Tudor Futures Fund, for three decades before shutting it in 2015.

Caxton Is Said to Plan Fund Run by Law After Record Loss

For Law, 2017 is shaping up to be a sobering year. Caxton, one of the oldest macro funds, tumbled 8 percent in the first five months mainly due to wrong-way bets on the dollar, U.S. stocks and longer-dated fixed income. The decline prompted him to let go of some of his money managers including Josh Berkowitz, who had once been the second-largest risk taker. Law accounts for about 40 percent to 50 percent of the risk taken by the main fund, which has 30 money managers, said one of the people.

Law’s Performance

Law also told clients in June that Caxton was moving away from momentum trading, a style that hasn’t worked of late. The changes failed to reverse the decline and Caxton continued to post losses, including a 2.7 percent decline last month.

Steep drops are a rarity at Caxton and its macro rivals who had sidestepped declines during the global financial crisis. For Law, this year’s losses are more acute, both compared with his big-name competitors and the firm’s history. The biggest drawdown before this year for Caxton, which Kovner founded in 1983, was about 7 percent in 2007.

The fund now is poised for its second down year. The first, also under Law’s watch, was a 1 percent decline in 2014. Caxton has returned an annualized 10.9 percent since 1997. After Law took over in 2012, the performance has dropped to 2.5 percent a year.

Law, a U.K. native who splits his time between Caxton’s New York headquarters and London, joined the firm in 2003. He previously had been a proprietary trader at Goldman Sachs Group Inc.

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