Field Street Macro Fund Is Said to Extend Italy Loss to 50%

(Bloomberg) -- The meltdown across Italian assets is leaving hedge fund firm Field Street Capital Management with stunning losses, according to people with knowledge of the matter.

Following the market sell-off Tuesday, the firm’s Global Investments fund extended losses for May to 50 percent from wagers on Italian debt, said the people, who asked not to be identified because the matter is private. The firm has since exited the money-losing position. The fund, which wagers on macroeconomic trends, had plunged about 15 percent in the first three weeks of the month, Bloomberg reported late Tuesday. A spokesman for the New York-based firm, which oversees about $4 billion, declined to comment.

Italian bonds were pummeled Tuesday, with two-year yields surging the most on record after the effort by populist leaders to form a government collapsed. The nation’s assets have been rocked by turmoil over the past two weeks as the country risks heading toward another election that may strengthen the anti-establishment parties. The specter that the euro area may lose its third-largest economy has rattled global financial markets.

Field Street’s losses, the worst on record for its macro fund, halved the size of that fund to about $110 million, according to one of the people. They also wiped out its strong performance prior to the sell-off. The fund gained 9.4 percent in the first four months of the year, beating peers. The average macro hedge fund fell about 1.2 percent this year through April, according to Hedge Fund Research.

The selloff Tuesday was exacerbated by a lack of liquidity in the markets, and an unwinding of so-called carry trades may have also added to the pressure.

The extra yield investors demand to own Italy’s 10-year bonds over Germany’s soared to 2.9 percentage points Tuesday, the most in about five years. Markets regained some composure Wednesday, driving the gap down to 2.5 points at the end of trading in Rome. The cost to protect against an Italian default through five-year credit default swaps almost tripled this month to 253 basis points, near the highest level since 2013.

Market volatility also took a toll on Bill Gross, whose Janus Henderson Global Unconstrained Bond Fund had its worst day since inception on Tuesday. The steep decline in interest rates triggered by fears that Italy might leave the euro sent Gross’s $2.1 billion Janus fund down about 3 percent, making a bad year even worse. His fund is down 5.9 percent in 2018, trailing 96 percent of rivals, according to data compiled by Bloomberg.

Other prominent mutual funds recorded their biggest one-day gain since 2009. The $77.2 billion Metropolitan West Total Return Bond Fund, the $38.1 billion Bond Fund of America and the $23.5 billion Western Asset Core Plus Bond Fund all climbed about 1 percent.

Hedge funds profiting from the rout include Algebris Investments’ macro credit hedge fund, which had bearish wagers on Italian bonds, as well as Bridgewater Associates and Marshall Wace, which had bet against the nation’s financial stocks.

Field Street’s larger flagship fund, which focuses on fixed-income investments, was down about 2 percent this month prior to Tuesday, the people said. It had gained 3.7 percent from the start of the year through April.

The firm, which was started in 2007, has seen the departures of several investment professionals as assets declined by about $500 million over the last year or so, said the people. Money managers Lindsey Gorman, Jesse Marre, and Shashank Agrawal left earlier this year, according to their LinkedIn profiles. Robert Surgent, who joined from Tudor Investment Corp. in 2016 as a member of the firm’s senior investment team, and money manager Aaron Yunis both left last year, their LinkedIn profiles show.

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