This Hedge Fund Lost $139 Million Last Year and Citigroup is Feeling the Pain

(Bloomberg) -- GF Securities Co. said one of its hedge funds wiped out an amount equivalent to more than 10 percent of its profit for all of 2017 after suffering “significant losses due to fluctuations in the foreign exchange market.”

The GTEC Pandion Multi-Strategy Fund SP lost $139 million in 2018 and its net value was negative $44 million at the end of December, according to a Hong Kong exchange filing Wednesday. The loss reduced GF Securities’ net income by 919 million yuan ($137 million) -- equal to more than 10 percent of the brokerage’s profit the year prior, the statement said.

The debacle has impacted Citigroup Inc., which faces losses of as much as $180 million on loans made to a hedge fund managed by a unit of GF Holdings (Hong Kong) Corp., a person briefed on the matter said in December. That’s prompted board-level discussions and a business shakeup at the New York-based bank.

The Pandion Fund, established in 2016, invested mainly in on-market equity derivatives, and has gradually expanded to buy interest-rate products, foreign-exchange derivatives and foreign-exchange volatility variance swaps. GF’s Hong Kong units may face potential litigation, according to Wednesday’s statement.

Shares of GF Securities have fallen more than 8 percent in Hong Kong this week, the worst performer on a Bloomberg index of brokerages listed in the city. The firm reported on Wednesday that full-year profit fell 50 percent, missing the lowest analyst estimate on a Bloomberg survey. GF Securities didn’t immediately reply to an email seeking details on the Pandion Fund.

The China Securities Regulatory Commission’s Guangdong bureau has requested GF Securities enhance its internal controls, strengthen its investment in information systems and personnel, and improve risk management of overseas units, according to a separate filing Wednesday.

©2019 Bloomberg L.P.