Millennium, Citadel Cut Losses After U.S. Moves Help Markets

(Bloomberg) -- Hedge fund firms, including those run by Ken Griffin, Izzy Englander and Steve Cohen, trimmed losses suffered earlier this month thanks in large part to the U.S. government.

Citadel, Millennium Management and Point72 Asset Management were among the money managers that struggled in the first half of March as the effects of the spreading coronavirus virtually halted the global economy and seized up markets from stocks to bonds to commodities.

While losses at the largest multi-strategy firms -- which invest across a range of assets -- were only in the single digits at their peak, the moves were sudden and unexpected, hitting usually dependable trades that use leverage to take advantage of small price differences in related securities. The so-called arbitrage trades were placed on everything from Treasuries to company mergers.

Then came the unprecedented moves by the Federal Reserve and Congress’s promise of a $2 trillion economic stimulus package. That combination boosted markets this week -- at least temporarily. U.S. stocks had their best three-day run since the 1930s before falling again on Friday.

“Investors can take heart that we’ve counteracted this existential shock with the greatest fiscal and monetary bazooka,” fund manager Paul Tudor Jones said in an interview on Thursday with CNBC. “It’s not even a bazooka -- it’s more like a nuclear bomb.”

By the end of this week, the Fed will have bought $1 trillion worth of Treasuries and mortgage-backed securities, he said, the same amount they bought over eight months during the global financial crisis.

Losses at the larger multi-strat firms were caused by a variety of trades, notably: statistical arbitrage, a popular quantitative strategy that looks for discrepancies in the way stocks trade against each other; index rebalancing, which wagers on the quarterly re-weighting of stock indexes (which were abandoned amid the meltdown); and basis trades, betting on the difference between Treasuries and futures.

The Fed action and promise of the fiscal package helped improve performance this week, according to people familiar with these firms, though exact returns haven’t yet been provided to investors. Here’s how the bigger firms have fared:

  • Citadel was down 5.3% for the month through March 20. Its performance has since improved.
  • The fixed-income heavy ExodusPoint, run by Michael Gelband, had been down 3%, and is now up slightly on the month.
  • Millennium had posted a loss of about 5% through March 20.
  • Point72’s losses were around 4% through March 20. The fund had taken a hit from its quant trading group Cubist, which had lost 22%.
  • Schonfeld Strategic Advisors, which had been down about 11% on the month primarily from its quant trading, said it was looking to raise more money.

Representatives for the hedge funds declined to comment.

Some smaller firms navigated the first half of March without losses. Dmitry Balyasny’s $6 billion Balyasny Asset Management made money in March through Monday, climbing 1.1% in the month, and 2.2% for the year. The firm, after restructuring in 2018, returned about 12% last year. This year it made money in areas including equities and macro trading, according to a person familiar with its performance.

The $1 billion Cinctive Capital Management, a multi-manager stock fund founded by Rich Schimel and Larry Sapanski, was up about 1% after cutting risk going into March, an investor said. It’s up more than 3% for the year.

Verition Group, a $1 billion fund run by Nick Maounis, returned 2% in the month. It uses less leverage and stays away from crowded trades, according to an investor.

©2020 Bloomberg L.P.

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