MKP, Paloma Among Hedge Funds That Won During Bond Market Chaos
MKP, Paloma Among Hedge Funds That Won During Bond Market Chaos
(Bloomberg) -- While most macro economic traders lick their wounds from October’s bond market surprise, a few exceptions are feasting on their success.
Hedge funds MKP Capital Management, Paloma Partners and Forada Limited posted gains last month after deftly navigating the upheaval in global bond markets, according to people familiar with their performances. They bested rivals caught off guard after the yield curve rapidly and unexpectedly flattened in the last week of October amid bets central banks would need to act faster to tame inflation.
- MKP Capital’s wagers on higher interest rates globally led its main fund to a roughly 3% advance in October, one of the people said. The MKP Enhanced fund is up more than 7% for the year.
- At Forada, which has about $1 billion under management, bets anticipating that rate hike expectations would be brought forward and impact global interest rate curves drove its October gain of 3.8%, another person said. That accounted for the bulk of the fund’s 4.5% increase this year.
- Paloma saw an October return of 1.5%, with strong gains from its fixed income relative value trades, one of the people said. The $4.2 billion multistrategy fund is up almost 10% for the year.
Macro traders across the hedge-fund industry got caught flat footed during the last week of October as policy makers shifted gears to move more firmly against inflation. Many funds were positioned for an increase in the premium of longer-end interest rates over the shorter end -- a so-called steepening of the yield curve -- and got hammered as the bond market quickly moved against them. Funds including Rokos Capital Management and Alphadyne Asset Management chalked up losses.
Haidar Capital Management was among funds that fared well last month, cementing its status as one of the best performers this year. Its Jupiter fund rose 6.5% in October, pushing year-to-date returns to 81.4%, according to a person familiar with the matter.
The fund may have won on its fixed-income bets, which made up 30% of its exposure as of September, according to an investor letter from that time. The fund makes various global macro trades including “mispricing along yield curves or amongst individual bonds or between bonds and swaps” and in September warned investors that as central banks respond to inflation lasting longer than expected by tightening policy, “the reduction in global liquidity may negatively impact bond, equity and credit markets,” the letter said. The fund managed $1.4 billion at that time.
Garda Capital Partners was said to have made money on its inflation wagers during the tumultuous last week of October, however it’s unclear how the fund performed for the month.
Representatives for the funds declined to comment.
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