This $700 Million Hedge Fund Just Took Its Money Off the Table

(Bloomberg) -- Rhicon Currency Management is sitting this one out.

The $700 million hedge fund shut down the bulk of its positions roughly three weeks ago, according to managing director Peter Jacobson. The fund’s intra-month strategy is “completely flat,” while roughly half of the money in its one-week-or-less book is invested.

Why? The simple reason is that nothing looks compelling, Jacobson said. Recent turmoil in U.S. equity markets has done little to shake up the $5.1 trillion-a-day foreign exchange market, meaning that risk-off currencies such as the yen have yet to benefit. European growth has slowed to a crawl, so Jacobson is steering clear of the euro. And the dollar is unlikely to take another leg higher unless benchmark 10-year Treasury yields spike to 3.3 or 3.4 percent. They are currently around 3.17 percent.

“Not trading is actually a trade decision,” said Jacobson, who splits his time between Singapore and Sydney. “I don’t see anything that makes sense to me, so there’s absolutely no reason why I should have positions on.”

The restraint has served Rhicon well: the hedge fund is up nearly 5 percent in a year that has seen most macro managers stumble. That compares with a nearly 4 percent year-to-date slump in a BarclayHedge index of currency trading programs, following a record 11 percent plunge in 2017.

Rhicon was previously bullish on the dollar, which worked for a while: the greenback has gained over 7 percent since mid-April. In May, Jacobson expected the bulk of the dollar’s gains to come against the euro, which proved prescient as the common currency fell as low as $1.13 in October from a seven-year high of $1.2555 in February.

Now, however, the narrative is less clear.

“With a four percent correction in equities, you would have thought that risk-off currencies would perform really well,” Jacobson said. “So I’m in a holding pattern until things become more clear.”

Jacobson, who co-founded Rhicon with Christopher Brandon in 2000, said the firm doesn’t often completely shut down its positions. However, it’s become a more frequent occurrence in the past seven years as extraordinary monetary stimulus on the part of global central banks compressed volatility.

Should stocks continue to churn and a “real sense of panic” bleed across markets, Jacobson believes that his most likely next trade would be to short the greenback against the yen. In the meantime, though, he’s content to keep his powder dry.

“There is always another trade, you just have to wait for it. But if you’re losing money, you may not have enough capital to trade that in the end,” he said. “So just be patient.”

To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Dave Liedtka

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