Pandemic Hedge Fund Winners and Losers

Nathan Vardi of Forbes reports on the winning and losing hedge funds of the March pandemic:
Pierre Andurand is an oil trader known for making big bets. His Andurand Capital hedge funds were coming off two straight years of losses, but in February Andurand wagered the coronavirus would shake up the oil market and he started to short oil aggressively.

With the price of Brent crude crashing below $23 in March, Andurand’s hedge funds performed incredibly well. His Andurand Commodities Discretionary Enhanced Fund soared by 152.9% in March and returned 122.2% in the first three months for 2020. The Andurand Commodities Fund rose by 63.7% last month and has returned 53.1% in 2020. Andurand Capital’s assets, which were about $1 billion a year ago, are roughly split between the two funds.

Efforts across the globe to deal with COVID-19 have sent the global economy into a tailspin and financial markets along with it. But some hedge funds shined in March, trading around the market volatility as they were designed to do even as many of their traders worked from home. There were, however, hedge funds that struggled mightily as the Standard & Poor’s 500 index plunged in March and finished the first quarter of the year down 19.6%, including dividends.

Boaz Weinstein’s Deutsche Bank proprietary trading operation suffered big losses during the 2008 financial crisis, but in the most challenging market since that time, Weinstein’s $2 billion hedge fund operation did very well. Weinstein’s main Saba hedge fund returned 72% net of fees in the first three months of 2020. Another big winner was Eric Cole, whose Warlander Asset Management hedge fund shorted corporate credits and municipal bonds in March, fueling a 30% first-quarter return.

Some stock-picking hedge fund manages did get hit hard in March. Billionaire Larry Robbins’ flagship Glenview Capital hedge fund fell by –30.47% in the first three months of 2020. Other stock pickers, like billionaire Dan Loeb, saw their funds have losses, but nevertheless have outperformed the stock market. Loeb’s main hedge fund has lost 16% in 2020. On the other hand, billionaire Bill Ackman famously hedged his portfolio against the virus in early March and his Pershing Square Holdings returned 3.3% in the first quarter.

Prominent macro hedge funds, which tend to bet on currencies, interest rates and commodities, seemed to hold their own amid the market upheaval. Billionaire Alan Howard’s main Brevan Howard hedge fund was up 23% in the first quarter of 2020. Andrew Law’s Caxton Global Investment macro hedge fund was up 7.2% for the year as of March 27, 2020, according to an HSBC survey of hedge funds.

But not all macro hedge fund strategies did well amid the coronavirus shock. Robert Gibbins’ Autonomy Capital was down 20% in March. Ray Dalio’s Bridgewater Associates, the biggest hedge fund firm in the world, saw its main hedge fund lose about 16% in March, meaning it returned –23% in the first three months of 2020. “The novel coronavirus is a pandemic that came on fast and hit us at the worst possible moment because we had a long tilt in our positions,” Dalio wrote to his investors in March.

The big multimanager hedge funds seemed to hold their own while markets were being rocked in March, but even for them it was a wild ride. Billionaire Ken Griffin’s main Citadel hedge fund is up about 6% for 2020, according to Bloomberg News. Balyasny Asset Management’s Atlas Enhanced flagship was up 4.75% in the first quarter, while ExodusPoint was up 1.2% for the year. Billionaire Israel Englander’s Millennium Management and billionaire Steve Cohen’s Point72 Asset Management are both about flat for 2020.

Some quantitative traders did experience problems in March. Billionaire Jim Simons’ Renaissance Institutional Equities Fund was down 14.4% in the first quarter of 2020, as well as his Renaissance Institutional Diversified Alpha Fund was down 10.5% over the same period. Both still outperformed the U.S. stock market. The Renaissance Institutional Diversified Global Equities Fund was down 10% in the first quarter. David Harding’s big computer-driven hedge fund lost 12.9% in the first quarter. But even among computer-driven hedge funds there were some standouts. Leda Braga’s Systematica BlueTrend fund, for example, was up 9.4% for the year as of March 27, 2020.
Good for Leda Braga, aka the hedge fund queen, she has turned in a solid performance this year:

Now, a few words on hedge funds. It seems the pandemic has been a bit of a blessing for most hedge funds but I warn you, even though some think the worst is behind us, the year isn't over and in my opinion, the really tough period lies ahead:

Importantly, the big money has been made shorting oil and stocks, going forward the real alpha wizards will stand up.

I say this because you'll recall my earlier comments on 2018 hedge funds winners and losers and the world's most profitable hedge fund where I explicitly stated this:
When you're running billions in a long-only concentrated portfolio like that and the beta winds are blowing your way, well, if you're lucky, it's not hard to beat the S&P 500.

But if you look at Hohn's long-term performance, that's where things get interesting because he has consistently delivered great results and his investors have profited greatly over the years. That's not something a lot of hedge funds can boast about.

In fact, Chris Hohn's TCI Fund Management and Stephen Mandel's Lone Pine Capital led hedge fund gains last year, respectively returning $8.4 billion and $7.3 billion to clients in 2019.

Still, I'm not going to lie, activist funds and L/S funds make me nervous, I've seen plenty of superstars get killed over the years or run into serious trouble. Lest we all forget, legendary value investor Bill Miller beat the S&P 500 for 15 years in a row (through 2005) before running into a very cold streak where he underperformed for years and still hasn't recovered.
And ended by stating this:
As far as the hedge fund industry and which are the top hedge funds, I stand by my comments, right now I put Citadel ahead of the pack in terms of delivering great risk-adjusted alpha in all market environments, but there's no doubt, TCI Fund Management was the world's most profitable hedge fund last year and it has also delivered great returns over the years taking very concentrated long-only positions.
Well, it turns out  I was right as Chris  Hohn’s hedge fund suffered its steepest ever monthly decline in March as the global market turmoil hit his stock bets:
The Children’s Investment Fund lost about 19% during the month, the worst since it started in 2004, according to people with knowledge of the matter. The decline pushed the fund’s first-quarter loss to about 23%, the people said, asking not to be identified because the information is private.
Admittedly, one bad month or quarter or even year is fine, but my point is what if this is a protracted downturn, how well can these activist hedge funds which take concentrated long-only positions really perform in a brutal bear market? Most of them got clobbered last month and it remains to be seen how well they will do this year:

Also worth noting, Pierre Andurand wasn't the only hedge fund manager scoring big returns as oil prices declined but he correctly predicted the rout in oil prices and he's also been a vocal critic on Twitter on the lack of urgency regarding the coronavirus pandemic.

In other words, Pierre not only saw the supply shock on oil, he also saw the huge demand shock the pandemic is causing which helps explain his huge gains.

Will he be able to reproduce such huge gains? No, even if you ask him, he will be honest about that, but he has cemented his place in the pantheon of elite hedge fund managers focusing purely on oil (there aren't many left).

My point with this comment is not to get all wrapped up into how any particular hedge fund performed last month or last quarter -- good or bad -- but to warn you, the more brutal period has yet to arrive and when it does, you want to focus your attention on the few hedge funds that can offer you scalable, high risk-adjusted returns in any environment.

This is why I still recommend Ken Griffin's Citadel, Steve Cohen's Point72, Izzy Englander’s Millennium and Dmitry Balyasny’s Balyasny Asset Management, they're the multistrategy shops I expect to outperform in a very difficult market.

Are there others? Of course there are but if I was an institutional investor, I wouldn't roll the dice on just anyone and I would focus on those that have a proven track record to deliver real, scalable alpha in all market environments.

This is the time to really kick the tires and really understand how your managers are positioned and how well they manage risk. Ask a lot of questions even if it irritates the hell out of your managers (tough luck, that's the name of the game!).

Lastly, Yahoo Finance reports that Universa Investments posted an astonishing year-to-date return of more than 4,000% in March following “one of the scariest months on record,” even as the firm issued a stark warning about a still-overinflated market:

You'll recall, I covered Mark Spitznagel's tail risk fund in mid-February when I went over the crash of 2020. Talk about delivering some real tail risk! (he will never produce such spectacular returns ever again in his life and his returns inception to date are less than stellar).

Below, hedge fund titan Bill Ackman warned just over two weeks ago that "hell was coming" and called for a nationwide shutdown. On Sunday, Ackman said he his growing more optimistic. CNBC's Andrew Ross Sorkin reports.

As I explained in my comment on the Ackman bottom or bottom of hell, take what all these hedge fund gurus publicly state with a shaker of salt. I like Ackman, follow him on Twitter, but he's way too optimistic (talking up his book!) and has no idea how the coronavirus depression will impact markets.

Of course, as Ray Dalio once asked me: "What's your track record?" I certainly don't hold a monopoly on wisdom on markets, the economy or coronavirus but lately my track record has been a lot better than Ray's and some of these other hedge fund gurus.

Update: CNBC reports Renaissance Technologies’ Medallion hedge fund is reportedly up 24% this year through April 14, including fees. Before the fees, Medallion was up about 39% for the year, the Wall Street Journal reported:

Much of the Medallion’s impressive year-to-date gain is thanks to a reported 9.9% gain in March, one of the worst months in modern financial history for the S&P 500.

Also, Bloomberg reports that  macro star manager Chris Rokos has reopened his hedge fund to take in fresh capital. The macro hedge fund had its best-ever month in March, boosting returns for the year to about 20%. Its bearish bets on equities and wagers that the US economy was headed for a recession were among those that paid off:

Lastly, we found out that all hedge funds are now winners due to this pandemic:

You can't make this stuff up! I guess this is the new financial capitalism, reward speculators and spenders, destroy savers and socialize all losses from all markets, making sure you bail out hedge funds and private equity funds first.