October’s stock rout is inflicting the most pain on equity and quant
hedge funds.
As the U.S. stock market headed for its worst month in seven years,
equity funds have slumped 6.8 percent through Monday, Morgan Stanley’s prime
brokerage group said in a report. That brings the year’s losses to 5.9 percent.
The global turmoil has tripped up the $3 trillion hedge fund industry,
wiping out what little money they had made in 2018 -- a year that has seen
managers including Highfields Capital’s Jon Jacobson and Tourbillon Capital’s
Jason Karp announce plans to exit the business. The losses also show the
difficulties that most managers face in navigating episodic market turbulence.
By contrast, macro managers sidestepped the mess and profited from price
swings.
The selloff underscores
the perils that funds face when they pile into the same stocks. Equity funds
suffered after the top 10 stocks they’re most “crowded” in underperformed the
S&P 500 Index by almost 3 percent on Oct. 29, the worst day since 2010,
Morgan Stanley said. In addition, the top 10 stocks that funds bet against
outperformed the index by more than 1 percent.
Funds that use computer-driven models to
follow big market trends were whiplashed as price volatility spiked. Among the
casualties: Leda Braga’s BlueTrend hedge fund, GAM Holding AG’s
Cantab unit and Man Group Plc’s AHL unit. Other quant models that lost money
include Renaissance Technologies’ U.S. equity fund.
On the macro front, managers who bet on broad economic trends have
staged a comeback in 2018 after years of middling returns. Among them was Alan
Howard’s Brevan Howard Asset Management which gained 1.9 percent through Oct.
26 in its main fund, bringing its returns so far this year to 12 percent.
Other hedge funds that skirted losses include Ken Griffin’s Citadel,
which gained 0.5 percent so far this month in its biggest fund, people with
knowledge of the matter said.
Representatives for the hedge funds declined to comment.
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