Brexit chaos sees machines lead hedge fund winners3 min read . Updated: 28 Jun 2016, 04:34 PM IST
Human traders appeared to have limited losses by reducing risk in the face of Britain's surprise decision to leave the European Union
London/New York: As more details emerged on how hedge funds fared following Britain’s surprise decision to leave the European Union, computer-driven funds led the winners. Human traders appeared to have limited losses by reducing risk.
Lynx Asset Management, which uses mathematical models to decide which securities to buy and sell, posted a 5.1% gain on Friday in one of its funds, according to its website. Capital Fund Management, a $7 billion firm in Paris, gained 4.2% that day in its Discus fund, while Systematica Investments, the $10.2 billion fund run by Leda Braga, gained 1.35% in its main BlueTrend fund, people with knowledge of the matter said.
Trillions were wiped from global equity values and the UK was stripped of its top credit grade by S&P Global Ratings, after the country’s decision to leave the European Union that has left it in political and economic paralysis. In a sign traders had prepared for the event, options-derived measurements of market stress were falling Monday despite a second day of weakening stocks.
“We are entering a new regime of higher volatility where prices are vulnerable to sharp reversals and breakout of new trends," said Nigol Koulajian, founder and chief investment officer of Quest Partners, a quantitative hedge fund firm that manages $650 million. “Years of aggressive central bank policies suppressed volatility across markets and this is now changing as macro and political risk begin to rise."
The New York-based firm gained 1.6% on Friday and 3.6% on Monday in its flagship fund, AlphaQuest Original Fund, according to a person familiar with the matter.
Other computer-driven funds that profited include Winton Capital Management in London, whose founder David Harding gave £3.5 million ($4.6 million) to the Remain campaign.
Quantitative Investment Management, the computer-driven firm based in Charlottesville, Virginia, gained 3.6% on Friday and 12% this month before fees in an equity strategy that manages about $500 million, according to a person with knowledge of its returns. The performance adds to a gain of almost 30% net of fees during the first five months of this year.
The firm’s main futures strategy, which manages about $2.5 billion, also made money on Friday, bringing gross returns for June to 4.2%. Before this month, it had gained 7.7%, net of fees, in 2016.
Officials for the hedge funds declined to comment on performance. Many hedge fund managers will update investors on June performance this week and next.
George Soros, the billionaire who gained fame by successfully wagering against the pound in 1992, said he was betting on a rising pound leading up to the vote. In the days before, Soros had warned that the pound could slump more than 20% against the dollar as voters were grossly underestimating the true cost of Brexit. Soros made money on other investments that were designed to profit from falling markets, a spokesman said Monday.
Soros built his reputation as a macro investor, a strategy that seeks to profit from economic events and trends by trading everything from currencies to commodities. Macro funds that made money on the UK vote include Graticule Asset Management, run by Adam Levinson, people with knowledge of the firms said.
Macro hedge funds had a low level of risk on before the decision, according to a survey last week by research firm Drobny Global Advisors LP. Such funds are likely to have posted performance ranging from losses of 2.5% to gains of 0.5% in the aftermath of the vote, Philippe Ferreira, head of research at Lyxor Asset Management, said in a report.
Stone Milliner Asset Management, the macro fund run by Jens-Peter Stein and Kornelius Klobucar, lost 0.2% in the Class A shares, Series I version of its fund this month through Friday, according to an investor update. It has lost 1.2% this year.
Discovery Capital Management LLC, the macro fund run by Robert Citrone, posted a 0.5% gain for the month in its Global Opportunity Fund through Friday and a loss of 2.5% for the year, according to an investor update. The fund said the highest conviction short wagers in its portfolio are in the UK and European equity markets.
“With a Remain vote, we had believed risk assets in general would have had a sharp rally over the next 3-4 weeks, from which a meaningful correction would have unfolded," the South Norwalk, Connecticut-based firm said. “This surprising turn of events has accelerated our roadmap that we had for the August-October timeframe."
Hedge fund manager Crispin Odey, an advocate of a British exit, gained more than 15% in his flagship fund on Friday, according to a person familiar with the situation. Odey had conducted a private poll ahead of the decision showing the vote was much closer than financial markets expected. Bloomberg