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An "Unhedged" Year For the Hedged Funds

2015 is an "unhedged" year - Hedge funds as a whole are on track to post one of their most disappointing years since 2011, with the industry on average down 1.3 per cent, according to the HFRI Fund Weighted Composite index. The HFR macro index is down 0.64 per cent year to date.

Fortress Investment Group, listed in New York, is shutting down its $2bn (from peak of $8bn) flagship macro fund run by Mike Novogratz, a former US army pilot and honorary chairman of USA Wrestling Foundation which founded the macro hedge fund unit of Fortress in 2002 after spending 11 years working at Goldman Sachs, after it lost 17.5% this year.  Mr Novogratz's macro hedge fund failure was in part due to its bet against the Swiss Franc went awry after the Swiss central bank lifted its currency peg against the euro and the currency's value soared.

Renaissance Technologies, one of the world's most successful and secretive hedge fund groups, founded by former Pentagon codebreaker and mathematician James Simons, is also winding down its $1bn investment fund - Renaissance Institutional Futures Funds (RIFF) that uses algorithms to invest in financial derivatives across the world, taking advantage of market trends.  It is also known as "managed futures" or "commodity trading advisers".

RIFF has returned annualised return of 2.86% since its establishment in September 2007.  It lost 1.75% so far this year and its annualised performance is well below the industry's average.  For instance, Man Group's $2.9bn AHL Evolution fund has returned more than 5% this year and annualised 15.3% since 2005; Winton Capital's flagship $11.8bn futures fund, managed by former physicist David Harding, has returned just 0.9% in the year to 2015-09-23, but annualised 13.85% since 1997.

RIFF was ended because many of its existing investors preferred the Renaissance Institutional Alpha Funds, which was set up in 2012 and invested in futures and cash equities.  At the same time, RIFF was not able to attract enough new investors to invest in a futures-only fund.  Most of the capital in RIFF is now internal Renaissance money.

Other high-profile hedge fund managers that have suffered this year amid a prolonged bout of market volatility include David Einhorn's Greenlight Capital, and Bill Ackman's Pershing Square Capital.  Claren Road, a Carlyle Capital-owned credit hedge fund, could also be shut after a dismal year and an investor exodus.

Source:

  1. Financial Times, Robin Wigglesworth, 2015-10-14, "Renaissance Technologies winds down $1bn Investment Fund"
  2. Financial Times, Mikes Johnson and Stephen Foley, 2015-10-13, "Poor Performance Forces Fortress to Shut $2bn Macro Hedge Fund"