April 22, 2018

The Best Hedge Fund Managers Bet Against the World

Steve Cohen, SAC Capital's manager, is among the few hedge fund managers to post gains this year.

Steve Cohen, SAC Capital's manager, is among the few hedge fund managers to post gains this year.

The biggest and the best hedge fund managers bet against the world to post gains this year, as the competition reels from losses. Included among the winners is SAC Capital, a $14 billion hedge fund run by Steve Cohen. SAC charges the highest fees in the industry of 3% of assets and 50% of gains compared to the usual “2 and 20″. Investors never shied away from those numbers and are likely to keep knocking on their doors as hedge funds are down 8% and stocks are down 6%. The Wall Street Journal‘s Neil Shah and Gregory Zuckerman report on some of the winners using macro, or big picture, strategies.

Caxton Associates LP’s $6.8 billion Global Investments Limited Fund, run by Andrew Law—who takes the helm of the $9.1 billion firm next year—is up 0.67% this year through Oct. 3, after being down 3.25% at the end of May. The Global Investments fund rose 2.73% in August, 2.69% in September and is up 0.4% so far this month.

Caxton’s gains over the past months have been from trades benefiting from falling growth expectations. Among the winning trades: Negative bets on interest rates in Brazil and developed-world markets, bearish positions on gold and base metals, and a wager that the dollar would rise against emerging-market and developed-world currencies.

Other “macro” hedge funds that bet on global financial markets and economic trends, such as Citadel Investment Group, Tudor Investment Corp. and SAC Capital Advisors LP, are also showing positive returns for the year as investors worried about the global economy dump once-high-flying investments like stocks, emerging-market debt and gold.

SAC Capital Advisors was up about 6.5% this year through September, after the firm’s high investor expenses. SAC lost about 1.5% in September, according to investors. People close to SAC said the firm shifted to a neutral position on the market several months ago, worried about a looming debt crisis in Europe. Mr. Cohen believes stock-market valuations have become more compelling and is encouraged that earnings estimates for 2012 have been reduced in recent days, suggesting the market already is pricing in weakening conditions, according to someone familiar with his thinking. But he isn’t doing much buying, concerned that the situation in Europe could drag global markets still lower.

Part of selecting a hedge fund manager to invest with is luck, as even some of the most well-renowned funds have posted steep losses this year. Included in that list is Paulson and Fortress. As the best hedge fund managers bet against the world, investors should be wary about jumping in the market headfirst. The smart money is (probably) betting against you.

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