Louis Bacon, Michael Novogratz and other multibillion-dollar hedge-fund managers expect to make more money this year from rising Japanese stocks and a falling yen even after being forced to scale back their bets as markets changed direction, according to clients.
Most of the largest macro funds lost 1 percent to 2 percent in the first week of June as the trades, which helped drive performance over the past six months, turned against them. Since reaching a 4-1/2-year low on May 22, the yen has rallied about 8 percent against the U.S. dollar and Japan’s Topix stock index has fallen 15 percent.
“As macro managers started to see reversals in the markets they took their risk down, but broadly speaking their views remain the same,” said Arvin Soh, a portfolio manager at GAM USA Inc. in New York, which had $53.3 billion in assets as of Dec. 31, including hedge-fund strategies.
The Japan trade made for a promising start to 2013 as many of the biggest macro managers posted returns of 12 percent to 14 percent in the first five months, said the investors, who asked not to be named because the funds aren’t public. Hedge funds on average returned 2.8 percent.
The results were a welcome change for many of the managers, who have struggled with lackluster performance since 2010 even as clients in the $2.4 trillion industry poured a third of new cash into their funds figuring they were best positioned to navigate markets in the wake of the global financial crisis, according to data tracker Hedge Fund Research Inc.
Macro traders, who bet on macroeconomic trends by buying and selling stocks, bonds, currencies and commodities, tend to thrive in the sort of strong, steady market moves that Japan produced for most of this year. In the prior two years, the hedge funds were stymied by global markets in which prices have jumped around and trends proved to be short-lived.
Macro funds returned 1.4 percent in the first five months of this year, the best start to a year since the beginning of 2009.
The yen fell by 20 percent against the dollar from the end of November through May 22 and Japan’s Topix jumped 63 percent after Prime Minister Shinzo Abe championed fiscal and monetary stimulus, along with a weaker exchange rate, to end deflation and restart growth.
Macro managers have also made money this year on rising stocks in the U.S., where the benchmark Standard & Poor’s 500 Index has climbed 16 percent, and on a falling Australian dollar, according to Soh and other investors.
The Fortress Macro Fund, run by Novogratz and Adam Levinson, rose 12 percent this year through June 7 even after losing 1.8 percent in the first week of the month, investors said.
Novogratz, whose New York-based firm managed $3.4 billion in macro funds as of March 31, said in early May that U.S. stocks could end the year up 25 percent to 30 percent and called Japan the best place for macro investing.
Tudor Global BVI, the macro fund run by Paul Tudor Jones, rose 9.5 percent this year through June 7 after losing 1.9 percent in the first part of the month, clients said. Jones told investors Japanese stocks will probably climb higher, while the yen may not weaken much further, they said. His Tudor Investment Corp., based in Greenwich, Connecticut, oversees $13.5 billion.
Bacon’s Moore Global Investment Fund was up 11 percent year-to-date as of June 7 after declining 1.7 percent in the first week of the month. His performance has been helped by his decision to return $2 billion -- or 25 percent of the fund -- to clients last year following weak returns, investors said. Moore Capital Management LLC, based in New York, has $12.1 billion in assets.
“He gave up $60 million in fees doing the right thing for his clients, and now his performance has gotten back to where it’s typically been over the past 20 years,” said Brad Alford, head of Atlanta-based Alpha Capital Management LLC, the manager of mutual funds of funds that invest in hedge-fund strategies, including Bacon’s.
Fund managers who seek to maintain top returns occasionally hand back some client cash or stop accepting new money if their funds have grown so big that they can’t find enough investment opportunities.
Andrew Law, who runs the Caxton Global Investment fund, advanced about 11 percent this year as of June 10 after sliding almost 1.3 percent during the start of the month. Caxton Associates LLC, based in New York, oversees $6.4 billion.
Even with the Japan trade, a few large managers have stumbled.
Ray Dalio, who heads the $140 billion Bridgewater Associates, returned 1.8 percent through May in his Pure Alpha II fund, following a gain of less than 1 percent in 2012, according to a person with knowledge of the matter.
In the first quarter, Dalio’s successful trades included bets on a weakening yen and rising U.S. stocks, investors said, yet wrong-way wagers on gold and emerging-market equities, among others, wiped out those profits, they said.
Alan Howard’s Brevan Howard Asset Management LLP has also failed to climb as much as some other macro managers in 2013. His publicly traded BH Macro Ltd. fund returned 3.3 percent in its dollar share class through June 14, according to a filing by the London-based firm, giving back more than half the gains it made through May, when it was up 7.1 percent for the year.
Spokesmen for the fund companies declined to comment on performance and the managers’ outlooks.
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