Hedge Funds Are Off to a Rough Start
Tiger Global & Whale Rock both lost over 14% during January
According to Goldman Sachs, equity funds lost 6.22% on average during January. In addition, tech and healthcare-focused funds both lost over 10% on average. These figures were all worse than the S&P 500’s loss of 5.23%. Among the worst performers were several high-growth tech hedge funds, such as Whale Rock and Tiger Global.
Without further ado, let’s take a look at January’s best and worst performers.
January’s Best Performers
Trend Capital Macro Fund: 8.9%
AQR Management: 7.1%
Castle Hook Partners: 6.3%
Kirkoswald Asset Management: 5%
Citadel: 4.7%
Bridgewater: 4.1%
Discovery Capital: 4%
Rokos Global Macro: 3%
January’s Worst Performers
Whale Rock: -15.9%
Melvin Capital: -15%
Tiger Global: -14.8%
Light Street: -13.7%
Pershing Square: -8.2%
Third Point: -7.6%
Viking Global: -4.5%
Coatue Management: -4.3%
The common theme is that macro-based hedge funds have been outperforming their tech counterparts. For example, Bridgewater managed to outperform the S&P 500, but the fund has been underperforming the same index for the past 5 years.
Meanwhile, top performers received an unpleasant wakeup call to 2022. Alex Sacerdote’s Whale Rock, which returned an estimated 584% over the past 5 years, declined by a substantial 15.9% during January.
Pershing Square - Bill Ackman
For the 3 weeks ended January, Bill Ackman’s Pershing Square was down 13.8%, representing one of Ackman’s worst starts in his career. However, the New-York based fund was able to recover some losses and finished the month down 8.2%.
Notably, Pershing Square purchased 3.1 million shares of Netflix during the month and publicly announced it on Twitter. After the purchase, Ackman is now a top-20 shareholder of Netflix. While the exact purchase price was not specified, NFLX stock was trading around $360 when Ackman made his announcement. Today, it’s trading above $400.
To fund his Netflix position, Ackman reduced his interest rate hedge by 80%, which generated proceeds of roughly $1.25 billion.
Ackman explained that:
“We invest in hedges not to protect the funds from a short-term mark-to-market loss, but rather because they can become a large source of potential liquidity at precisely the time stocks become cheap.”
Trend Capital - Ashwin Vasan
Trend Capital tops the list of January’s best performers. The $900 million fund focuses on discretionary global macro opportunities and factors in fundamental macroeconomic analysis when making investment decisions. In addition, the fund aims to generate returns with low correlation to the market.
The hedge fund quipped that its gains were primarily driven by a bet on rising short-dated Treasury yields. Trend Capital placed its wager last year after the December FOMC meeting. During the meeting, Powell presented a hawkish tone, although the market rose anyway.
“We thought ‘My goodness, this pricing does not make any sense,’” said Ashwin Vasan, the hedge fund’s founder. Shortly afterwards, Vasan increased the fund’s short bet on the eurodollar contract. Vasan believed that short-term rates would rise faster than the market expected, making the short bet his largest position. Well, it turns out Vasan was right and his fund and clients were rewarded handsomely.
Is This It For High Growth?
So, is this it for high-growth funds? The answer is a profound NO. High-growth stocks are naturally more volatile than their value counterparts and carry a higher beta. These violent price swings (in either direction) are all part of the long-term game. The same high-growth stocks have also been hampered by the threat of an inevitable interest rate.
My guess is that we’ll see a 50 basis points increase in March. Furthermore, there’s no point in trying to predict what you can’t control, so the best thing for an investor to do is to try to find the best-performing companies and hold tight.
Top performing funds in January’s worst performers list, like Whale Rock, Tiger Global, and Coatue, have all outperformed the index by a large margin during the past 5 years. One month isn’t going to change anything, unless we see a 2008 Financial Crisis like event. That’s another story entirely, although I don’t believe we’ll see a 2008-like event this year.
For Your Eyes Only - Hedge Fund Insights
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