An elite group of hedge fund managers must have awakened on Jan. 1 with an unusual type of hangover: their first annual loss.
Large funds managed by King Street Capital Management, CQS, Pine River Capital Management, Metacapital Management, DW Partners and Libremax Capital were among those that lost money, or were on track to, in 2015 for the first time, according to people familiar with the firms and private performance information seen by Reuters.
Until last year, the funds had achieved gains in any market, a feat many managers pitch but few accomplish. But 2015 proved challenging for most private investors, and many known for their consistency were finally humbled by negative portfolios.
A market rout in junk bonds of energy companies, wrong bets on company stocks and incorrect macroeconomic forecasts were among the factors making 2015 the worst year for hedge funds since 2011, with a string of players shutting down and returning money to investors.
The average hedge fund, as measured by the Absolute Return Composite Index, lost an estimated 0.09 percent for the year, compared with a 1.40 percent gain for the Standard & Poor's 500 Index, including dividends.
David Warren’s DW Catalyst funds, for example, were down nearly 8 percent for 2015 through November, according to performance information seen by Reuters. It was their first negative year since their May 2008 inception.
An October report to clients of the $5.2 billion firm blamed “too-early” investments in the debt of financially stressed energy and commodity companies, many of which fell in price over the third quarter. These included Peabody Energy Corp and Energy XXI Ltd, whose bonds continued to decline in the fourth quarter.
Warren, a veteran of Morgan Stanley's credit trading unit who until recently worked in partnership with European hedge fund company Brevan Howard Asset Management, has been optimistic about high-yield bonds for years. That view mostly paid off: Even with the down year, the Catalyst funds averaged annual gains of 9.7 percent, according to the materials. A DW spokesman declined to comment.
The $7 billion King Street Capital LP fund, run by Francis Biondi and Brian Higgins, was down an estimated 1.68 percent in 2015, according to performance information that Reuters saw.
A large stake in bankrupt Texas utility Energy Future Holdings Corp helped produce the loss at the credit-focused fund, according to a person familiar with the situation.