Hugh Hendry said the macro hedge funds’ model is broken because it isn’t producing enough returns to both cover costs and keep investors sweet.
The money manager, known for his provocative statements and contrarian views, is throwing in the towel on his investment firm after a 15-year run amid mounting losses. He and peers betting on economic trends have been running higher levels of risks to justify their existence and play catch-up with markets on a roll, Hendry said in an Bloomberg Television interview.
“It’s a function of economics. The costs of running a hedge fund today -- both regulatory and with other commercial considerations -- were just too great," Hendry, 48, said in the interview on Friday. “But I died in active combat."
Hendry’s main fund, Eclectica, slumped 9.4 percent this year through August following a 4 percent decline in 2016, according to an investor update. The fund’s assets were $30.6 million at the end of August, while the overall macro strategy had $116 million.
“The last three months were harrowing," Hendry said. “To my great, great, great horror, I became deeply correlated to the travails of President Trump’s presidency and of course these geopolitical events, which were sparked off in the Korean peninsula."
Hendry, a combative Scotsman, posted a 31 percent return in 2008 by betting against U.S. and European banks during the financial crisis. He also garnered attention for his bearish view on China in 2009 when he posted videos on YouTube in which he toured cities and highlighted office buildings that he said had no tenants. Hendry, 48, later turned bullish on the nation, saying that he disagreed with peers including Kyle Bass who contend China will suffer a crisis and major devaluation.
“It wasn’t supposed to be like this," Hendry said in an investor letter seen by Bloomberg. “It is especially frustrating as nothing much has gone wrong with the economy over the summer."
Hendry joins hedge fund managers including Eric Mindich, Leland Lim and John Burbank who have shuttered hedge funds this year. About 259 funds liquidated in the first quarter, according to Hedge Fund Research Inc. More hedge funds closed in 2016 than in any year since the financial crisis, the Chicago-based firm said.
In his closing letter to investors, Hendry lamented that he’ll have to sit out trading around the next downturn, and left investors with one last trade idea: bet on volatility in fixed income. The one-year implied volatility on 10-year swaps has a low cost of entry, he said, because the market is underestimating inflationary pressures that will spur more interest rate increases by the Federal Reserve.
“Fixed-income volatility really has only one direction it can go,” he wrote. It has “overshot to the downside.”