Billionaire trader Chris Rokos and Goldman Sachs are among major investors hit hard in the market upheaval following the collapse of Silicon Valley Bank.
Bond prices surged in highly volatile trading earlier this week as SVB’s death sparked a flight to safety and prompted investors to question how much further the US central bank can raise interest rates. That surprised many traders and clashed directly with hedge fund strategies that had profited handsomely in 2022 betting on further aggressive monetary policy tightening.
The pain has hit a group of the best-known speculative investors in the market.
London-based Rokos, which manages about $15.5 billion, has fallen about 12.5 percent this month, people who had seen the figures said.
At Goldman, a trading desk that handles fixed-income products lost about $200 million, according to people familiar with the matter. Goldman declined to comment.
Chris Rokos: down about 12.5% this month
BlueCrest Capital, bond trader Mike Platt’s investment firm, which made 153 percent last year thanks in part to bets on rising interest rates, has also lost money, people familiar with the firm said. It is down about 7 percent this year.
And Andrew Law’s Caxton Macro fund lost about 3 percent this month.
“What has hurt a lot of people in macro (betting on global bonds and currency movements) is that everybody was positioned to go up,” said one hedge fund industry insider. But on Monday, the market moved violently the other way. As prices soared, the yield on the two-year Treasury note fell at the fastest pace since 1987. Some funds ran to liquidate their positions, further fueling the bond rally.
The “erratic price action” led to “many investors triggering stop losses on short positions,” said Mark Dowding, chief investment officer at RBC BlueBay.
Macro hedge funds lost 2.15 percent on average on Monday alone, according to data group HFR, the biggest daily loss since the market turmoil of late 2018. A regular social gathering of hedge fund managers and other investors in London on Thursday night had a “somber,” woke tone, people familiar with the matter said, in contrast to a triumphant atmosphere after spectacular returns in 2022.
Rokos hit the headlines in late 2021 when he wrong-footed a major sell-off in short-term government debt as investors panicked that interest rates would rise faster than central banks had initially indicated. His fund ended the year down about 26.6 percent, its worst year since launching in 2015.
He subsequently significantly reduced the market risk he took in the fund to try to avoid a repeat of the losses. Last year, he earned more than 50 percent, his fund’s best year.
Many computer-driven funds, which stick to market trends and had long bet that the big rise in government yields would continue, also lost money.
The Schroder Gaia Bluetrend fund, run by Leda Braga’s Systematica, fell 10 percent this month by the end of trading Monday, according to figures sent to investors, bringing losses this year to about 11.5 percent.
Among other computer-driven funds that lost money, Man Group, one of the world’s largest hedge fund firms, lost 10.6 percent in its $5.4 billion Evolution fund. USD this month and 7.1 percent in its Dimension fund of 5.9 billion.
And Rotterdam-based Transtrend, which manages $5.6 billion, lost 9.6 percent on Monday.
Just over half of its losses came from bond bets, although losses were within its risk tolerances, a spokesman said, and the fund has held onto its short positions in U.S. bonds.
Such quant funds have fallen an average of about 6 percent this month, according to a Société Générale index of those portfolios.
However, a few hedge funds have been able to profit during the market turmoil, particularly those betting against bank stocks.
Barry Norris, chief investment officer at Argonaut Capital, profited from shorting SVB and has also played against Credit Suisse for several weeks, helping his fund gain 4.5 percent this month.
The Swiss bank’s shares, which have now fallen by more than a third this year, fell sharply after the chairman of the Saudi National Bank ruled out further investment. On Friday, shares fell further despite the promise of liquidity support from the Swiss National Bank.
Short interest in Credit Suisse ran at just 3.2 percent of its outstanding shares at the start of the week, according to S&P Global Market Intelligence. But short positions have risen up to 8.2 percent as of Thursday as concerns about the lender have grown.
“The problem with Credit Suisse is that it was already suffering from deposit flight,” Norris said. “If you can’t stop the deposit flight, the only recourse is to be taken over by a major bank.”