Tuesday, July 19, 2011

Market Volatility Pushes George Soros' Quantum Fund to 75% Cash Level

With a market so dominated by headlines - often political ones - this market has been a bit of a bucking bronco the past few months.  It appears quite a few hedge funds - after a poor June showing for the group [Jul 6, 2011: Average Hedge Fund Down on the Year] - are moving into higher cash levels.  George Soros and Keith Anderson are taking it to the extreme with a 75% cash level in the $25B Quantum Fund per Bloomberg

  • Keith Anderson, who runs the $25.5 billion Quantum Endowment Fund for Soros Fund Management LLC, has seen enough of choppy global markets.  In mid-June, Anderson told his portfolio managers to pull back on trades as the hedge fund’s losses hit 6 percent for the year, according to two people familiar with the New York-based firm. As a result, the fund is about 75 percent in cash as it waits for better opportunities.
  • Soros and Moore Capital Management LLC are among hedge funds that have reduced the amount of money they’re investing in stock, bond and currency markets as they look for clarity on global events ranging from the debt crisis in Europe to China’s efforts to control inflation to the debate over the U.S. debt ceiling. About 18 percent of asset allocators, including hedge funds, are overweight cash, the highest level in a year and up from 6 percent in May, a Bank of America Corp. survey showed last month.
  • Even Anderson’s boss, billionaire George Soros, who made $1 billion betting against the British pound in 1992, is perplexed.  “I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis,” Soros, 80, said in April at a conference at Bretton Woods organized by his Institute for New Economic Thinking. “The markets are inherently unstable. There is no immediate collapse, nor no immediate solution.”

And it's not just Soros...
  • Louis Bacon’s  Moore Capitalwith $15 billion in assets, cut risk as its flagship Moore Global hedge fund dropped 6 percent this year through June 30, with all the declines coming in May and June, according to investors who asked not to be named.
  • Funds such as Moore’s and Soros’s, which chase macroeconomic trends by buying stocks, bonds, currencies and commodities, have been the worst performing hedge-fund strategy this year. They fell 2.25 percent through June 30, according to Chicago-based Hedge Fund Research Inc., as managers made losing bets that the euro would fall against the dollar and that the yield on U.S. Treasuries would rise. Some managers also got caught when prices for oil and other commodities dropped in May.

  • The aversion to risk is reflected in trading volumes. Trading in the 50 companies in Goldman Sachs Group Inc.’s index of stocks most commonly owned by hedge funds fell to 4.11 billion shares in June, the lowest monthly level since August 2008, according to data compiled by Bloomberg.
  • Part of the uncertainty stems from the fact that so much of what happens in global markets is dependent on government actions, which can distort prices and affect supplies.
  • Most of our funds are in an uncomfortable position in that the fundamentals are bearish, but the governments are intervening,” said Harold Yoon, chief investment officer at Hong Kong-based SAIL Advisors Ltd., which invests in hedge funds on behalf of clients. “Instead, managers have focused on tactical trading; shorting when markets are getting bullish and then covering into panic-driven selling.”
  • “2011 has been a trendless year,” said George Papamarkakis, co-founder of North Asset Management LLP in London. “Policy makers are dictating markets, which means we’re operating in an environment where fundamentals just don’t apply.”

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