One month ago, we wrote that “For Crispin Odey This Is The Engame: Hedge Fund Billionaire Goes All In Betting On “Violent Unwind” Of QE Bubble” in which we noted that while “many financial commentators have warned that current monetary policy has inflated a bubble that will one day violently pop, few of them have risked money betting on the precise manner in which a chaotic unwinding of quantitative easing will play out through financial markets. This makes the portfolio of Crispin Odey, a London-based hedge fund manager, an interesting outlier. Mr Odey is one of only a handful of investors who has backed up his dire prognosis for the global economy with a series of large, leveraged trades designed to pay off in the event of a crash.“
As we noted three months ago, Odey’s bets are predicated on a collapse of Japanese bond prices, a surge in the price of gold and immolation of equities. As the FT put, it, “if it works he may make hundreds of millions of dollars for his clients. If wrong his fund may not survive.” Oh, and it better work quick due to the large cost of carry and rising margin calls: his biggest short bet by value – Tullow Oil Plc – has rallied almost 60 percent.
Indeed, the problem for Odey was that in doubling down for the last time, the hedge fund manager had started the clock on how long central banks have to maintain market stability; alternatively he also launched the countdown to the collapse of his own hedge fund, should his doomsday trade not materialize in time.
Unfortunately, Odey’s time may have run out, because as Bloomberg reports, assets under management at Crispin Odey’s flagship European hedge fund have plunged 60% this year after clients demanded their money back as his bearish bets fell apart in the wake of central-bank interventions and near-zero interest rates.
The Odey European fund held €422 million at the end of September, down from €1.1 billion at the start of the year, according to investor documents seen by Bloomberg News. The fund lost 37.5% during the period and 43 percent through Oct. 14. Even defenders of the Odey “experience” are having a tough time: “He still has a good track record and he is a contrarian,” said Laith Khalaf, senior analyst at Hargreaves Lansdown, which sells funds to individuals in Britain. “Investors do need to take that on board, though this year so far is no doubt a bitter pill to swallow.”
Of course, Odey is not alone, with active managers suffering the worst outflows since the financial crisis, as investors – angry at high fees and poor returns – have shifted a total of $60 billion from hedge funds and big-name traders to computer-driven funds, where algorithms are employed to bet on macro-economic trends, and are also much cheaper. Needless to say, the inevitable outcome of having the bulk of assets managed by robots in ETFs will be a disaster but as Steve Eisman said in a Bloomberg TV interview yesterday, “as long as the markets keep going up, ETFs are fine,” he said. “One day there will be a market correction and you wish you were in a hedged product.”
While the major correction so far is elusive, courtesy of central banks intervening every time there is even a 10% pullback, that will not comfort those Odey’s LP who have lost more than half their money in the past year. Furthermore, whereas many other hedge funds are simply boring, unwilling to risk much in a confusing market, Odey’s company manages more than $8 billion, placing it among the largest hedge-fund firms in Europe, and it’s the rollercoaster returns of his own European Inc. fund that attract attention. This year’s losses follow an almost 13 percent decline in 2015.
Still, for those who invested early, the recent dip is mostly noise: it’s up more than 900 percent since it started in June 1992, and in that time annual gains of more than 50 percent have been achieved four times. “If you have been invested with someone like him for 10 years, you are still in the money and hope that he could recover,” said Jacob Schmidt, chief executive officer at investment advisory firm Schmidt Research Partners.
The question is how much of Odey’s AUM is from those who have been with him for less than 10 years, and who are pulling their money.
Making matters worse, Thursday was another rough day after a court ruled that the U.K. must hold a vote in Parliament before starting the two-year countdown to Brexit. Most of his 18 short bets rose, according to data compiled by Bloomberg. Lancashire Holdings Ltd., Odey Asset Management’s fourth-largest short position by value, gained the most in eight years as the company posted better-than-expected profits.
As reported previously, Odey predicted that U.K. stocks could plummet 80 percent. “An 80 percent fall suggests a pretty seismic collapse in capitalism,” Hargreaves Lansdown’s Khalaf said. “In that scenario, I’m not sure you’d want to be invested in anything apart from baked beans and bottled water.” Sadly for Odey, at the current rate his AUM may be the first to hit that particular bogey.
No matter what happens to his fund, however, Odey will be fine: in 2012, he got planning permission to build a 130,000-pound Palladian-style chicken house on his country estate a two-hour drive northwest of London. The irony, of course, if Odey’s fund does shutter is that he is ultiamtely right: the billionaire remains a vocal critic of central banks’ intervention in the economy; alas, his fate may be just one more very vivid demonstration that when fighting central banks, getting the timing right is everything.
via http://ift.tt/2eZ9vyE Tyler Durden