Howard and Odey Show Ups and Downs of Hedge Funds

(Bloomberg Opinion) -- More than a third of 185 family offices surveyed by BlackRock Inc. plan to hand more capital to hedge funds after the pandemic roiled the global economy, according to a report published this week. The problem the affluent face, though, is deciding which manager will build their wealth. The rollercoaster nature of returns makes the choice more akin to picking black or red on a roulette wheel than pursuing an informed asset allocation strategy.

Last year was a perfect opportunity for market wizards to prove their alleged magical powers of securities selection. The Covid-19 virus trashed stock markets and sent credit spreads soaring in March, only for the pause in the bull market to prove temporary. But the disparity of hedge fund returns shows it’s impossible to tell in advance which firm will deliver outperformance, never mind the futility of predicting which way markets are headed.

The main fund at Alan Howard’s Brevan Howard Asset Management LLP, for example, gained more than 27% last year for its best performance ever, my Bloomberg News colleague Nishant Kumar reported Thursday. Contrast that with flagship funds offered by Renaissance Technologies LLC, founded by Jim Simons, and Ray Dalio’s Bridgewater Associates LP, which lost about 20% last year.

For some hedge fund managers, the market turmoil at the end of the first quarter marked a low point for 2020. For others, last March delivered a bonanza of opportunity.  

Christopher Hohn lost 19% that month, only for his $35 billion Children’s Investment Fund to bounce back with a gain of about 14% for the full year — his 12th consecutive annual positive performance.

Meantime, Bill Ackman’s Pershing Square Capital Management LP racked up a record gain of 70% in 2020 after a credit-hedging strategy that was liquidated in March made about 100 times its original investment. Last year’s gains eclipsed 2019’s previous best of 58%, but those two banner periods came after three consecutive years of losses for the company.

Even within a firm, returns from different portfolios can diverge massively. Crispin Odey’s European Inc. fund lost 30.5% last year even after reaping the benefits of March’s plunge in stock markets to the tune of 21%. By contrast, the Odey Absolute Return Focus Fund overseen by James Hanbury gained more than 46% in 2020. The Odey Special Situations Fund, where Adrian Courtenay is responsible for selections, returned almost 43%. The same storied name may be on the marketing literature, but portfolios managed by different individuals delivered vastly different outcomes for investors.

In 1846, the British satirical magazine Punch needed a caption to sum up the lack of discernible differences between various politicians seeking to become prime minister. “You pays your money, and you takes your choice,” was the phrase it plumped for. The same, unfortunately, applies to investors choosing between hedge fund managers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."