November 1, 2018 / 9:02 PM / in 9 months

REFILE-October's hedge fund haunting leaves big names with losses

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By Svea Herbst-Bayliss

BOSTON, Nov 1 (Reuters) - October was humbling for many hedge funds, including some of the $3.2 trillion industry’s biggest names, as sinking stock markets took a bite out of returns and could pave the way for more redemptions in the next months.

Global hedge funds that bet on and against stocks lost an average 5.39 percent last month, according to data released on Thursday by Morgan Stanley, which helps hedge funds secure financing and make trades. For U.S. so-called long/short equity funds, the average loss stood at 5.72 percent.

Analysts said these losses are likely to grow as many firms are still finalizing last month’s returns, and it could take a few more days to get an accurate picture, especially among funds that bet heavily on technology companies.

“Oh what a ride - It truly has been a wild market environment in the past weeks,” Deep Field Capital, a firm based in Zug, Switzerland wrote to investors, informing them that its Singularity Program lost 6.58 percent last month. For the year it is now down 18.05 percent.

Reuters reviewed investor updates sent by the funds.

Activist investors, which typically push for management changes, including Barry Rosenstein’s Jana Partners and William Ackman’s Pershing Square gave back a lot of this year’s gains as the Standard & Poor’s 500 Index fell 6.9 percent last month. Because activists traditionally make long bets, they were particularly vulnerable when stocks tumbled on fears that the U.S. economy may be overheating and that corporate earnings at tech companies may be slowing.

Jana Partners lost 6.3 percent, marking its biggest monthly loss since the financial crisis while Pershing Square Holdings was off 8.3 percent during the first 3-1/2 weeks of October. Both funds are still in the black for the year with Pershing Square up 6.2 percent and Jana Partners up 2.4 percent.

Ancora’s Catalyst fund, which pursues activism at smaller companies, lost 1.3 percent in October and is up 2.7 percent for the year, according to an investor update.

Much of the pain was concentrated among funds that pick stocks and so-called quant funds that rely on computer models to help make investments.

Samantha Greenberg’s Margate Capital Management, which often makes tech investments, lost 3.6 percent but remains up 4.4 percent for the year. North Run Capital Partners, which invests largely in tech and consumer discretionary stocks, lost 6.2 percent last month and is down 6.0 percent for the year. Quant firm Renaissance Technology’s Renaissance Institutional Equities Fund, the oldest portfolio open to outsiders, lost 2.3 percent in October but is up 7.24 percent for the year, an investor said.

Hedge funds often say they protect clients on the downside, but several investors said that early returns show this isn’t always the case.

“I think investors are going to be very impatient now and while one month’s numbers generally don’t mean much, October’s numbers will be closely scrutinized and after a string of poor returns people will be ready to pull the plug,” said one investor who asked not to be named for fear of angering the hedge funds he works with.

There were some bright spots as some global macro funds that make bets on stocks, interest rates and currencies around the world fared well.

Robert Gibbins’ Autonomy Capital gained 6.4 percent in October, helped by bets on Brazilian interest rates and currency plays in Argentina. For the year, it is up 14.9 percent. Said Haidar’s Haidar Capital Management’s Jupiter fund told investors that its preliminary returns show the fund being nearly flat in October and up 21.36 percent for the year.

Representatives for the funds declined to comment. (Reporting by Svea Herbst-Bayliss; Editing by Cynthia Osterman)

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