LONDON (Reuters) - British emerging markets-focused hedge fund Onslow Capital Management has closed after a long period of low volatility hit returns and assets fell below a sustainable level, it said in a letter to investors.
The move by founder Nicolas Galperin to close after 11 years comes despite forecasts for markets to be more turbulent in the coming months as central banks shift their easy monetary policies, and follows the closure of Harmonic Capital Partners in February for a similar reason.
Onslow, which expressed views on emerging markets by betting on macroeconomic events using bonds, stocks and currencies, had $100 million in assets prior to closing, down from a peak of $600 million in 2012, a company source said.
The letter, seen by Reuters, said the strategy was based on the view that the fund would deliver returns uncorrelated to other markets during periods of increased volatility.
“When volatility picked up more significantly the portfolio would produce increasingly positive returns,” said the letter. “This strategy, essentially a ‘long vol’ strategy, proved to be wrong for the last five years.”
The letter then said assets dipped “below the threshold required to maintain the business,” prompting the firm to make the decision to give investors back their cash and close.
Onslow Capital’s fund had lost 0.18 percent in the first two months of 2018, before closing, compared with gains of 2.05 percent for the average emerging market hedge fund over the same period, a company source said.
The fund lost 3 percent in 2017 when the average emerging market hedge fund made gains of 19.4 percent, data from industry tracker Hedge Fund Research showed.
It had, however, made gains of 36.97 percent in 2009 and 13.3 percent in 2010.
Filings with British regulator the Financial Conduct Authority showed the firm was “no longer authorised”, effective from April 18.
The hedge fund firm had held a position in Venezuelan sovereign debt as well as bonds of the country’s state oil firm PDVSA as part of a two- to three-year bet on the country, it told Reuters last year.
Reporting by Maiya Keidan; Editing by Mark Potter