Hutchin Hill Beaches The London Whale, Now Buys CDS on MS and BAC


Hutchin Hill, an alternative asset manager  gained recent fame from its trades against JPMorgan Chase & Co. (NYSE:JPM) “London Whale.” The fund has some interesting new positions according to people familiar with the matter.

Hutchin Hill was founded in July 2008. The fund has about $1.16 billion in assets under management and follows a diversified strategy. Since inception the flagship hedge fund fund has returned more than 37%. In 2011 the fund lost 4.92% of its value, but so far this year it has returned 2.15%. For May, the fund was up 0.60%. The fund is up 2.7% for April, as previously noted. The

Recently, the fund, which was founded by former Goldman Sachs Group (NYSE:GS) trader Neil Chriss, closed its position against JPMorgan Chase & Co. (NYSE:JPM). JPMorgan Chase & Co. (NYSE:JPM) lost anywhere between $2 and $9 billion. Among the firm’s best weeks of performance were the past two, leading us to believe they exited the JPM trade only days ago.

Chriss was formerly an analyst at Steven Cohen’s SAC Capital Partners. Hutchin Hill was seeded by famous quant fund, Renaissance Capital, run by Jim Simons.

JPMorgan Chase & Co. (NYSE:JPM) is not the only financial institution that Hutchin Hill is betting against. The Credit Default Swaps shorts show that the top two assets in that position belong to financials.

Of the fund’s top five short positions on corporate bonds three of them, including the top position, are in the financial sector. The fund is also shorting one financial  stock to the tune of $11 million. Hedge funds are not required to disclose the names of the firms and instruments they are shorting. Many times, they instead name the sector and the value of the position.

That may change with the Dodd-Frank bill which requires a study be done into this subject. Similar enquiries into the effects of rules requiring disclosure in the United Kingdom, where investors must disclose a short above 0.25% of a firm’s outstanding shares, have shown such disclosures increase volatility and have a negative effect on the market.

Hutchin Hill is long Goldman Sachs Group, Inc. (NYSE:GS) debt, and bought CDSs on Morgan Stanley (NYSE:MS) and Bank of America Corp (NYSE:BAC) long. Another notable long CDS position in the financial sector is Genworth Financial Inc (NYSE:GNW).

The short data doesn’t tell us firm names, but provides some color. Obviously, for Hutchin Hill, the financial sector needs to be studied on a case by case basis.

One of the more interesting possibilities is that the firm might be shorting JPMorgan Chase & Co. (NYSE:JPM). Having been on the other side of the trade, Hutchin Hill has a unique perspective into the amount of money that JPMorgan actually lost in that disaster.

That is something that financial analysts have had a very difficult time estimating. Hutchin Hill may have gotten out of that trade, but they are more aware of its intricacies than most others.