Hutchin Hill Profits off Trades Related to LIBOR Miscalculations


Hutchin Hill Capital LP’s flagship hedge fund, had over $1.1 billion in assets under management till the end of the June quarter, which has now increased to $1.15 billion in July. In the month of July, the fund was up 0.73 percent overall, with +1.39 percent in S&P 500 companies, and +0.5 percent on the global index. On a year-to-date basis, the master fund is up 1.5 percent with an 11 percent increase in returns on S&P index, and 1.77 percent on HFRX global index.

Portfolio Highlights of Q2

Following the previous trends, the master fund gained maximum from its Quantitative (Quant) portfolio with 1 percent returns. Another positive activity was seen in the Managed Futures strategy, which was up 0.52 percent. The major portion of the fund is invested in Quant and Credit strategies, while the least capital goes in Opportunistic and Macro strategies. The fund has increased exposure in Event, Macro, and Quant, while reducing exposure in Credit from 25 percent (June) to 20 percent.

Performance By Strategy in July

The Opportunistic strategy investments were down by 0.42 percent, the fund gained no profits on currency, credits or indexes. The Managed Futures were considerably profitable in Western markets.  In the June quarter, the fund suffered losses due to low German bond yields, and therefore skipped the bond market for this month.

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The Quantitative strategy gave the most positive returns for the month of July, as gains were generated from longs in US credit and shorts in US equities. Like last quarter, the statistical arbitrage strategy was also profitable. Initially the Quant startegy lost in small cap markets and healthcare was the worst performer.

The July update comments on the how European markets rallied after a better than expected Q2 earnings season and positive reinforcements from ECB. In the next quarter the European macro market will be dependent on ECB’s plan of action, and the fund sees no major catalysts. In terms of corporate credit, the fund is focused on technology, auto market and mortgage insurance.

The new corporate credit fund launched by Hutchin Hill also performed well in its first month of business. For this quarter, the fund is concentrating on finding trades related to irregularities involving the calculation of LIBOR. The hedge fund is also focused on short opportunities arising from investment grade and high yield credits in the US market. It appears that the fund is making similar bets to the one which brought down JPMorgan Chase & Co. (NYSE:JPM)’s ‘London Whale.’

In emerging markets macro strategy, the fund gained in South African basis points, Mexican interest rates, and Turkish lira. Losses were incurred in Euro and Dollar sovereign bond trades. As external debt is on the rise in Latin America and other emerging markets , Mexico and Panama have emerged as stable options. Hutchin Hill is currently steering clear of investments in cash bonds and CDS in these markets, as it believes that the gains are not substantial.

European Union and UK

The mothly update also comments on how ECB is not taking actions to ease the monetary policy, and can only provide relief once the austerity measures are implemented and debt reduces in comparison to GDP growth. Hutchin has not many hopes in the success of such plans, and is focusing on investments that will benefit from a falling Euro. The UK is also affected due to the slowdown in European exports, the fund is applying a similar strategy in the UK as it is doing for the EU.

By the end of June quarter, the fund’s top five holdings were in Dollar Thrifty Automotive Group, Inc. (NYSE:DTG), Express Scripts Holding Company (NASDAQ:ESRX), Liberty Media Corp New Liberty Cap Series A (NASDAQ:LMCA), Tyco International Ltd. (NYSE:TYC), and Hertz Global Holdings, Inc. (NYSE:HTZ).

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