SAC Capital Competitor, Balyasny Says Easy money Has Been Made

Balyasny Asset Management May 2014

Balyasny Asset Management had difficulty in April managing a de-risking environment in both the firm’s offerings, according to an investor letter reviewed by ValueWalk.

“Throughout the volatile unwind, it has been critical to manage risk and quickly adapt to changing markets,” Managing Partner Dmitry Balyasny wrote. The AGI fund was down 1.61% in April and is up 1.75% year to date while the AEF fund was down 2.80% in April and is up 3% year to date.

Focus on longs un-loved by hedge funds

“For longs, we focused on significantly variant ideas, with clear near-term catalysts that were under-owned by hedge funds,” the investor letter said. Balyasny was at one point considered a competitor to SAC Capital until the firm changed focus. “For short ideas, we used rallies to lean into crowded, high valuation momentum names particularly when they failed after positive news.”

The Chicago-based fund considered the main strategy points going forward in this market environment, including trading in choppy markets as opposed to market environments of price persistence, or trending markets.  They anticipate holding macro allocations in the same historical range of 10-25% of firm risk “depending on opportunities” and are currently in the middle at 17%. “One of the reasons we have been able to outperform others in macro is that we have a larger number of nimbler specialized teams who are able to tactically trade choppy markets as opposed to just riding larger trends.”

Balyasny: “Easy money may have been made”

Balyasny notes “the easy money shorting momentum names may have been made,” and then considers the possibility “weakness will spread as we head into summer.”  The broad market benefited from a rotation, he notes, “as investors exit growth names and reallocate to value, credit, and the S&P, but that could quickly change.”

When considering the probabilities of future market environments, one possibility on BAM portfolio manager’s mind is that “once investors de-risk, the rest of the market will be fine. The other possibility is that the de-risking marked the beginning of a broader risk-off move and simply started with the most crowded and expensive sectors.”  Balyasny is flexible depending on how the market unfolds.  “We remain open to both possibilities and will let the markets tell us which narrative is more likely to play out. Regardless of which way markets go, there is a good chance that new leaders will emerge from this rotational period.”



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com