The implementation of latest dose of Quantitative Easing has benefited some hedge funds, whereas others were hurt by the new monetary policy. While the dollar gained on its position in the first eight months of 2012, the Fed’s new plan brought detraction because of investor fear of even lower interest rates in future. In the hedge fund world, a medium sized fund that was affected by these measures was Pennant Capital Management’s Winward fund, as reported by us a few days ago. Pennant blames the less-than- anticipated growth on the Fed’s policy that assists companies that were already in shambles, instead of those that were previously strong. The fund was up moderately by a +1.32 percent in the third quarter of 2012. The fund lost on its longs in Tripadvisor Inc (NASDAQ:TRIP), Fidelity National Information Services (NYSE:FIS), and WellPoint, Inc. (NYSE:WLP). The short portfolio losers were Whirlpool Corporation (NYSE:WHR), Fusion-IO, Inc. (NYSE:FIO), and Neustar Inc (NYSE:NSR). The Pennant Capital Management’ fund’s total AUM exceeded $4.2 billion by the end of the June quarter.
The one after another round of so-called monetary easing by the Fed is seen unanimously as a threat by all of the major investment funds, as it will only further devalue the dollar and would increase the debt and inflationary pressure. SIT Investment Firms is an investment firm, which manages hedge funds, and holds over $3 billion in assets. The firm observes the effects QEIII will have on longer fixed income securities. Their latest market analysis reports the yield on 2-yr Treasury notes at 0.23 percent, which is 7 bps lower than the Q2 2012, whereas yield on 30-yr bonds increased by 7 bps. SIT also notes that federal easing may help tax exempt bond yields in the near term, but will have negative effects in the longer period by increasing inflation risk. SIT’s portfolio includes names like, International Business Machines Corp. (NYSE:IBM), Oracle Corporation (NASDAQ:ORCL), Apple Inc. (NASDAQ:AAPL), Chevron Corporation (NYSE:CVX), Target Corporation (NYSE:TGT), and Occidental Petroleum Corporation (NYSE:OXY), among others.
When Baupost, the $30 billion Boston-based hedge fund now managed by Seth Klarman, was founded in 1982, it was launched with a core set of aims. Q4 2021 hedge fund letters, conferences and more Established by Harvard professor William Poorvu and a group of four other founding families, including Klarman, the group aimed to compound Read More
Credit Value Partners, a value based hedge fund focused on distressed debt opportunities, is also unimpressed by QEIII. CVP notes that these measures have a history of achieving less than desirable effects. CVP distressed debt funds were up around 2 percent in the third quarter. The year to date performance of the offshore CVP DD fund was up 9.6 percent. CVP thinks that the US economy is again at the risk of recession, as the three rounds of easing by Federal Reserve had insignificant impact on stimulating the economy, the federal government’s debt is over 100 percent of GDP, and the GDP growth has been sub-par, and higher taxes and declining government spending could further stall US economy.
IVA Funds, which operates through a multitude of International and Worldwide mutual funds, believes that central banks have failed to realize that their fancy “rescue” measures have consistently fallen off mark. The Fed was successful in alleviating the liquidity crisis back in 2008-09, but now regional banks have plenty of liquid assets and the Fed’s insistence on buying risky assets helps ‘zombie’ companies to thrive and anchors the housing market, rather than solving the problem. In the long term, assets like cash and US Treasury will lose credibility and return even lower yields. IVA manages over $9 billion through its funds.
Premium Point Investors, a medium sized hedge fund with over $1.2 billion in assets, could benefit from the Fed’s avowal of buying mortgage backed securities. The fund is focused on a liquid U.S. residential mortgage-backed securities strategy, and its Mortgage Credit Fund has performed moderately well till the QEIII announcement. PPI MCF was up 2.45 percent in August, while the year to date returns rose 14.72 percent.