Hugh Hendry, the founder of $800 million hedge fund Eclectica, is a serious proponent of doom and gloom according to a report in the Financial Times.
Once very much in Britain’s limelight as a media-savvy and prominent fund manager, of late he has chosen to maintain a low profile, ostensibly due to two reasons. The first, to avoid alarming his rich patrons who may not be able to reconcile his wise-cracking media personality with that of a high-performing hedge fund manager having custody of their precious millions. Secondly, Hendry had to agree to tone down his media presence as a precondition for having Paul Taylor on board as his chief executive in January 2011.
Corsair Capital was down by about 3.5% net for the third quarter, bringing its year-to-date return to 13.3% net. Corsair Select lost 9.1% net, bringing its year-to-date performance to 15.3% net. The HFRI – EHI was down 0.5% for the third quarter but is up 11.5% year to date, while the S&P 500 returned 0.6% Read More
Accordingly, Hendry put on the backburner his one-man crusade to convince the public at large that financial speculators are not all bad, and in fact have a contributory role to play in a free economy. He remains a maverick investment officer who gives short shrift to the legions of investment bankers and their hedge fund sales forces. To quote Hendry: “Not one buddy, not one phone call, not one instant message. I am not seeking that kind of ‘edge.’ Eclectica occupies an area outside the accepted belief system.”
Given his colourful personality, what are his credentials?
His top fund, $460 million of it, gained 12.1 percent in 2011 and is up 3 percent this year. Since inception in 2002, it has given a CAGR of 10 percent, making killings during bear markets.
Next, what are his beliefs?
In May, he told a conference that the politicians had not really come to grips with the scale of the global debt bubble that was now disintegrating. “We have reached a profound point in economic history where the truth is unpalatable to the political class — and that truth is that the scale and magnitude of the problem is larger than their ability to respond — and it terrifies them.”
On China, he is bearish, and his 2012 Eclectica Outlook document says: “Infrastructure projects financed with loans during the investment surge in 2009 are almost certainly not producing a sufficient return to pay off that debt, leaving the banks exposed to as yet unrecognised bad loans. There is a small but increasingly meaningful possibility that Chinese government attempts to engineer a soft landing fail, and economic growth falls sharply. This tail event would clearly have a huge impact on many aspects of the global economy given many sectors’ and countries’ dependence on Chinese growth, and we will look to trade this theme through trades in the Pacific economies of Australia and Japan.” He is betting on CDS instruments to bet against the debt of leveraged companies such as Toshiba Corp (TYO:6502), the most affected due to a Chinese slowdown.
U.S. bonds yields will still fall regardless their current record low levels.
U.S. equities are attractive and he is “long the debt-saddled west and short the vastly over-vaunted and over-owned Bric quartet of Brazil, Russia, India and China.”
Lastly, Hendry feels that the financial markets are in risk of a major crash which could present the opportunities of a lifetime.