Hedge funds making big gains again Soros was trailing the S&P 500 last month but has rolled far past it

Money management

August 18, 1998|By BLOOMBERG NEWS

NEW YORK -- The biggest hedge fund managers who bet on global stocks, bonds and currencies are trouncing the Standard & Poor's 500 index this year.

Through Aug. 11, George Soros' $10.9 billion flagship Quantum Fund had climbed 21 percent after fees this year, up about 4 percentage points since mid-July. That's more than double the price appreciation for the S&P 500, which rose 9.6 percent in the period. A month ago, Soros was trailing the index.

Julian Robertson's Tiger Management group of funds, with $21 billion in assets, climbed about 27 percent after fees, on average, through Aug. 13. Robertson is one of the few managers of his kind who outpaced the U.S. benchmark index this year and last.

Hedge funds, marketed to wealthy individuals and institutions, aim to make money whether markets rise or fall because they can wager that prices will move up or down. In the past, month, there has been no shortage of price movement.

"Macro funds are about volatility," said Hunt Taylor, executive director of Tass Management, a hedge fund consultant with offices in New York and London. "They don't make money in flat markets."

Markets have been anything but flat. U.S. stocks have dropped about 4.2 percent since the beginning of the month, while yields on the U.S. benchmark 30-year Treasury have dropped to 5.54 percent from 5.71 percent.

Russian stocks and bonds also have plummeted, with stocks tumbling 27 percent since the beginning of August and Eurobonds maturing in 2001 yielding about 36 percent, more than twice their yield two weeks ago.

Russian markets were undercut yesterday by the government's decision to let its currency, the ruble, weaken by about a third this year and to restructure its short-term debt to ease a payment crisis.

The yen rose about 9 percent in a three-day period in June when the U.S. and Japanese central banks intervened to prop up the currency against the dollar. The yen then lost its footing, falling to an eight-year low of 147.66 to the dollar today.

Macro managers have been making money on "the rally we are seeing in U.S. bond markets and on the dollar-yen trade," said Virginia Reynolds Parker, head of Parker Global Strategies LLC, a Stamford, Conn.-based consulting firm to money managers.

But Parker said macro managers are concerned about Russia and Japan. "They are the wild cards. Managers we speak with say there are large opportunities there for both profits and losses."

Parker suspects that many macro managers had exposure to Russia, mostly in Eurobonds, which were hit as investors anticipated Russia stretching out its repayment of short-term debt.

Soros, in a letter published in the Financial Times Thursday, called for a 15 percent to 25 percent devaluation of the ruble and urged the Group of Seven industrialized nations to give Russia some cash. Soros, who has almost 10 percent of his $22 billion in assets invested in Russia, said he supported a devaluation even though his portfolio would be hurt.

The big test for hedge funds will come if the U.S. market continues its slide.

Pub Date: 8/18/98

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