A Few Savvy Investors Had Swiss Central Bank Figured Out Jan. 22, 2015 8:07 p.m. ET
When Switzerland’s central bank shocked markets by scrapping a three-year-old policy limiting the value of the Swiss franc against the euro, the Swiss investment firm Quaesta Capital AG was among the few that benefited. The firm, which oversees USD 3 billion in Pfäffikon, Switzerland, bought options “a considerable time” ago betting that the euro would drop below 1.20 francs, said Chief Executive Thomas Suter.
Those bets paid off last Thursday, when the Swiss National Bank ’s decision sent the franc soaring against the euro and delivered a boost to investors in a USD 120 million Quaesta strategy that is up at least 14% this year, according to a letter to investors.
“We immediately knew that it was going to be a very, very good day for this strategy and its investors,” said Mr. Suter, who said the firm made the bet because of its low cost and high potential rewards.
Quaesta’s gains stand out in the investing world, where just a handful of funds are known to have reaped rewards betting on an event that was widely viewed as only a remote possibility.
Some of the savviest names in currency trading weren’t able to profit when a surge of volatility ignited a market that had been quiet for years, sending the franc up 30% against the euro within minutes before roughly halving those gains by day’s end. Many others are nursing losses, including several major global banks and at least three retail foreign-exchange brokers, underscoring the degree to which investors and traders were shocked by a move that unleashed outsize price swings and trading difficulties.
Soros Fund Management, which manages more than USD 25 billion for investor George Soros , was betting against the Swiss franc in the fall before it removed those bearish positions, viewing the risk as too high relative to potential gains, said people close to the matter.
The franc’s surge last week didn’t have a major impact on Mr. Soros’s firm’s profits, these people said. Mr. Soros is well known for his windfall profits on bets such as one against the British pound in the early 1990s.
Omni Partners LLP locked in a small profit, by making small trades that it closed out the same day following the massive franc-euro swing, according to a person familiar with the matter. Omni Partners has about USD 1 billion under management in London.
London-based macro hedge fund Rubicon Global was down 2.3% at the end of the first full week of January but recouped most of those losses, helped by a positive bet on the Swiss franc, said a person familiar with the matter. Rubicon declined to comment.
Stockholm-based Lynx Asset Management, which manages USD 5.5 billion, gained more than 2% last week, helped by bets against the euro. The firm is up about 4% this year to Jan. 16, said a person who has seen the numbers.
Traders and portfolio managers faced “unprecedented trading conditions” after the SNB move, said James Wood-Collins, chief executive at Record Currency Management, which has about USD 50 billion in currency-hedging assets. “There was just no market” for an hour or more at euro prices above 1.02 francs, said Mr. Wood-Collins. Since then, he added, “spreads have remained large,” indicating that traders remain wary of potential swings.
Brevan Howard Asset Management, run by billionaire Alan Howard , was profiting from a negative bet on the Swiss franc against the dollar before it cut back shortly before the Swiss currency soared. Brevan’s flagship USD 23.7 billion fund gained 0.8% last week, taking gains for this year to 1.9%.
Moore Capital Management LLC managed to insulate its funds from the sharp moves in the currency, and the fund performance was mostly unaffected by the event, said a person familiar with the firm.
Others weren’t so fortunate.
Fortress Investment Group ’s more than USD 3 billion Macro fund lost about 8% last week, said two people who had seen the numbers.
London-based hedge-fund firm Aspect Capital Ltd. lost about 4% in the final two business days of last week, said people familiar with the matter. The computer-driven fund firm, which manages USD 4.7 billion in assets, declined to comment.
At Dymon Asia Capital Ltd., the flagship Asia Macro fund is down about 11% this month following wrong-way bets on the franc, said people familiar with the matter. The fund, run by founder and former Citadel LLC executive Danny Yong, later cut exposure to the franc, one of the people said. For 2014, the fund was up 18.5% after fees, according to an investor. Dymon is one of Asia’s largest homegrown hedge-fund firms, with more than USD 4 billion in assets under management as of Nov. 30.
Marko Dimitrijevic, a hedge-fund veteran known for his aggressive gambles on emerging markets, decided to close Everest Capital LLC’s flagship Global fund because of losses sustained after the franc’s jump, a person familiar with the firm said. The fund had USD 830 million in assets under management as of Dec. 31, according to an investor update viewed by The Wall Street Journal.
London-based Comac Capital LLP, which oversees USD 1.2 billion, is returning capital to external investors but will keep trading, said a person familiar with the matter. The fund lost about 8% on the Swiss franc trade and is down about 10% this year, the person said.
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