(Bloomberg) - A series of ill-timed bets from Argentina to Brazil have set Autonomy Capital Research LLP’s flagship fund on course for its worst year since the financial crisis, with the firm’s assets now down about $5 billion from a mid-2019 peak.
London Hedge Fund Autonomy Loses 75% of Assets From 2019 Peak
Souring Latin American trades at the firm’s global macro fund are behind a 28% decline through October, including a 7% drop for that month, according to documents obtained by Bloomberg and people familiar with the matter. Assets under management at the London-based firm have shrunk to about $1.5 billion from $6.3 billion two years ago, one of the people said.
Autonomy’s problems echo those at other so-called macro funds that specialize in bets on broad economic trends. Some of the biggest players in the industry are struggling to predict the direction of a global economy still rattled by the coronavirus.
Rokos Asset Management has slumped 20% while Alphadyne Asset Management has tumbled 17% so far this year, Bloomberg has reported. And Balyasny Asset Management, BlueCrest Capital Management and ExodusPoint Capital Management had to curtail the betting of some traders as bond yields across the world abruptly moved against them.
But the erosion of assets at Autonomy, founded by Robert Gibbins in 2003, is particularly extreme.
“Our performance is not where we would like it to be,” Autonomy CEO Ivan Ritossa said in a letter to investors last month. “Although we are very disappointed with the fund’s performance, we are positive about the opportunities in the portfolio and are committed to generating strong risk adjusted returns over time.”
Ritossa added in the letter that Autonomy has cut risk in some areas. Fanni Bodri, an external spokeswoman for the hedge fund, declined to comment.
Gibbins, a former government-bond trader at Lehman Brothers Holdings Inc., has long sought to exploit economic turbulence across Latin America through risky wagers on the region’s sovereign debt, interest rates and currencies. Some of those trades have paid off in the past and helped propel Autonomy to record assets in 2019.
Brazil and Argentina -- the biggest and third-biggest Latin American economies, respectively -- are now at the heart of Autonomy’s woes.
In Brazil, yields on sovereign debt have surged to the highest in years while the real has tumbled amid increasing investor skepticism that officials can rein in skyrocketing inflation. At the same time, President Jair Bolsonaro has unveiled a controversial spending plan that triggered the resignation of key members of his economic team.
“Our mistakes were in not appreciating the extent of the inflation surprise in Brazil and other EM countries, and in not understanding the violence of the reaction function from central banks anticipating a need to restore their credibility,” Gibbins said in the letter to investors. “Both these mistakes were costly.”
In Argentina, meanwhile, the economy has buckled under the leadership of President Alberto Fernandez and his deputy, the popular former premier Cristina Fernandez de Kirchner. Their October 2019 election tripped up Gibbins, who had expected voters to re-elect a more market-friendly candidate.
Autonomy generated double-digit returns each year until the 2008 financial crisis when it tumbled by more than 40%, prompting him to halt investor withdrawals. Overall, he has generated an annualized return of almost 9% since inception, a person familiar with the matter said.
By Nishant Kumar and Donal Griffin
