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Large Vol Fund And SPY Holder Halts Withdrawals After Redemption Request Deluge On Poor Performance
Vicis Capital, a $2.9 billion hedge fund started by Lehman trader John Succo has halt client withdrawals after it received $550 million in September redemption request. The firm has already paid down $2.7 billion in comparable redemptions since October, according to Bloomberg.
The asset manager's Vicis Capital Fund, a $2.5 billion volatility fund, has been the primary culprit for LP dissatisfaction after losing 12% YTD, having returned 14% in the last year. Comparable performance of other volatility funds has not been much better:
Volatility hedge funds returned 0.83 percent this year
through August after returning 3.2 percent in 2008, according to
the Newedge Volatility Trading Index. Hedge funds gained about
14 percent this year after losing a record 19 percent last year,
according to Hedge Fund Research Inc.
Alas it would appear that Succo had not unwound bets on increasing vol fast enough.
Succo, 49, was in charge of global equity derivatives
trading at Paine Webber Inc. from 1992 to 1996. He then joined
Lehman Brothers as senior equity derivatives trader until 1998.
He worked for Alpha Investments of New York heading risk
management before starting Vicis.
As always, "risk management" seems like such a hollow phrase in retrospect. Wrong way gambler is sometimes so much more appropriate.
Whether or not the Vicis wind down has had anything to do with the strange market behavior, and especially that of the VIX, in recent weeks, is currently unknown. Yet a cursory check of the fund's core holdings reveals a $308 million position in SPY and a $190 million position in GLD (source: Thomson One Banker). No doubt both of these positions were delta hedged. However, as Zero Hedge has been happy to point out, there has been no other indicator of the market's madness than what occurs with the SPY each and every day around 3:30pm.
One thing is certain: as Matt Rothman prophetically pointed out earlier, the unwinds are just starting. Vicis is likely merely the tip of the iceberg.
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Down 12% YTD during the biggest bear market rally on record?
Heh, let me guess..
He was short homebuilders, retail, REIT's, etc.
Many stocks move up 12% in just 2 days....
He could have "made his year" multiple times, then sit back and do nothing until next January.
LOL...
Robo, what is the impact of these unwinds ging forward, interms of price action? Thanks.
3 million shares of SPY...thats it? I trade that in 10 seconds without even moving the bid.
Giving your money to a guy named Succo (suck-o) is a real risk...
There are very few managers in our business that are as ethical, hard working, and honest as John Succo. John as always cared deeply about his clients. ZH is correct in its assumption and belief that "...that this is ONLY the beginning..." This is going to get a lot worse, much worse. And government is greatly adding to the problem.
Loved Bob Janjuah's article earlier.
He mentioned trigger(s) and I wonder about the current
other forces that are potential triggers: Flu, Iran, Russia,
bank panic, bank bankruptcy, scandal, and on and on.
FYI - hard to live without ZH these days. The infidel sites
just don't get it.
John Succo is one of the best traders out there. He used to write for Minyanville and has been warning about the problem of leverage and derivatives in the economy for years.
He made money last year when everyone lost money and has an excellent track record. Who would have thought we would go back to the euphoria of the Internet bubble in the middle of an economic tsunami?
this explains it
He apparently used thought process after April 2009. That's a no no.
Think like a microchip, and win.
It's interesting you identified April 2009. One of Martin Armstrong's time cycle dates was 4/19/09, and the spx500 rallied into that time frame (4/17/09-a friday), after which Monday 4/20, was a large down day. Then the market made a lower low on 4/21, rallied, and did not look back. The reason I mention this is, that one of the things that I and a friend of mine noticed was that, since that date, 4/19/09, the structure of the market changed, in that very consistent forms of nonlinear analysis, seemed , for lack of a better term to, get 'skewed' both in price/time. What is causing this odd, if not bizarre, behavior is debatable, but it does appear to have begun right after 4/19/09.
"There are very few managers in our business that are as ethical, hard working, and honest as John Succo. John as always cared deeply about his clients."
ahhh, no wonder he's losing money........
Yeah, who hasn't gotten screwed.
John Succo is a class act. he warned about the economys problems of leverage years ago. Here is a great article he wrote on Minyanville in 2006.
http://www.minyanville.com/articles//10/2/2008/index/a/19289
We are not currently in a normal market and being rational is a liability.
Turn your liabilities into assets.
99.9% of investors, certainly pension funds and most hedge funds would have given their left (or right)testicle to have been up 14% and down 12% this year, that is huge out performance. This happens all the time in hedge fund world, a guy with an outstanding track record has a bad year and unhappy investors redeem, chasing the "next" hot thing.
Up 14% when the market got shellacked last year. He will be proven right in due time. I would let him run my money.
Reading between the lines (including Succo's past expertise), looks like these guys were doing volatility dispersion trading. And it's very believable that in the past year, relationship between index risk versus individual issue risk has been out of whack.
"ethical, hardworking, honest" "class act" "being rational is a liability" "he will be proven right in due time"
dewds, and marla, he's trading against algos that are able to follow the most basic trading rules: 1) don't fight the tape. 2) the market is always right, reverse positions in a millisecond if necessary.
if you insist on being "right" and "rational" that's fine because someone has to be on the losing side of some trades.
he's trading against algos that are able to follow the most basic trading rules: 1) don't fight the tape. 2) the market is always right, reverse positions in a millisecond if necessary.
Right. When those "Algos" have the ability to front run institutional traders using flash orders it becomes unfair. When mathematical formulas become the driving force in stock prices it also becomes unfair (there is alot of money behind those algos). The formulas don't trade on fundamentals, they trade on techincals. As I sit, you will remember the following words. These "algos" will be the next thing to cause a panic...like everything under the sun "it works....till' it don't" and when we become reliant on these "algos" to determine market direction all commonsense gets thrown out the window. A world in which we live under laws that favor impracticality over commonsense is a world destined to fail.
Oh...These algos were designed by humans. Unless you know of a perfect human being that is capable of avoiding all mistakes than mistakes are baked into the recipe.
Prosperity without work is a dream of the ages. Algos are a lazymans way of making money. Mark my words.
nice post pizza.
Is this about being unable to compete with algos or missing the huge injection of money in the market?
The fundamentals are as bad as before, but has this trader factored in the liquidity provided by the Fed and other CB's?
I know of at least one dispersion shop in NYC that has been very consistent for 08 and 09...clipping roughly 80bps-120bps a month...not out of the park, but never a down month
launched in july of 2007
so it's not dispersion that's out of whack
That must be the Madoff Consistency Fund I've been hearing so much about. How do I get in?
By my calculations, he's still outlegging the S&P
by 25% or so over the past 20 months, so he must have
some really thankless clients.
The asset manager's Vicis Capital Fund, a $2.5 billion volatility fund, has been the primary culprit
The VIX is dead. At least COMEX/FOREX have a semblance of a base supply/demand that cannot be manipulated. When everyone looks to a single index it imparts absolute power.
Anyone seen any stocks acting like this one?
http://www.pbs.org/wgbh/amex/crash/sfeature/sf_rca.html
Quit a lot during 1998-2001; BRCM, AMZN, ELX, QCOM, just to name a few. This year I think I would put DNDN on my list of usual suspects.
John Succo is truly a good guy and one of the smartest minds that I have come across. It's a shame what has happened to his fund.
Nice to see people stepping up to defend Mssr Succo. He's one of the best guys on the Street--and smartest. I'm stunned, frankly...
Speaking of redemptions in general,how much of an effect could there be from retail simply needing funds for living expenses? Is there not an inflection point for a sizable group of equity holders who have lost jobs, lost benefits, maxed out credit cards/can`t pay the interest, can`t pay bills/mortgages, basically used up savings? This is in addition to investors who will want to sell at each step higher in the markets.
Or does all the other stuff discussed here overwhelm these effects? Perhaps only when we see enough short funds going under and the effects of covering provide one huge week long blow-off top will the bear market rally end. Or indeed this really is a new bull market and a bubbly one at that to rival the others?
this market is controlled by a computer program, and that fact destroys theories about prices being driven higher by investors "putting money to work" for any reason good or (in this case) bad. Sure, investors are reacting to the action painted by this "HAL9000", but they are not causing the market movements. The chart may show rising price, but this is pure manipulation, and the totally controlled action of the benchmarks is obvious enough for any seasoned trader toer recognize as unnatural. Maybe the program is run by the broker dealers, funded by Team T3, and seeks to destroy all funds whose strategies "don't buy the bullshit being thrown at us by the [corrupt to the core] monetary authorities."??????
Investors are so unloyal.
This notion that fund managers must make money every simple month is ridiculous.
As others have stated this is a real shame. He saw it early and often -
http://www.minyanville.com/articles/5/17/2007/index/a/12859
It would not surprise me if some part of the redemptions are not performance related,
but folks moving money out of the country. This market is broken.
Long live John Succo.
this market is fucking bullshit
Man. I have read Succo since 2003 at MV. He has been a huge part of my education. This is too bad. Goddamn this market.
succo is one of the good guys. now is the time to send some money his way.
"However, as Zero Hedge has been happy to point out, there has been no other indicator of the market's madness than what occurs with the SPY each and every day around 3:30pm."
Sooo you guys ever heard of the futures pit in Chicago?
Succo is also Minyanville's Mr Practical. He would be very long the dollar.
Yessir.
Vicis Q2 2009 portfolio
http://iifacts.com/VICIS-CAPITAL,-LLC-Q2-2009.html
http://chart.apis.google.com/chart?chxt=x,y&chbh=a&chxl=0:|0%|20%|40%|60%|80%|100%|1:|Others|Utilities|Technology|Services|Industrial%20Goods|Healthcare|Financial|Consumer%20Goods|Conglomerates|Basic%20Materials&chs=600x360&chco=C6D9FD,4D89F9&chds=0,1&chd=t:0.05,0.01,0.02,0.04,0.04,0.01,0.05,0.05,0.00,0.73|0.06,0.01,0.02,0.04,0.06,0.01,0.07,0.09,0.00,0.64&cht=bhg&chdl=Last%20Quarter|This%20Quarter&chdlp=b&chm=N*p1*,000000,0,-1,11|N*p1*,000000,1,-1,11
I don't think any of us anticipated just how manipulated this market would become (robot-perma-bid backed by endless Fed liquidity injections, and HAL-9000 using said money to squeeze every bear in sight ensuring that the most shorted, rubbish stocks rally the most) or just how corrupt regulators would prove to be (turning a blind eye to the most blatant manipulation in history).
Sane people, the very people who *should* be driving price discovery, have been screwed by idiots. Succo is one of the sane ones.
The first comment above from RobotTrader has got to be one of the stupidest comments I've ever read. I hope he's not actually running money.
The fund has been up double-digits each year since inception (2009 notwithstanding) and if I'm reading the article correctly, he allowed investors to redeem their money while other hedge funds locked the doors and boarded the windows.
The Bloomberg article notes that his fund received redemption notices since last October, WHILE up double-digits, so it's clear that when investors needed liquidity, he was their source during trying times. He did the right thing.
There is something to be said for integrity in this day and age and Mr. Succo is truly one of the class acts on Wall Street. Bet against him at your own peril--he and his partners will use this as motivation to perform for those who stick with them.
You are 100% correct about Vicis. 12 months after this crisis started, including a 60% market rally, large investors (pensions, insurance, endowments, fund-of-funds) still continue to be greatly squeezed to raise cash to meet their own liquidity or margin needs. Vicis was one of the ONLY funds in the past year who didn't "gate" their fund. Performance was not the primary reason for their redemptions -- it was access to badly needed cash and liquidity. In time, most all of his investors will ask him to reinvest in their fund again.
count me in as another who thinks Succo is one of THE best on the street. Same thing happened to a ton of good managers who didnt believe in the Tech runup either and were eventually proven correct. Man those who are pulling capital from his fund will regret it.
I guess you're wrong - now we know why he suspended -
because Vicis Capital is a fraud!
http://www.finalternatives.com/node/10148
who is Vicis Capital's main PB?
Is $308m SPY really enough to move the market? Or is this position a hint at a crowded dispersion trade... Anyone have an idea of how crowded/illiquid this trade is?
Presumably, this trade is lucrative because of the high demand for index options after end 2008 (but this is idle speculation - I don't have the data).