As The Hedge Fund Slaughter Continues, Here Is Who Is Unwinding And What Stocks To Watch

Tyler Durden's picture

Last week we reported that in the aftermath of the vicious high-flying momo, high-beta mauling, hedge funds had their worst week since 2001 (excluding such "end of the world" days as Lehman and the 2011 debt ceiling fiasco). Specifically, we said that the crush was nowhere worse than in the "hedge fund hotel" basket of names most near and dear to the hearts of hedge funds, and respectively those most hated, one which Goldman defines as the long Very Important Positions <GSTHHVIP> vs. short Very Important Shorts <GSTHVISP>. This is how the chart showing the weekly hedge fund P&L of this most popular pair trade looked like. 

 We ruminated on the benefits of hedge funds which no longer "hedge" and try to reach for alpha, but are merely levered beta-pursuing vehicles: "when after five years of underperforming the market, investors continue to ask themselves just what are they paying hedges 2 and 20 for - obviously it is not to hedge risk, in a market in which the Fed has made it all too clear a market downturn is no longer a possibility. It must be for the "benefits" of the herd effect of everyone loading up on the same positions, and when one sells, everyone sells and leading to sharp losses for the bulk of the "smart money out there."

Well, as expected, the next week - the one that just passed - what was certain to be a reflexive, margin call-driven continuation of the selloff as levered positions continued unwinding, indeed happened.

Goldman's David Kostin reports:

"The recent momentum reversal has focused on high growth stocks, many of which are constituents in our hedge fund basket"..."high expected sales growth and firms with high EV/sales multiples. Our 50-stock sector-neutral portfolio of firms with the highest expected sales growth surged 3.4% during the first 60 days of 2014 (250 bp above S&P 500), before retreating by 2.4% during March and trailing S&P 500 by 320 bp (Bloomberg: <GSTHREVG>). Stocks on both lists were social media, internet, and biotechnology firms that had led the market during the prior six months. These high growth/high multiple stocks feature prominently on our list of “stocks that matter most” to hedge fund performance (<GSTHHVIP>). Having outperformed by 230 bp through February, our VIP basket dropped 2% in March while S&P 500 climbed 0.8%. Long positions trail by 98 bp YTD."

Or, said much more simply, a furious unwind of levered positions for the second week in a row.

So furious that some of the marquee hedge fund names are already getting slammed for the year in what everyone said would be a guaranteed way to make a killing in 2014. From the WSJ:

Andor Capital Management LLC, once one of the world's biggest technology-focused hedge funds, plunged 18% last month. The $15 billion Discovery Capital Management LLC lost 9.3% in its flagship fund.... Both funds are in the red for 2014, according to people familiar with the firms.


Many of the biggest hedge-fund falls stemmed from wagers on highflying technology stocks that shot up last year and in the first two months of 2014. The last week of March was one of the worst weeks for stock hedge-funds' returns compared with the S&P 500 since 2001, according to Goldman Sachs Group Inc., which tracks the stocks important to hedge funds.


Andor, based in Rye Brook, N.Y., saw its fortunes reverse after sticking to a strategy that drove the firm to a 35% gain in 2013. Some of the firm's biggest long-term positions, including Facebook and Google Inc., fell steeply last month.


Founded by former Pequot Capital Management co-head Daniel Benton, Andor manages about $1 billion. Mr. Benton previously managed more than $6 billion in an earlier incarnation of the firm.Andor was down 5% in the first quarter overall, according to a person familiar with the firm.


The $9 billion Coatue Management LLC, started by Philippe Laffont, a veteran of Julian Robertson's Tiger Management, also was hurt by the reversal in technology stocks. Coatue's flagship fund lost 8.7% in March and is down 7.4% for the year. A spokesman declined to comment.


Another Tiger alumnus, Robert Citrone of Discovery, described the month's carnage as a "perfect storm." Wagers involving stocks accounted for 85% of the firm's March losses, the people said.

Curious which hedge fund is unwinding (the first of many)? Here is the answer:

Discovery was founded in 1999 by Mr. Citrone, a part-owner of the Pittsburgh Steelers football team.

On an investor call Thursday, Mr. Citrone said Discovery had reduced the amount of risk it was taking and that he remained confident that U.S. growth was accelerating.

Last time Discovery caught a lucky break:

Several investors said they were concerned by the magnitude of Discovery's March loss but added that they expect volatility from the firm, which has returned an average annualized 17% since inception. Discovery has rebounded from similar-size losses before. In about a month last year, from mid-May through late June, Discovery's $8.5 billion flagship fund lost 9%, in part because of a decline on Japanese stocks. But the fund more than made up the loss by the end of the year, returning 27% for 2013.

This time it may not be so lucky.

Ironically, we were right once again because as Goldman further adds:  "Short holdings created problems by rising 130 bp more than S&P 500 YTD."

Gee, where have we seen this before, not to mention predicted this would happen? Why here: "Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate "Alpha"

Thank you Chairman Bernanke and Chairmanwoman Yellen, not to mention HFT vacuum tubes, for making the market so broken, a tinfoil blog can outperform the smartest money in the street.

Finally, for those curious where the pain will continue to be focused as the HF levered unwind accelerates, here are the most held long hedge fund positions where the slaughter will be the most painful in the coming days.

And here are the most hated ones. Needless to say, these should continue to generate what little "alpha" is left in this pathetic, rigged, broken market.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
IridiumRebel's picture

Just fucking crash/correct/retrace or whatever the fuck. These valuations and "market" are total bullshit.

Croesus's picture

It can't happen quickly enough...Jump, you fuckers!

bania's picture

Mr. Citrone is dumping his lemons.

Oldwood's picture

Will we be left to making lemonaid....again?

Vampyroteuthis infernalis's picture

The retail investor has been driven out of the market. It is time for the big boys to cannibalize each other. This is a warm up. Bitchez!!

ParkAveFlasher's picture

Why is Pfizer listed in both places? /sarc

knukles's picture

Ah, I fondly remember some 25 years ago (yes, I was in the biz then and I still can remember snippets, especially schadenfreude) when simple day to day bond salespeople.  Yea, bond peddlers,  that is all, no other significant business qualifications, were leaving their mother-ship firms, the Big Bulge Bracket Bond Houses and starting up "hedge funds".
The beauty of the business was it's very unregulated and secretive nature. 
Hi, Mr Bond Peddler, tell me what you do?
I run a hedge fund.
How do you run the money, what is your philosophy and process?
I can't tell you that because I'd give away my trade super duper ultra private proprietary sensitive world beating insights because I'm so smart.
But I'm interested in placing money with you.
You'll have to trust me.

Oh, and what are your fees?
2% + 20%
Seems high for you not telling me who what when and especially how
You just don't get it, do you?

So off they toddled, borrowing short and investing long (aka Savings and Loan model) with a rising tide that lifted all boats.

90% of the managers out there have no insight, proprietary edge in the market, no outstanding process.

Go figure.
Raise $100MM, gear it 20X so borrow about $2B at 2%, and just be long a rising market at 10% returns and whadday get?
A levered market return, 100% levered Beta, less the 2% fee and 20% of the gain.

Fucking useless.
Buncha vultures, vampire squid like behavior without the brains.
Bad people, lying about what they have in knowledge sets, what they can do and how they do it.

Yes, I have an ethical problem with most those folks.
Ray Dalio, et al, great stuff, real deal, and deserving of acclaim.
Most the rest, BS Deluxe

scraping_by's picture

Sadly, there was nowhere to run. Even us retail longs discovered market index funds cranked up their fees until you were making 3% when you made anything at all. Down years we ate the loss.

Luckily, that greed drove me and anyone with eyes to see out of the market. Cash and bond mutual funds, until the bond mutual funds cranked up the fees until they were yielding 1%.  After that, cash only.

The professionals quit the 401(k) crowd long before wage earners quit them.

GetZeeGold's picture



There must be 50 ways to unwind an insane market position.


You Just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just listen to me
Hop on the bus, Gus
You don't need to discuss much
Just drop off the key, Lee
And get yourself free

She said it grieves me so
To see you in such pain
I wish there was something I could do
To make you smile again
I said I appreciate that
And would you please explain
About the fifty ways


Exponere Mendaces's picture


Funny how you can be "in the biz" and yet not have the stink of the vampire squid upon you. You're just recounting tales where you screwed over customers just like they did, except you leave out the part where you collected your fee.

Its okay, I understand that when you advance in years memories tend to self-modify so they favor the "rose colored" rememberance.

knukles's picture

Son, I was and still am on the buy side, primarily institutional money, accepting my role with all due and proper full fiduciary standards of protecting other people's money from leaches, pestilence and scourges such as the Vampire Squid ... as well as fools who speak of that which they know not.

caShOnlY's picture

protecting other people's money from leaches

I respect your position and honesty, however the very nature of this game is "ownership" and you are certainly owned by Vampire Squid and the likes by playing the game - THEIR GAME, THEY OWN IT!!.  They will tell you what to buy, what to sell and when to do it.  Until you can turn yourself into a bank holding company and reap hundreds of billions from the taxpayers, your just another pawn with good wishes.

Exponere Mendaces's picture

Makes perfect sense then. Money is the ultimate rationalizing force. I guess everyone has their price, for you it means comfortable retirement when the rest of the people working out there are struggling to get by.

Flogging goals such as "protecting other people's money" sound nice and mighty on a forum, but still leaves out the fact that you are encouraging them to put their money into a system that has failed in so many ways, that the very act of perpetuating any trading in it is akin to assisted suicide.

This explains so much about your commentary and easy-go-lucky attitude about the tragedies around you. You aren't vested at all in the "common man". Well, only so much so that you get paid, of course...


Cat Sniper's picture

You can make that lemonade, but don't think you can sell without a million dollar permit. You Serfs!

Miles Kendig's picture

It doesn't matter what kind of paper .. permits .. our clients fold...

... or the lemonade they make and consume, Duke and Duke will still get the commissions (and toast some mighty fine, if precocious mixing manners concierge service) which the foil folders are more than happy to run book on .. and re-trans the humor .. all the way to Pearl ;-)


KickIce's picture

Remember this one:

August 2011

In Coralville, Iowa police shut down 4-year-old Abigail Krstinger’s lemonade stand after it had been up for half an hour. Dustin Krustinger told reporters that his daughter was selling lemonade at 25 cents a cup during the Register’s Annual Great Bicycle Race Across Iowa (or RAGBRAI), and couldn’t have made more than five dollars, adding “If the line is drawn to the point where a four-year-old eight blocks away can’t sell a couple glasses of lemonade for 25 cents, than I think the line has been drawn at the wrong spot.”

mtndds's picture

Not going to happen.  I bet tomorrow morining everything will be green and honky dory.  Hell we might reach new highs on the DOW, NASDAQ, and S&P.  The market is totally rigged.  Jump fuckers, junp!

hobopants's picture

The dollar is the sacrificial lamb in all this, it will break before the market does. The actual currency they are spending to keep this shit propped up is confidence in the USD.

Cattender's picture

Dow 17,000 here we come! Dont buy Gold or Silver!!!!! Wall St is doing God's work.. :-)

Everybodys All American's picture

The only thing that you can count on continuing to crash is the economy. The Federal Reseve can print any number they wish now when it comes to the rigged stock market and they will.

U4 eee aaa's picture

I'm thinking Yellen might be a bit of a dominatrix

scottch's picture

Debt-ceiling "fiasco", indeed.  You should prepare for 2015 when Uncle Sam's credit card goes in the shredder and the culture wars turn hot. 

Winston Churchill's picture

Second half of 2014.

You don't need to read goat entrails to see the timeline now.

Full convertability of the yuan will be the last move in the chess game ending the petro dollar.

Its coming the summer.

thamnosma's picture

Not sure about that.  The Regime will do whatever is required to get through the election cycle.

scraping_by's picture

It would be cheaper and more certain just to Diebold the whole thing and keep people distracted. Putin! Gays! Kardashians!

max2205's picture

Bailout 3.0 on the way

Oldwood's picture

Bailout or bail-in? Somehow I don't think they believe that printing money will "fix it" this time.

SmilinJoeFizzion's picture

What's the over/under on dead bankers this week?

Ban KKiller's picture

I called Jose in Vegas and he said the over under is two. Even odds on jumping. Ten to one Nailgun and 1000 to one Shitgum death. 

Jose only deals in bitcoin...what does he know? Ha=ha!

Tall Tom's picture

One thousand to one shitgum death?

Where do I get that action?

Go long shitgum.

mrdenis's picture

Any big names in the dead pool ?

SolarSystem1932's picture

Don't flame me bro...

For 4 years I have been buying 1 stock, and exiting all other positions, and that 1 stock is NOT on that list.  Likely most have not heard of it, but I'll risk my neck, and submit the symbol anyway: IMSC

Implant Sciences

I know I'm gonna get nailed for this, but all I ever do is take from ZH, so here is a single donation to fellow readers.  If you want some interesting reading, given global affairs, spend a moment reading about Explosive Trace Detection systems.


Flame on!


zorba THE GREEK's picture

The best stock is 'livestock'. Ask the Amish.

Skateboarder's picture

Or vegetable / mushroom / chicken / beef stock. :)

Tall Tom's picture

I like to have a stock of Gold, Silver, Guns and Ammo, Black Powder, Chemicals, Pharmaceuticals, Food, Water, Fuel, Alcohol, Cigarettes (especially if you do NOT SMOKE), Fiat Currency and anything else needed for the oncoming collapse.


Tangible and tradable items are what you are going to need. They are what truly will have VALUE (Utility).

Ban KKiller's picture

I upped you just to keep it even...

kchrisc's picture

In the DC US all bombs 'trace' back to the FBI.

I wonder if this technology is employed to uncover the origin of the explosives used to bomb wedding parties in Yemen or schools in Pakistan?!


"My guillotine sees dead people."

813kml's picture

Back in the game, eh Jordan Belfort?

Unknown Poster's picture

So this is the smart money. Long AAPL but short AT&T. What do they think... people are going to buy new gadgets and not use a monthly service? This all beyond me.

syntaxterror's picture

Do realize how much debt AT&T has? It's staggering. And rising every day. Coupled with an unsustainable dividend payment. And the stock has surged the last few weeks.

Unknown Poster's picture

Interesting, that would account for the short positioning. The surge  IMHO is due to oension funds and mutual funds rotating into safe harbors because they believe taper will continue. They are big enough that it takes time.

It seems like a scam, but with the Fed punishing savers and rewarding debtors that the thing to do would be buying a debt-laden company on margin. I am not doing that, nor advocating it, I just wonder what is going on. There is an awful lot I do not know.

Interestingly when Winchester went broke during the depression, they were bought out by an ammo company.

Seasmoke's picture

Government Motors at the top..... WTF !!!!!!

BandGap's picture

Sort of makes you think they were told to buy it, or the assumption is the US will once again step in on behalf of our union brethren.

I buy mining stocks. C'est tout.

_ConanTheLibertarian_'s picture

"U.S. growth was accelerating"

to the downside yes

jerry_theking_lawler's picture

so, they didn't 'technically' lie, now did they....

Last of the Middle Class's picture

They're all just beginning to realize they are going to have to stop main-lining HFT. Expect jitters as they delete and detox.