First $1.5 Billion Hedge Fund Casualty Of 2016 Blames HFTs For Making A Mockery Of Investing

Tyler Durden's picture

Following a year of historic routs in the hedge fund space, yesterday we pointed out that after the new year's break, it was time for the pain among the active investors to return:

Less than 24 hours later, this is exactly what happened when as Bloomberg reports, Nevsky Capital’s $1.5 billion hedge fund is shutting down and returning money to investors. The reason: the emergence of computer-driven trading strategies and index funds diminish money-making opportunities.

What again is surprising about this latest hedge fund liquidation, is that the fund was not a significant underperformer, in fact according to BBG it was up 0.9% in 2015, outperforming the majority of the "smartest money" out there:

The London-based firm managed by Martin Taylor and Nick Barnes makes bets on rising and falling share prices in developed and emerging markets. The fund returned 18.1 percent in 2013 before losing 1.4 percent the following year. In the first 11 months of 2015, the fund was up 0.9 percent, according to data compiled by Bloomberg.

Even so, the founders have had enough with a centrally-planned, HFT manipulated "market" which is that only in name.

We have come regretfully to the conclusion that the current algorithmically driven market environment is one which is increasingly incompatible with our fundamental, research orientated, investment process," Taylor, the firm’s chief investment officer, said in a statement.

As a reminder, Nevsky is the latest in a long, and getting longer by the day, list of funds joins hedge-fund firms such as billionaire Michael Platt’s BlueCrest Capital Management, Doug Hirsch’s Seneca Capital, and Scott Bommer’s SAB Capital Management who are returning money to clients and adding to an accelerating pace of hedge funds shutting down globally.

More from Bloomberg:

Taylor started the current version of the fund in 2011 and aimed to manage no more than $800 million after deciding to step away from the “intensity” of running the original $3.3 billion hedge fund that was started in 2000. The fund returned 14.6 percent in 2012.

 

Nevsky expects to liquidate the portfolio and move into cash by the end of January. The fund’s 18.4 percent annual gain since 2000 is nearly 10 times more than returns generated by average peers as measured by the HFRX Index, Nevsky said in the statement. Taylor and Barnes started the original fund while working for London-based Thames River Capital. Both previously worked at Baring Asset Management.

To be sure, there are many more hedge fund liquidations to come, especially if Nevsky's ominous parting warning comes true: "The bear market in emerging market equities, which began in 2011, may eventually engulf developed markets too."

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Looney's picture

HFT = High Frequency Thieves   ;-)

Looney

Gold Eyed Cat's picture

Why steal slow, when you can steal really really fast!

NoDebt's picture

We are the knights who say "Nevsky".

VinceFostersGhost's picture

 

 

Pumping a trillion dollars a month into the markets had made a mockery of investing.

Four chan's picture

high frequency theft, it was right in our faces the whole time.

bamawatson's picture

er uh, we could not keep abreast of the situation

Ghost of PartysOver's picture

Next up:  Darwinism  for the species HFT.   Like all evolutionary processes this one too will take some time. 

jakesdad's picture

apologies for being a broken record on this BUT...

 

it isn't "high-frequency trading", it's "low-latency frontrunning"

 

if profit=margin*volume then "high-frequency" is how they scale profits but the margin is 100% frontrunning.  if enough people grasp this then reform could eventually be possible...

_ConanTheLibertarian_'s picture

First time I hear your record actually but +100

NoDebt's picture

They already know.  They endorsed it, nurtured it, encouraged it and now protect it.  If it wasn't for their volume of trades every exchange in the country would go broke.  It also serves the interests of the Fed and other government-related entities when they need to levitate the market, as they did into yesterday's close.

It started with decimalized trading- penny increments (2001, if memory serves).  If they went back to trading stocks in 1/16 point increments you'd see a LOT less HFT.

 

Global Hunter's picture

when I started on the trading desk the HR and management bods were always bragging that they were doing away with traders and electronic trading would get rid of bid ask spreads.  Our HR douche was so excited one day as he told me it would all be computerized one day and all the live bodies doing the trading would be made redundant. 

We let the fucking idiots, psychopaths and pedophiles run our shit and this is the stuff that happens.

SmedleyButlersGhost's picture

A Human Resources guy is excited that the new tech will make all the human traders redundant.  Ahhhh - hello? What a moron.

insanelysane's picture

It's front running and it's legal because there isn't anyone in government or in the legal profession to prove it is illegal.  As a systems analyst I get paid good money to track down issues with normal sales transaction systems.  Nobody and I mean nobody in management gives a rat's ass as to why something happened technically.  They only care that I fix the problem.  I am pretty sure 80% of the population have ADD and not only can't troubleshoot anything that requires detail analysis of every step in a process, they don't have an attent span to even listen to the explanations.

HFT systems are processing a ton of data in millisecond timeframes.  Even if you can get a tech to analyze the process and find the evidence, you would then need to convene a trial which has prosecutors, judges, and jurors that would need to have the patience and knowledge to understand the complexities of what goes on.  The criminals know this as well as the government.  The only way you can bring them down is when the insiders start chatting about the rigged system.  See libor rigging.

 

Nobody For President's picture

I like your analysis. I was a system analyst back in my city days, and  can't imagine getting a 12 person jury together that wouldn''t fall asleep trying to follow a detailed analysis of how programmers put together a system, with the backing of management, that was esentially designed to steal other people's money.

The fact that Citadel LLC is still in business is proof enough of that.

What market?

Dubaibanker's picture

What about those lasers? Who will pay for them? ;)

I have said since last year that until 2014-2015, most deals were done by billioniares and PE funds and HFT's and God knows what else kind of 'smart money'....

The trillion dollar question is: With all the jobs gone, all the companies shut, all the data manipulated, all the fraud in banking done, all the QE done........WHO WILL THE PE FUNDS AND HEDGE FUNDS SELL THE THINGS THAT THEY OWN TO IN 2016 AND 2017? HOW WILL THEY EXIT WHEN THEY HAVE NO ONE TO SELL TO?

These are but 2 examples of so many PE funds are exploding worldwide and they had no other strategy than to just make money and let the logic and market dynamics go to hell....

Sun Capital from US did not see it coming and burnt investors money.

Department store group V&D declared bankrupt, 10,000 jobs at risk UPDATE 2-Australian electronics collapse highlights risks of PE turnarounds

 

From IPO to ZERO in 2 years!

This is what 'smart money' is good at! LOL

 

stocktivity's picture

I'm not sure this liquidation is a "Casualty".

Xredsx's picture

In Britain the big stores have starting blaming the warm whether for their weak sales over the Christmas period. Can't say that the problem was people buying presents with money they don't have for people they don't like, not reffering to the children here of cause.

highwaytoserfdom's picture

total nonsense from the Michael Lewis crowd to sway trust in a need fiat of exchange.  Sergey Aleynikov story to CYA...   come on Tyler  Kyle Bass now this...   Next you will have Welsh, Krugman, Liesman, Sorkin and the rest of the .01% group thinkers and wrisk avoiders.

NEOSERF's picture

And given this likely accurate depiction of the trading environment, good luck to the remaining funds that try to swim in that ocean as an increasingly smaller fish...

NoPension's picture

It's time for someone to come out, and explain why HFT helps the market.

Example; "Speculators in commodities don't actually want to take delivery of the actuall commodity ( who wants a truck to drop off 140,000 pounds of coffee?!), but they make the market and help with price discovery".

John Corzine, for one.

Valentine, " oh, it's breakfast!"

It's fucking sarcasm, btw.

Tax these trades. Or explain why this is not overt theft by those who can afford the technology.

mccvilb's picture

Everyone talks about HFT like it's a great revelation. Madoff once headed NASDAQ. Both the carpetbagger Clintons miraculously have become instantaneous hundred millionaires not for what they've done but for what they've gotten away with separately and together, including high treason. Little Switzerland with no mining industry of consequence has been the center of gold rehypothecation. It's right there plain as day for anyone who wants to see it, but no one does. We call it investing. Everybody wants to grab a piece for themselves first.

The entire financial system, banking, stocks, commodities, forex revolves around the creation and destruction of and control over free money. The biggest players are pimples on the landscape and include politicians, lawyers and judges, corporate executives, and the military. There is a simple fix. Take away free money. But we all know that could never happen. Money is the waterway connecting all things we hold precious, both tangible and intangible. So we do what we must - await the next iteration. 

overmedicatedundersexed's picture

who are they  taking money from in todays markets..ever heard of pension funds , IRA, 401k's...gov says save, and by gosh most working men make payments into retirement acc's from every pay check..

there is a constant supply of money to HFT's and criminal wall st..thanks to the mafia in DC.. get it??

chomu's picture

My drunk ass was trying to explain your exact argument to a dumbass realtor neighbor at a New Year's Eve party. If my fuzzy memory serves me well, it went like this:

HFT's....oh, those things are f*cking over pretty much everyone on a massive scale. How? Let me expain...

- Most working folk save for retirement via regular payroll deductions to a DC plan..401k, 403b, whatever...

- Most of those funds ($billions every week) go into equity mutual funds

- The PM's at those funds then buy stocks on the screen

- The HFTs legally front run their buy/sell order...scalping a penny or less per share.

- Multiply the $0.001 by billions of HFT transactions....and BOOM! Thats $Billions in $$ wealth transferred from main st to HFTs year after year

 

 

Nothing new though, I kinda miss the days when it was the specialists and market makers who would rape your ass..

 

 

Skeeterworborton's picture

Very telling...where is the money going...this should make you nervous...a little

buzzsaw99's picture

they made 0.9%, sure, but took 2 and 20 at least. no doubt they plan to manage "their own money" now.

cordial savage's picture

Maybe they had hurdle rates to prevent them from cashing in.

drivenZ's picture

There was HFT trading and index funds in 2011, 2012, 2013 but they had no problem running the fund then. If there is actually a trend of managers closing(a net trend, because I'm sure there's a new fund starting every day) I think it has more to do with the fact that it's now been 7-8 years since the last recession, the markets have exploded and the upside vs the stress of reacting to current events just isn't appealing to guys who did relatively well the last 8 years.

falak pema's picture

Well this is what Hayek wanted : an algorithimically front run market system.

Whoopee ! Friedmanite monetarism + algo Hayekism is the formula for :

AVOIDING THE ROAD TO SERFDOM ???

Lol ! Guess what ? We are on it !

Somehow Greenspan's legacy did not work out for either of his mentors from the Chicago school.

Seasmoke's picture

Just as Robotic Wagering is killing Horse Racing. But no one date touch it. As they desperately need the handle.

Nobody For President's picture

Thanks Seasmoke, hadn't heard about this one (CRW).

Here is a overview for those, like me, new to this concept. Boy, is it familiar:

http://cs.bloodhorse.com/blogs/wgoh/archive/2015/11/17/computer-robotic-...

Apocalicious's picture

I don't understand the generalized obsession with HF "failures." A lot of companies closing and starting in an industry is healthy, as it demonstrates a strong competitive dynamic and consequences for subpar performance. Would we rather have four that aren't allowed to fail?

atoast2toast's picture

he didnt say HFT , he said algorithms, all HFTs are algorithm driven, not al algorithms are HFT 

 

next witch hunt, oh I see gold is going to go higher this year after 5 down years in a row 

Grandad Grumps's picture

Algorithms run the specialists and market makers as well. Anyone on the outside who beats the algorithms is thrown in jail.

Grandad Grumps's picture

The market is dead ... long live the theft mechanism.

chickadee's picture

A penny a share tax on equities would slow down HFT. Use the money to fund prosecuting the perpetrators. Someday somebody might even go to jail? I am being naive.