Why This $1.6 Billion Hedge Fund Is 50% In Cash

Tyler Durden's picture

"The whole world is wrongly positioned," warns Norwegian hedge fund firm Sector Asset Management's founder Peter Andersland, "the common denominator for everything is the long duration -- real estate, stocks, bonds. Everything is much more rate sensitive now."

As Bloomberg reports, Andersland's $1.6 billion holds as much as 50 percent in cash in one of its funds, because holding cash is the best protection against bond and stock markets inflated by record monetary stimulus.

“What can kill us now?,” Peter Andersland, the 55-year-old founder of Sector, said in an interview on Tuesday at his office overlooking the Oslo fjord. “It’s the correlation between stocks and bonds that will be induced by higher rates. That’s the biggest risk in the capital markets today, not geopolitics or Trump.”

Massive central bank stimulus with below zero rates and quantitative easing has led to increasingly dysfunctional markets, with even the negative correlation between stocks and bonds breaking down. As we have noted previously, they are now largely moving in the same direction as markets have become more driven by central banks, leaving investors with no place to hide.

 

“Everyone is thinking about managing risk through diversification, a little bit in bonds, a little bit in stocks,” he said. “But if the correlation increases between those two then that risk management based on diversification doesn’t help. Because everyone is doing that.”

Sector, which bets on trends for countries, sectors and stocks, is protecting itself against the rising correlation by shortening duration in its investments and placing bets that will pay off when volatility rises. To do this they are holding more cash, shorting stocks and buying cheap put options, according to Andersland.

“The whole world is wrongly positioned,” he said. “The common denominator for everything is the long duration -- real estate, stocks, bonds. Everything is much more rate sensitive now.”

“Risk is what you don’t think about, you can’t calculate it,” he said. “My analysis is five to ten percent more upside for global stocks, 40 to 60 percent downside for global stocks, MSCI ACWI. So it’s very skewed.”

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pachanguero's picture

Lot's of folks on one side of the boat....

bleu's picture

The World is about to pay for the Greatest Injustice of the 20th Century.
http://wp.me/p4OZ4v-19

glenlloyd's picture

By doing what, electing Hillary Clinton?

I am not clicking on that link, it's a yuge waste of time.

jm's picture

It is surprising how duration surprises. Everytime since 1981.

jeff montanye's picture

yes but pleasantly, like a titty full of whiskey.

for a better indication of what's in store at this point, try the run from 1948 or so to 1981.

that's more like finding out your internet sexter is hillary clinton.

and she knows where you live.

jm's picture

I recall Kyle bass was so burned by shorting duration that he closed his "opportunity" fund.

These doomsday strategies only pay off based on pure luck.

Stuck on Zero's picture

Let me see ... the hedge fund is 50% cash and the cash resides in Chase Manhattan Bank. CMB has its cash loaned to a handful of corporations that borrowed it for stock buy-backs.  It looks to me like their exposure is still to the markets.

zhtam's picture

Cash, gold, short

jm's picture

Think about it this way: if reference interest rates go up, why would you think gold will not go down?

jm's picture

The article argues using nominal interest rates. Gold and real rates seems to always be inversely correlated.

Nominal rates at the time weren't keeping up with inflation. The effect was that real rates were still falling. Given how commodities have imploded in price and will do so again wihenever the fed tightens, I do not believe such is the case in these times. Any rise in nominal rates appears to higher real rates.

The other side of fed tightening is the crowded trade.

The Anti-_-Sheep's picture

Extreme printing ='s Monopoly Toilet Paper Money... It's the reason why Gold hasn't already dipped below $1,000. Look at the M1 & M2 charts. Just make sure you're sitting down first and have already taken your heart pill. 

jm's picture

If liquidity isn't tightening, then why is LIBOR rising?

zhtam's picture

Sure it would. I just mean that all the big boys who are currently screaming how much they hate equities and debts, are in cash, gold, short positions. Please correct me if I am wrong, but rates increase will both push gold down by making cash more attractive, and push stock markets down, thus increasing gold-as-haven for some?

jm's picture

You are right. Rates go up cash goes up. Cash substitutes like gold go down.

TrajanOptimus's picture

We are all going to die!

beeeeeep's picture

I guess at least one immortal participates on this forum.

Mustafa Kemal's picture

Yes, you are correct. Most of us also pay taxes.

Skeero's picture

I set up a Guccifer support fund. If you have any ideas of stuff I could add to make the campaign more successful, or any other insight would be greatly appreciated. Most of us know he is a hero, but yet he is treated like a criminal.. Except his only crime was exposing a crime.

 

https://www.gofundme.com/2mt69mc

Please share the link. Thanks!

jm's picture

Pray tell, What is the Guccifer story?

jeff montanye's picture

there are actually two of them: here's the first with a link to the second:

https://en.wikipedia.org/wiki/Guccifer

jm's picture

Save your money. That poor bastard won't see the sun on his face again.

SMC's picture

The only smart move is to position your life so none of this insanity matters,..

Hitlary and the DNC for prison 2016
www.wikileaks.com/dnc-emails/

thinkmoretalkless's picture

Sometimes it's a matter of having something when most have nothing

Grandad Grumps's picture

There is a difference today when compared to every time in the past. In the past, the trading economy depended on people. People are subject to fear, greed and bouts of stupidity. Today, all of the important trading and ALL price control is handled by computers. There are no humans involved to start a panic amongst other humans.

PRICE can be whatever the computers manage price to be. Sure there will be shortages and gluts and there may be small black and gray markets, but the official price of EVERYTHING can still be controlled absolutely, regardless of fundamentals.

And who is smart enough to run an automated system, such as we have now? I would argue that there are no humans smart enough or "good" enough to run a system that prices everything for the entire world ... and yet, here we are.

Proofreder's picture

It is ALL belong to us now -

Resistance is Futile.

hedgiex's picture

Keeping 50% in cash based on a risk view that is not whacky. But what's new with the deformed markets that plays are only in trading and not investments. No need to use fancy terms like "long/short durations". Also, ithe largely nothing new correct assessment that all plays are now frontrunning Central Banks. If you get these, then why even you need a hedge fund to manage your portfolio. 

Yen Cross's picture

 It sure as hell isn't their trading floor.

sonya55's picture

Is there a rule against Hedge Funds buying Gold and Silver?

Not a paper product.

morethan1's picture

50% in ONE OF it's funds....SO, how much in DOLLARS or percent of the TOTAL 1.6B??

omi's picture

He would be right if rates do go up sharply. He would be wrong if for some unforeseen reason money suddenly stops to matter, then it's all about physical assets or companies that you own, maybe that's why there's a trend for companies to take on massive debt and buy each other.