First it was Fortress' once-gargantuan, peaking at over $8bn in AUM in 2007 "macro" hedge fund (which really was an FX trading desk betting on the 'acumen' of a rather dubious former employee from Citi, Jeff Feig, who has been implicated in the endless currency manipulation story) which unexpectedly shut down a month ago on massive losses mostly in Brazil, and now - moments ago - we learned that another just as vaunted hedge fund is liquidating.
According to Bloomberg, BlackRock Inc., the world’s largest asset manager, is winding down a global macro hedge fund after losses and investor redemptions eroded assets.
The reason for the liquidation: losses of 9.4% this year, cited by Bloomberg according to an October investor document, leading to the worst year for the asset manager since inception in 2003. The fund, which had $4.6 billion in assets just two years ago, has shrunk to less than $1 billion as of Nov. 1.
As noted above, BlackRock, best known for its ETFs and Larry Fink's crusade against stock buybacks, is joining money managers including Fortress Investment Group LLC and Bain Capital that shuttered macro funds this year.
Bloomberg notes what we have known for a long time, namely that "many investors have struggled to navigate market turns that included an unexpected surge in the Swiss franc in January, a rally in European government bonds in April, a surprise devaluation of the Chinese yuan in August, falling oil and gold prices and a third-quarter selloff in stocks that were popular with hedge funds."
“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” the firm said in an e-mailed statement.
Global Ascent, run by Paul Harrison, sought to profit from inefficiencies in global currency, fixed income, credit, equity and commodity markets. The fund lost 12.3 percent in the first quarter, extended losses to 14.5 percent through May, before paring declines, according to investor documents.
Harrison had been on the investment team of the fund since 2006 and ran it as lead manager since 2010. Most of the fund’s position have been closed out and converted to cash, said one of the people. BlackRock expects that a number of the fund’s managers will join other investment teams within the firm.
The fund had three losing years before this year, declining 2.9 percent in 2004 and about 7 percent in 2008 and 2011. Over the past four years, returns haven’t exceeded 1.4 percent.
BlackRock’s global macro fund is part of the firm’s direct hedge fund business, which oversaw $31 billion as of June. The unit, which started its first strategy in 1996, runs more than a dozen funds, including a $2 billion fundamental global fixed-income pool and $1.3 billion multi-strategy fund.
“We are committed to our macro investment capabilities,” BlackRock said in its statement. “Many of our multi-asset and single-asset class strategies combine top-down (macro) techniques with bottom-up (security level) capabilities and we believe macro factors can be important contributors to successful performance.”
At the end of the day, Blackrock's admission of defeat in the macro investment arena will be nothing but a drop in the bucket: the company oversees $4.5 trillion globally, though much of it is in low-fee exchange-traded funds. The firm this month cut fees on some ETFs to as low as 0.03 percent of assets. The hedge funds, while small by comparison, carry much higher fees -- in the case of the macro fund, a 2 percent management fee and 20 percent of profits.
But while the loss of Global Ascent will not impair Larry Fink's gargantuan year end bonus, other hedge fund managers, many of whom are suffering far greater losses than BlackRock, are fighting tooth and nail to avoid the same fate even though the S&P is trading about 3% below its all time high.
They will fail.