Some hedge funds reportedly stand to profit as the market rally that followed the election of President Donald Trump hits some rough spots.
A number of hedge-fund managers “have grown concerned that central bank stimulus has pushed stock prices too high, and that prices remain elevated despite a recent correction. That leaves stocks vulnerable to political risks” in Europe, such as Brexit or elections across Europe, or rising U.S. interest rates, the Wall Street Journal reported.
“Financial assets are in a bubble that has been inflated by central banks,” wrote Tim Bond and Dipankar Shewaram, fund managers at London-based Odey Asset Management, which runs $6.8 billion in assets, in a recent letter to investors reviewed by the Journal.
Their fund “has large bets on falling European and U.K. stocks, with a particularly large position on a selloff” in North America, according to the letter. The fund’s bet against North American stocks is twice as big as the bet against U.K. stocks. The managers are also betting on falling government bond prices. Shewaram told the Journal the fund had been positioned for both falling stock and bond prices since late last year.
“Each episode of ignoring bubbles has ended badly, with investors taking large losses and the economy in recession,” the managers wrote.
To be sure, hedge funds have critics of their own.
New York City's largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees, Reuters
The board of the New York City Employees Retirement System (NYCERS) voted to leave blue chip firms such as Brevan Howard and D.E. Shaw after their consultants said they can reach their targeted investment returns with less risky funds.
The move by the fund, which had $51.2 billion in assets as of Jan. 31, follows a similar actions by the California Public Employees' Retirement System (Calpers), the nation's largest public pension fund, and public pensions in Illinois, Reuters reported.
"Hedges have underperformed, costing us millions," New York City's Public Advocate Letitia James told board members in prepared remarks. "Let them sell their summer homes and jets, and return those fees to their investors."
(Newsmax wire services contributed to this report).
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