FT: Hedge Funds Win Big With Bets in Euro Crisis

Friday, 07 Oct 2011 12:00 AM

By Dan Weil

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Europe’s debt crisis and stagnant global economic growth have sent financial markets reeling, creating a hardship for many investors. But some hedge funds are making out just fine, thanks to bearish positions in a variety of markets.

“What has been driving performance is the flight-to-quality trade – also known as the risk-aversion trade,” Omar Kodmani, president of the Permal Group, which invests in hedge funds, tells the Financial Times.

“We’ve seen managers long U.S. Treasurys, long German bunds, and long the U.S. dollar.”

GLG’s Atlas Macro Fund, run by former Goldman Sachs luminary Driss Ben-Brahim and Jamil Baz, formerly of Pimco, has soared 16.6 percent over the past two months, according to investors. Brevan Howard’s primary fund gained 7 percent during that period, and the main fund of Caxton Associates rose 6 percent.

The MSCI world stock index has slid 7.5 percent during the two months.

Markets have suffered from “a profound loss of confidence in policymakers, institutions and the system at large,” Ben-Brahim and Baz say.

And Andrew Law, chief investment officer of Caxton, doesn’t see the scenario changing soon. “It’s difficult to see where growth is going to come from” in Europe and the United States, he tells the FT.

To be sure, most hedge funds are taking it on the chin. Bloomberg’s aggregate hedge-fund index dropped 3.2 percent in September, giving the funds their weakest performance in more than a year.

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