Robert Citrone’s Discovery Capital Management and Guillaume Fonkenell’s Pharo Management were among the big-name hedge funds that suffered losses during last month’s tumble in emerging markets.
Worries about the US-China trade war and the health of the global economy, as well as a debt crisis in Argentina triggered by President Mauricio Macri’s shock primary election defeat, helped drive a sharp sell-off in EM assets during August as investors ran for cover.
EM stocks and bonds experienced their worst outflows since November 2016, the month of US President Trump’s election win, according to data from the Institute of International Finance. The MSCI Emerging Markets equities index, for instance, fell 5 per cent during August.
Connecticut-based Discovery — which runs roughly $3.8bn in assets and which was founded by Mr Citrone, an alumnus of Julian Robertson’s Tiger Management — lost 7.6 per cent in August, according to people who had seen the fund’s returns. That takes the performance of the fund, which bets on EMs, to a 6 per cent loss this year.
Meanwhile, London-based emerging markets specialist Pharo Management, which manages around $10bn in assets, saw its gains for the year cut after a tough August.
The firm’s $4.7bn Gaia fund lost 5.5 per cent in August, said people who had seen the numbers, reducing gains this year to about 5 per cent.
Its $4.8bn Macro fund lost 4 per cent, taking this year’s gains to about 4 per cent. The funds’ losses were driven in part by exposure to Argentina, said a person familiar with their positioning.
Discovery and Pharo both declined to comment on their performance.
Despite the sell-off, the MSCI Emerging Markets index is still up nearly 6 per cent for the year, although that is well short of the double-digit gains in major developed markets.
The emerging markets index made strong gains in the first quarter, and was up close to 13 per cent by mid-April, before losing ground as the US-China trade dispute intensified.
Some hedge funds managed to avoid the worst of the Argentina losses by reducing their positions ahead of the August poll. Light Sky Macro — run by Brevan Howard alumnus Ben Melkman — and London-based Algebris Investments were among those who had pared back their exposure to the country before the primary vote.
Macro hedge funds as a whole made an average of 4 per cent in August, according to data group HFR. EM hedge funds, meanwhile, shed 2.8 per cent, with losses falling most heavily among Indian and Latin America funds. EM funds are still up 5.7 per cent for the year.
Get alerts on Emerging market investing when a new story is published