Daniel Gold’s QVT Onshore, managed by his New York-based hedge fund firm, QVT Financial, took a beating in the first half of October — and the manager is plenty mad about it.
In a letter fired off to clients and dated October 17, the onetime Deutsche Bank trader points out that the fund lost 3.23 percent this month through October 15, expanding a slight loss to a 3.45 percent decline for the year.
“There’s no getting around it — our performance this month is worse than it should have been,” Gold writes in the letter, obtained by Alpha. However, it is a footnote in small print that must have made clients read the letter a second and third time.
In the letter, Gold seems especially irked by the fund’s two-week performance, given its positioning entering the month. He asserts that the fund should have lost closer to 83 basis points. “We believe the reasons for the underperformance are two-fold,” Gold adds. He says his longs “cheapened excessively,” while his shorts “outperformed irrationally.”
He then goes on to analyze what contributed to the loss, noting that two idiosyncratic events unrelated to the market sell-off played out “coincidentally” at the same time — a 50 basis point loss (or 0.5 percent) from Fannie Mae and Freddie Mac preferred shares and a 45 basis point loss from biotech company Arrowhead Research Corp. “due to a specific event.”
Gold then drills down through the loss, subtracting these two “idiosyncratic events” to net out his underperformance to his beta position to 139 basis points. He then subtracts another 69 points to account for a macro position he notes he earlier pledged to liquidate.
Gold, however, emphasizes in the letter that he is not trying to make excuses for the performance. “The point of telling you this is not to tell you how much better our return would have been if nothing bad had happened,” he writes, but rather to illustrate that the “vast majority of the portfolio” is performing better than the official 15-day loss.
But just to make absolutely clear that he is not letting himself off the hook, Gold adds a footnote to this line in the letter. And what does the footnote say? Ready?
“As I like to say to analysts protesting that their losing investment would have made money if some impossible-to-foresee thing hadn’t happened: ‘. . . and if my grandma had balls, she’d be my grandpa.’ (The point being, it happened, and she doesn’t.)”
Well, give him credit for not blaming his woes entirely on the markets, I guess.
In any case, Gold, whose firm was running $4.2 billion at the beginning of this year, is poised to post his second straight year of lousy performance. Last year the fund returned about 1.4 percent in a year when the S&P 500 rose more than 30 percent.
Of course, if he had not bought the stocks that didn’t do well . . .
