A number of hedge funds that posted sizable losses last year are among the top performers this year, generating double-digit returns.
Even so, several of them have not rebounded enough to reach their high-water marks. In this increasingly less forgiving hedge fund environment, there is enormous pressure on loss-plagued funds to get back to even by the end of the year.
Otherwise, these funds are likely to face a surge in redemptions.
The hedge fund firms that manage the funds also could have trouble retaining top talent unless their top executives dip into their own pockets to pay bonuses if performance winds up down or flat for the year.
At least one fund has managed to stage a dramatic turnaround and is one of the only ones with more than $1 billion under management to exceed its high-water mark after suffering sizable losses last year.
CQS Directional Opportunities Fund posted a 2.9 percent gain in May and is now up 14.8 percent for the year. Last year it lost 8 percent.
London-based hedge fund firm CQS, which stands for “convertible and quantitative strategies,” says the fund has a directional multistrategy strategy.
The fund has made money this year in structured credit, distressed securities, convertibles and volatility strategies.
The CQS flagship fund, headed by math whiz Michael Hintze, has posted a 16.17 percent annualized return since its 2005 inception.
The firm’s CQS Diversified Fund is up 4.12 percent through May, after losing just 2.6 percent last year. The firm describes it as a balanced multistrategy fund.
Meanwhile, the Brigade Leveraged Capital Structures Fund is up 12 percent this year through May after losing about 11 percent last year. As a result, it is closing in on its high-water mark.
The fund is managed by New York–based Brigade Capital Management, a credit specialist founded in 2006 by Donald E. Morgan III and Patrick W. Kelly.
Several other funds that suffered large losses last year are also up by double digits this year. Even so, they have not yet returned to their high-water mark.
For example, the ECF Value Fund International was up an impressive 14.25 percent through May. However, it is still battling hard to overcome its loss of more than 20 percent last year.
ECF Value was launched in 1996 by Jeffrey Gates when he founded New York–based Gates Capital Management. It is a value-oriented event-driven fund.
Gates’s background is in high-yield bond sales and research. From 1990 to 1996 he was a high-yield salesman and from 1995 a director at Swiss private bank Schroder & Co. Earlier he was a junk bond analyst at Schroder.
On its website, Gates says it makes debt and equity investments “based on specific screening of corporate dislocation events, with a focus on cash-flow generation and sustainable value creation.”
Another hedge fund up double digits after posting a sharp loss last year is the Mudrick Distressed Opportunity Fund headed by Jason Mudrick.
The fund was up about 13 percent through May after losing nearly 26 percent last year.
The fund’s management firm, New York–based Mudrick Capital Management, specializes in long and short investments in distressed credit.
The most dramatic swing among the funds is being experienced by the Dorset Energy Fund, which has only a little more than $100 million under management.
The fund, managed by Syosset, New York–based Dorset Management Corp., is up about 50 percent this year. However, it still has a long way to go to get back to break-even. It lost 44 percent last year and 27 percent in 2014.
