Rokos and Goldman Sachs hit in bond market upheaval

Billionaire trader Chris Rokos and Goldman Sachs are among big-name investors that have been hit hard in the market upheaval following the collapse of Silicon Valley Bank.

Bond prices rocketed in highly volatile trading at the start of this week, when SVB’s demise sparked a flight to safety and led investors to question how much further the US Federal Reserve can lift interest rates. That caught many traders off guard, and collided directly with hedge fund strategies that had profited handsomely in 2022 from betting on further aggressive monetary tightening.

The pain has affected a clutch of the best-known speculative investors in the market.

London-based Rokos, which manages around $15.5bn, is down around 12.5 per cent this month, said people who had seen the numbers.

At Goldman, a trading desk that handles interest-rate products lost around $200mn, according to people familiar with the matter. Goldman declined to comment.

BlueCrest Capital, bond trader Mike Platt’s investment firm, which made 153 per cent last year thanks in part to bets on rising interest rates, has also lost money, say people familiar with the firm. It is down around 7 per cent this year.

And Andrew Law’s Caxton Macro fund lost around 3 per cent this month.

“What’s hurt a lot of people in macro [bets on global bonds and currency moves] is that everyone was positioned for rates rising,” said one insider in the hedge fund industry. But on Monday, the market moved violently the other way. With prices soaring, the yield on the two-year Treasury note fell at its fastest pace since 1987. Some funds raced to unwind their positions, further fuelling the bond rally.

The “erratic prices action” led to “many investors triggering stop losses on short positions”, said Mark Dowding, chief investment officer at RBC BlueBay.

Macro hedge funds lost 2.15 per cent on average on Monday alone, according to data group HFR, the biggest daily loss since the market turbulence of late 2018. A regular social gathering of hedge fund managers and other investors in London on Thursday night had a “sombre”, wake-like tone, people familiar with the matter said, in contrast to a victorious atmosphere after spectacular returns in 2022.

Rokos hit the headlines in late 2021 when he was wrongfooted by a big sell-off in short-term government debt, as investors panicked that interest rates would have to rise faster than central banks had initially indicated. His fund finished the year down around 26.6 per cent, its worst year since launch in 2015.

He subsequently reduced substantially the market risk he was taking in the fund to try to avoid a repeat of the losses. Last year he made more than 50 per cent, his fund’s best year.

Many computer-driven funds, which latch on to market trends and which had long been betting that the large rally Treasury yields would continue, also lost money.

The Schroder Gaia Bluetrend fund, run by Leda Braga’s Systematica, fell by 10 per cent this month to the end of trading on Monday, according to numbers sent to investors, taking losses this year to about 11.5 per cent.

Among other computer-driven funds losing money, Man Group, one of the world’s biggest hedge fund firms, lost 10.6 per cent in its $5.4bn Evolution fund this month and 7.1 per cent in its $5.9bn Dimension fund.

And Rotterdam-based Transtrend, which manages $5.6bn, lost 9.6 per cent on Monday.

Just over half its losses came from bond bets, although losses were within its risk tolerances, said a spokesman, and the fund has stuck with its short positions in US bonds.

Such quant funds are down on average by around 6 per cent this month, according to a Société Générale index of these portfolios.

However, a few hedge funds have been able to profit during the market turmoil, particularly those betting against bank stocks.

Barry Norris, chief investment officer at Argonaut Capital, profited by shorting SVB and has also been betting against Credit Suisse for several weeks, helping his fund to gain 4.5 per cent this month.

The Swiss bank’s shares, which are now down by more than one-third this year, fell sharply after the chair of Saudi National Bank ruled out further investment. On Friday the shares fell further, despite the pledge of liquidity support from the Swiss National Bank.

Short interest in Credit Suisse was running at just 3.2 per cent of its shares outstanding at the start of the week, according to S&P Global Market Intelligence. But short positions have shot up to 8.2 per cent as of Thursday, as concerns have grown about the lender.

“The problem with Credit Suisse is that it was already suffering from deposit flight,” said Norris. “If you can’t stop the deposit flight then the only way out is to be taken over by a bigger bank.”