Hedge fund tycoons aren’t known for their shy, retiring manner. So it was that, when Zach Schreiber told investors eight months ago that the oil price was about to collapse, he declared: "If you are long, I’m sorry for you," before putting up a slide of a car full of clowns.
Being "long" on oil – in other words, having a bet that the price would rise – has proved the most disastrous trade since sub-prime mortgages. Schreiber’s hunch that he should bet on a fall in crude prices made his fund $1bn and counting.
The names of other big winners are now starting to emerge.
David Einhorn, the pro-poker player who runs the Greenlight Capital hedge fund, shorted oil after hearing Schreiber’s arguments, Bloomberg reported this week.
Word in Mayfair is that the chaps at Man Group’s AHL Diversified fund have been quietly making out like bandits on the collapsing price of crude.
Sandy Rattray, who took a double-first from Cambridge, has overseen a strategy there that’s pulled in hundreds of millions of dollars for the fund, largely due to the oil price plunge.
The ski fanatic (ex-Goldman Sachs, of course) would defer credit to the genius of AHL’s "black box" – a secret algorithm that triggers automatic trades according to trends in the markets. But these black boxes are still run by humans, albeit the highly intelligent nerdy type you find in the kitchen at parties.
The AHL black box took a short position on oil after spotting price patterns in the markets last summer. By October, the move had started making a killing. The Diversified fund, which benefited from a bunch of other market positions too, gained 34 per cent last year and is already up another 5 per cent in 2015.
Similar trend-spotting funds down Mayfair’s hedge fund alley have been hitting paydirt, too. Marshall Wace’s Eureka fund went short on oil ahead of the curve last year. In November alone it gained more than 3 per cent.
Another clear winner is BlueCrest, the hedge fund run by billionaire Michael Platt. The BlueTrend fund, recently spun out of BlueCrest, has jumped 7 per cent since the New Year, a performance largely thought to be due to its short bets on the oil price.
None of the companies would comment.
While the black box funds are brilliant at spotting patterns, drawing on the events of history – they can be pretty hopeless when homo sapiens like central bankers intervene.
So it was that many – including one of the BlueCrest funds – took a bath when the Swiss National Bank whipped away the franc’s cap on the euro last week.
Today’s action from the European Central Bank, albeit widely flagged, could see some of the hedge fund algorithms lose the plot.
For, as one hedgie explains: algorithms are great at spotting what should happen, but when it comes to predicting politics, humans win every time.Reuse content