Hedge fund star Louis Bacon founder of Moore Capital says he will be giving back a large sum of to investors.
Of course this is not an altruistic play as it is about the impact the euro zone crisis has had on traders as well as EU leaders’ inability to resolve it one way or another. In any event, Moore Capital plans to “go small” because Mr. Bacon believes 18 months of disappointing investment returns requires giving back profits to investors.
“The political involvement is so extreme — we have not seen this since the postwar era. What they are doing is trying to thwart natural market outcomes,” Mr. Bacon said.
The hedge fund titan made billions for himself and investors by placing big bets that allowed him to profit from financial crises. But he has been bitten by the never ending debt crisis in the EU because actions taken by politicians are shaping financial markets more than basic economic factors. “It is amazing how important the decision-making of one person, Angela Merkel, has become to world markets,” he said.
In short, Mr. Bacon is “retreating” for lack of a better term and intends to return about $2 billion or 25 percent of the main fund he manages to his investors. It is difficult to speculate about what other factors prompted this move, but it could also be a matter of risk management by way of risk aversion. As it is widely known risk management and risk transparency are essential to hedge fund managers.
Hedging strategies can result in sharp losses if managed poorly or if political and economic forces like what we are seeing in the euro zone impede a manager’s ability to make money. And it looks like making money in unpredictable markets based on what Fraul Merkel and ECB president Signor Draghi say and do has become a challenge for a high roller like Mr. Bacon. And this begs the question as to whether other fund managers and market makers will follow his lead.
