Some would call it a classic death spiral. Just days after it was revealed that as a result of a $2.1 billion surge in redemption requests, would terminate some 15% of his workforce, Bloomberg reports that the legendary macro trader has boosted the amount of money he’s managing, including borrowed capital, to more than 50 percent of his main hedge fund’s net assets, and is also demanding that all his managers take more risk in their bets, according to an August 16 investor letter.
“We have to think outside the box,” Jones, 61, said in the letter. “I firmly believe the changes we have made put us in a position to be successful even in this desultory macro environment.”
Confirming just how difficult it is for conventional strategies to generate profits, in the letter PTJ also says that his remaining managers will be given more money to run, and that some have been paired with scientists and mathematicians to bring new analytical rigor to their trading as part of a quantitative revamp of the firm.
Jones, who started out as a cotton trader before founding his firm, said his firm must have money managers who can adapt to today’s zero-interest rate environment, which he expects to continue. The firm is imposing minimum levels of risk that its traders must take to remain in its manager lineup.
Tudor, which Jones founded in 1980, has joined the recent funk that all other comparable macro hedge funds find themselves in, courtesy of central planning and central bank intervention across all asset classes. One of Tudor’s biggest competitors, Brevan Howard, has had an even more difficult time in recent years, with the firm’s assets cut by more than half in the past two years, from around $42 billion to $19.4 billion, as its underperformance has likewise spurred a flood of redemptions.
Tudor’s main, BVI, fund produced an average annual gain of about 26 percent from 1987 through 2007, which dropped to about 5.3% from 2008 through last year. Its main fund lost 2.3% this year through mid-August, according to the letter.
On Tuesday, Tudor dismissed employees ranging from money managers to support staff. Jones said in the letter that the cuts reflected Tudor’s priority to focus on macro and equity-trading.
Jones said the firm implemented a new process, which it described as a chief investment officer tool, to replicate trades of its best managers by using futures contracts and foreign-exchange securities. He expects to scale up the allocation over the next six months. As Bloomberg adds, Tudor also created a role for one of its partner-level money managers in London as head of discretionary trading technology. He and his team will seek to develop a better set of quantitative analytical tools to help money managers.
Will the scramble to boost returns work? Who knows: after all, one can argue that the only reason PMs have not allocated more funds to trades is due to lack of confidence. That won’t change, the only thing that will is the amount of capital at risk, which all else equal, virtually assures even greater losses. Then again this is the PTJ, the man who inspired countless hedge fund managers to do what they do.
It would be a sad ending to a legendary career if Jones comes out fighting (or not as the case may be) central banks, and loses.
The post Paul Tudor Jones, Facing Redemption Flood, Imposes Minimum Risk Levels, Demands His Traders Take More Risk appeared first on crude-oil.top.