Fortress hedge fund bets yen slide has further to run

LONDON, March 20 Wed Mar 20, 2013 5:12am EDT

LONDON, March 20 (Reuters) - The flagship hedge fund of Fortress Investment Group is betting on a further slide in the Japanese yen, predicting the new central bank governor in Tokyo will step-up the pace of monetary policy easing.

The $3.2 billion fund has proved one of the most successful macro funds - funds which bet on big shifts in the global economy and which are among the best-known in the industry - returning almost 18 percent last year when many top names shied away from bold bets and struggled to make money.

Wagering against the yen has proved profitable for many hedge funds already this year, but Fortress believes the trade has further to run.

"We expect an expansion in the size, pace and duration of JGB (Japanese government bond) purchases to be announced in April in the context of the BoJ's (Bank of Japan's) current open-ended asset purchase program, with the new purchases starting immediately," fund managers Michael Novogratz and Adam Levinson wrote in an investor letter seen by Reuters.

The nomination of Haruhiko Kuroda as governor of the Bank of Japan has fuelled expectations of decisive monetary action to combat stubborn deflation and to kickstart the sluggish Japanese economy. Kuroda assumes the post on Wednesday.

With the yen down more than 15 percent against the U.S. dollar since early December, the trade is already one of the biggest winners for funds in the past few years.

The Fortress Macro fund gained 2.1 percent in Feb. and is up 4.5 percent in the first two months of the year, according to the letter, dated March 15. Fortress runs around $3.5 billion across its liquid macro strategies.

In the letter, Novogratz and Levinson said they expect Kuroda will commit to achieving a new 2 percent inflation target over a 2-year period, requiring more aggressive monetary policy - and likely weakening of the yen - which the G7 group of leading economies have "effectively endorsed".

Gains from trading the yen mark a reversal of fortune for many macro funds, which count industry titans George Soros, Paul Tudor Jones and Louis Bacon among their peers, after many failed to make money during the euro zone debt crisis.

Following two losing years on the bounce, the average macro fund is up 0.9 percent in 2013, although that is still below the average fund's 2.8 percent rise, Hedge Fund Research data shows.

Novogratz and Levinson also profited from commodity, stock and interest rate trading in Feb. but lost money betting on a rise in the Indian rupee. They said the economic backdrop remained positive for assets despite several risks, not least the fatigue in Europe over cuts to public spending.

Founded in 1998, New York-based Fortress is one of a handful of publicly traded managers of hedge, credit, and private equity funds. It manages $53.4 billion in assets.

Last year its Macro fund rose 17.8 percent, recovering from a 9.3 percent drop in 2011. Fortress declined to comment.

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