Balyasny gains in first half after losses prompted reorganization in 2018

BOSTON (Reuters) - Balyasny Asset Management, a Chicago-based hedge fund that shed $4 billion in assets last year and cut 20% of its staff, was back in positive territory for the first half of this year, suggesting its massive overhaul might be paying off, analysts said.

FILE PHOTO: Dmitry Balyasny, Managing Partner and Chief Investment Officer, Balyasny Asset Management, speaks at the Milken Institute's 21st Global Conference in Beverly Hills, California, U.S. May 1, 2018. REUTERS/Lucy Nicholson/File Photo

In the January through June period, the firm returned 8% and cleared its high-water mark, the hurdle required to start charging performance fees again. The firm, whose assets totaled $6 billion at the end of June, employs many teams that invest in a variety of strategies and hired three top executives to shift course during the painful 2018.

“We are pleased with the quality of returns,” Dmitry Balyasny, who founded the firm in 2001, told Reuters in an interview. Balyasny said last week that teams that bet on and against stocks, currencies and interest rates in all markets around the globe have been performing well.

Long before a late 2018 stock market drop left many hedge funds with losses for the year, Balyasny’s returns had been sagging, prompting investors to worry and want out.

By the end of December, losses at the firm had swelled to 7%, saddling Balyasny Asset Management with its first loss in 18 years.

It was a shock for investors who had watched it return an average 12% a year and make money during the financial crisis in 2008. Strong returns helped the firm grow quickly and become a household name among multi-manager firms, along with Citadel, Millennium Management and Point72 Asset Management.

For Dmitry Balyasny, 47, the path back to gains included laying off dozens of staff and bringing in several new top executives last year to oversee equities, macro investing and risk management.

Following last year’s cuts, there has been hiring this year and 14 new portfolio managers and 55 analysts have joined.

Still, the memory of 2018 is painful for the fund manager. “It is no fun to work at a place if you are not winning,” Balyasny said, adding, “We weren’t happy with performance and we needed to make changes.”

Balyasny hired Jeffrey Runnfeldt, an industry veteran who most recently worked for Chicago-headquartered Citadel, to oversee global equities. In London, Tim Wilkinson, who had also worked for Citadel, joined to build out the firm’s macro investing team. And Alex Lurye, another former Citadel executive, joined as chief risk officer in Chicago.

Balyasny, the fund manager, acknowledges that Balyasny the firm grew too quickly, managing $13 billion at its peak in 2017. Over the years a lot of money rushed in. As it rushed out, Balyasny became more careful about its investors and stopped accepting new capital three years ago.

“I believe that our collaborative culture helped us get through a tough period, drives returns and continues to attract talent,” Balyasny said.

Investors applauded last year’s reorganization and said the firm is clearly able to hire staff, one of the most critical indications of success in the competitive hedge fund industry.

“The firm is being right-sized and it has a good culture,” said David Holmgren, chief investment officer of Hartford HealthCare, a hospital fund with $3.3 billion in assets. “A rose can’t continually bloom unless it is pruned.”

The trio of new executives, investors said, will be helpful in shaping the firm’s culture and allow Balyasny, the fund manager, more time to focus on other things. “It should be a smoother ride now,” said an investor who was not permitted to speak on the record about his firm’s investments.

Reporting by Svea Herbst-Bayliss in Boston; Editing by Matthew Lewis