BOSTON/NEW YORK (Reuters) - May’s stock market rout dealt a blow to many on Wall Street including several big hedge fund stars whose bets on prominent U.S. companies looked badly timed.
Even William Ackman and Daniel Loeb, two of the $2 trillion industry’s most respected players, failed to escape last month’s sharp sell-off and finished May in the red.
Ackman’s Pershing Square Capital Management lost 7 percent, dropping more than the Standard & Poor’s 500 index’s 6 percent decline. Loeb’s Third Point Partners dipped 2.6 percent, while the Third Point Ultra fund fell even more. Both managers are still in the black for the year, however.
The news was much worse at some other hedge funds. Whitney Tilson, Ackman’s college friend who has often invested in similar stocks, reported a 13.6 percent drop in his T2 Partners in May, acknowledging that most of his stock picks “got clobbered.” His fund is still up for 2012, though, beating the Standard & Poor’s 500 index’s 5.2 percent gain.
Even Vladimir Efros, whose persistently strong returns at Abundance Partners earned him high praise from Institutional Investor as one of the industry’s up-and-coming stars, stumbled badly in May. Last month’s 10.65 percent loss leaves his fund off 21.19 percent.
Like others, Efros said he was seduced by facts and figures that seemed to point to an upswing. “As our long term investors know, we have often been bearish on stocks,” Efros wrote to investors, adding “Recently, however, we felt that the macro environment had become more supportive of U.S. stock prices.”
Investors across financial markets have reacted with increasing alarm at the drumbeat of bad news from the United States to China in the face of contagion fears from Europe’s debt crisis.
When sentiment soured in May and investors worried anew about world economies, big name stocks were hurt. Pershing Square was hit hard when retailer J.C. Penney Co Inc, one of its biggest holdings, tumbled 27.3 percent.
Other large holdings at Pershing Square also lost money, including investments in Canadian Pacific Railway, where Ackman last month won a dramatic battle to remake the country’s second-biggest railroad, and real estate development and management company Howard Hughes Corp. Spirits company Beam Inc, another holding company, made money for Pershing Square.
Meanwhile, the Dow Jones Credit Suisse Core Hedge Fund Index fell 1.5 percent in May.
Meanwhile, John Paulson, who is struggling for a second consecutive year after losing 50 percent in one big fund in 2011, turned in a mixed performance. His gold fund tumbled 12.7 percent in May and is now off 22.5 percent for the year. But his credit fund rose 0.93 percent in May, and is up 5.26 percent for the year.
Meanwhile, losses in the closely-watched Paulson Advantage Plus fund were limited to only 0.6 percent. For the year, the fund is off 10 percent.
Other Paulson funds recorded losses in May but still managed to keep returns in positive territory for the year. The Enhanced fund lost 1.3 percent last month and is up 10.7 percent for the year. The Recovery fund lost 2 percent for the month, and has returned over 5 percent for the year. The firm’s merger arbitrage fund is up 5.2 percent for the year after losing 0.7 percent in May.
There were some prominent winners during the month, including people who expected bad news and profited when it came as they expected.
John Burbank’s Passport Capital is up 20 percent for the year, thanks largely because he has never been more short, one investor familiar with his thinking said.
Tiger Global Management’s Chase Coleman, one of the industry’s best performers last year, gained 2.5 percent in May, an investor said. His spokeswoman declined to comment. The $4.6 billion managed futures firm QIM saw its flagship Global fund rise more than 7 percent last month. The firm declined to comment on its performance.
Some tail risk funds, which aim to protect investors from shock market events, recorded big wins last month when global markets sank. Boaz Weinstein’s Saba Capital saw his tail risk fund surge by 20 percent in May, though one investor said the fund is now flat for the year.
The $7.8 billion asset manager Pine River Capital Management’s tail hedge fund gained 10.8 percent, according to someone familiar with the number. Pine River declined to comment.
Reporting By Svea Herbst-Bayliss and Katya Wachtel; Editing by Gerald E. McCormick, M.D. Golan and David Gregoro