Prophets and profiteers

FOUR out of five hedge-fund managers had expected Britain to vote to remain in the European Union, according to a poll by Preqin, a data firm. But a handful saw Brexit coming and invested accordingly. They made hundreds of millions by betting against assets that were likely to suffer from an Out vote. Crispin Odey’s London-based fund, which manages around $10 billion and has had a terrible year, jumped nearly 15% on the day after the vote. That was thanks to short positions on the shares of a number of British firms (including Aberdeen, an asset manager, and Berkeley Group, a builder) and a big investment in gold. Others, such as Atlantic Investment Management, prospered by betting against sterling, which fell this week to its lowest value against the dollar since 1985.

Another successful approach was to do what hedge funds were originally set up to do: hedge (not many do these days). “Did we see it coming? No,” admits Lukas Daalder of Robeco, a Dutch asset manager, who says he was able to limit damage by recognising the vote was too close to call. He tried to surprise-proof his portfolio by betting that sterling would fall against the dollar and by investing in so-called “flattener trades” (in his case, offsetting bets on 30-year bonds and ten-year ones).

Many of the funds that rely on quantitative models or automatic trading seemed to perform better than those at which humans were in charge. The NuWave Matrix Fund, whose trades are based on historical market patterns, surged by around 12% on Friday. Some funds simply did well because they always do well in volatile times. Quadratic Capital Management’s unusual strategy of investing almost exclusively in options means that it makes money during upheaval because the price of options increases with volatility. And then there was a tried-and-tested approach to uncertainty: sit it out and look for buying opportunities in the aftermath. Michael Hintze of CQS, another asset manager, had advised those without a view on the outcome of the vote to raise cash and be ready to buy.