December’s Stock Market Rout Wrecks Hedge Funds

In 2018, the U.S. stock market suffered its worst December since the Great Depression. Resulting in many investment firms and investors ending the year with uncertainty and increased caution. Some causes are related to rising interest rates in the home purchasing sector that’s lead to less potential home buyers looking to get a mortgage.

On the other hand, most of this uncertainty is because of the same reason that December’s stock market outcome was so ruinous. The decreasing growth as the trade war between the U.S and China continues.

Though once considered a passing concern by some investors, the political issues resulted in the S&P 500’s total return falling negative 9% and the Dow Jones Industrial falling almost 10%.

They weren’t the only ones in the market who were affected. The hedge fund industry saw a 4% annual lost, their biggest one since 2011. Hedge funds use money borrowed from investors to maximize return and minimize risk by using aggressively risky methods of investing.

Though they’re normally unaffected by market activity, whether good or bad, the recent political concerns have brought complications to their usually neutral stance. Besides the industry as a whole, hedge fund activists also experienced great loss.

One of the most prominent activists who took substantial damage in December was David Einhorn. His firm, Greenlight Capital, which is over 20 years old and focuses on value-investing main hedge fund fell 9%. Resulting in Greenlight Capital finishing the year off with a total annual decline of 34% and Einhorn’s firm having its worst year ever.

This monumental loss partially comes from General Motors, Brighthouse Financial, and Green Brick Partners, Greenlight’s biggest holdings, all experiencing hardships in 2018.

William Ackman’s Pershing Square Holdings also performed poorly. The firm sank 10.8% in December and finished the year off with a negative 0.7% return.

Another activist who didn’t fair well is Barry Rosenstein, manager of JANA Partners. JANA Partners fell 10% in December and ended 2018 with an 8.1% loss. JANA Partners is an event-driven investment firm that invests in companies who are about to or have undergone a change.

Not all activists have released their annual returns, but the ones who have, show that on average, some hedge funds had a considerable loss, others remained stagnant, and few sailed by December’s stock market rout in great shape.

Sahm Adrangi, activist and manager of Kerrisdale Capital, finished the year off on a high note with more than a 37% gain. The value-oriented investment firm focuses on research coverage for both long and short investments. Adrangi’s research is geared toward helping businesses with their misunderstood market views revolving under-followed longs and overhyped shorts.

Activist J. Daniels, manager of Voce Capital also had good results, ending the year with a 6% gain. Voce Capital is also a value-oriented investment firm that bases its investment decisions on extensive fundamental research.

Robert Mercer, manager of Renaissance Technologies saw an 8.5% gain. Renaissance Technologies is a quantitative investment firm that uses only mathematical and statistical methods to see outstanding returns for their partners.