8 hedge funds that made a killing by betting against the world economy last year as stocks and bonds plummeted
The best performing traders forecast steep interest-rate increases and bet against struggling currencies and government bonds.
For most investors, 2022 was a year of adversity that saw stocks, bonds and cryptocurrencies all tumble in a brutal cross-asset bear market as inflation and interest rates surged.But there are those who did exceptionally well amid the turbulence. Hedge fund managers including Said Haidar, Crispin Odey and Neal Berger seized the opportunity created by Federal Reserve's monetary tightening and soaring market volatility to deliver triple-digit returns for their investors.Global macro funds, which invest based on economic models and forecasts, tended to perform best in 2022 — in particular, those that were able to predict a global slump towards a recession.Alongside the staggering returns achieved by some global macro investors, high-profile hedge funds such as Ken Griffin's Citadel and Alan Howard's Brevan Howard achieved solid gains in a year where the benchmark S&P 500 stock market index plunged 19%. Triple-digit returnsSaid Haidar's flagship global macro Haidar Jupiter fund surged 195% last year by betting on steep interest-rate increases, according to data from Refinitiv.The Fed raised benchmark borrowing costs from near zero to around 4.5% last year in a bid to tame soaring inflation.
That was the US central bank's most aggressive monetary tightening campaign since the early 1980s, and the sheer pace at which rates rose caught many investors by surprise."For the last year, investors have been prematurely anticipating an early end to central bank rate hikes, followed by rate cuts almost immediately thereafter," Haidar wrote in a letter to investors in September. "But as inflation globally has proven stickier than originally thought, central banks have become more forceful in countering this narrative."Haidar used leveraged interest rates trading to generate near-200% returns for his investors, according to Bloomberg. His fund wagered that the Fed would press ahead with jumbo rate hikes, despite markets' hope that it would pause or pivot away from its tightening campaign.
Crispin Odey's Odey European Inc fund also bet on steep rates rises – and capitalized on the political and economic chaos that rocked UK markets in September and October. The fund returned 130% in 2022, per Refinitiv data.Odey's fund generated eye-popping returns shorting the British pound and long-term gilts, or UK government bonds ahead of former prime minister Liz Truss's tax cut proposals. Truss's wildly unpopular plan led to the pound plummeting to an all-time low against the US dollar and 30-year gilt yields spiking to nearly 5%.Veteran trader Neal Berger's Contrarian Macro Fund also scored major returns with a 163% surge in 2022, according to a report from Bloomberg.
Like Haidar, Berger bet that aggressive Fed rate hikes would swiftly end the era of cheap money and pop the 'everything bubble' that had caused asset prices to soar in 2021."The reason why I started the fund was that central bank flows were going to change 180 degrees. That key difference would be a headwind on all asset prices," he said in a Bloomberg interview this week. "One had to believe that the prices we saw were, to use the academic term, wackadoodle." Steadier gainsOther global macro hedge funds also finished 2022 in the green by positioning their portfolios to take advantage of the economic slowdown.While lagging behind Haidar and Odey's staggering returns, several high-profile names delivered double-digit gains for their investors in a year when the traditional 60/40 portfolio fell 21% and the average hedge fund lost 9%, according to Bloomberg.Alan Howard's hedge fund Brevan Howard was up 18% last year, per Bloomberg data.
Howard's former business partner Chris Rokos left the firm to launch his own fund in 2015 – and Rokos Capital Management enjoyed a similarly strong 2022, advancing 45%.Some hedge funds also delivered returns by pursuing strategies other than global macro investing last year. Citadel's flagship Wellington fund had racked up 31% gains as of November, according to Bloomberg. Investing legend Griffin tends to concentrate on actively managing a fluid portfolio of currencies, bonds, and commodities."You can come in to work one day, find that you're long on a bunch of 10-year bonds; two weeks later, you're short a bunch of 10-year bonds," he told CNBC in September.Elsewhere, flagship funds run by D.E.
Shaw and Millennium Management advanced 23% and 10% in the first 11 months of the year, per Bloomberg data.Read more: 'Everything is going down': A hedge fund manager who returned 163% in 2022 says stock-market pain is only beginning