Some of the world’s most successful and influential hedge fund managers got their shirts handed to them in 2015. Luminous names in the industry such as Bill Ackman of Pershing Square Capital Management, David Einhorn of Greenlight Capital, Larry Robbins who founded Glenview Capital, and even John A. Paulson were several such investors, among many others. All of them are known for tremendous long-term investment returns, with Paulson being perhaps the most famous due to his bets against the housing bubble back before the financial crisis.
The missteps that contributed to this poor performance were highlighted recently in a New York Times article by Alexandra Stevenson and Matthew Goldstein, in which they write:
“Billionaire hedge fund managers, and many of their peers, will be under pressure to explain to their investors how they lost so much money this year. As the final performance figures for the industry come in, one thing is clear: 2015 could not have ended soon enough for many managers and their investors. Hedge fund managers like Mr. Einhorn, Mr. Ackman and Larry Robbins have stunned investors with the depth of their losses — in the double digits for some of their investment portfolios through early December.”
A wide variety of macroeconomic events hit the markets in 2015, causing a year of wild volatility with little end result. Through December 31, with dividends reinvested, both the S&P 500 index (large U.S. companies) and the MSCI EAFE index (large developed-country companies worldwide) were essentially flat, with a 1.4% and -0.4% return respectively.
The article goes on to explain why it was much worse for these high-profile investors:
“For many firms, it was a whipsaw year, where strong gains were made in the first half of 2015 only to be reversed over the last six months. Investors in Mr. Ackman’s Pershing Square will be familiar with the queasy feeling those wild swings produce. A year ago, Pershing Square posted one of its best years, generating a nearly 40 percent return. As late as the first week of August, the firm’s main fund was up about 11 percent for the year. Since then, it has been on a downward trajectory, and big, concentrated bets on Valeant and Platform Specialty Products have tumbled. As of Dec. 22, Pershing Square’s main public portfolio was down 19.5 percent for the year.
Other big losers in 2015 include Mr. Einhorn’s Greenlight Capital, which is down 20 percent, and Mr. Robbins’s Glenview Capital Management, which has lost 17 percent. The performance figures, through the end of November, were included in an HSBC report. And John A. Paulson, who made billions and a name for himself betting against the housing bubble, lost investors’ money in three funds through October.”
Next week, we will discuss what some of the key drivers of all this volatility in 2015 were in our Quarterly Market Newsletter.