Bill Gross’s assets under management halved in 2018. Bill Gross’s Janus Henderson Global Unconstrained Bond Fund finished the year with just under $1 billion in assets – less than half of the $2.24 billion from its peak in February.
The bond king’s Janus Henderson fund is the world’s largest fixed-income fund.
“Bill Gross’s assets under management halved in 2018”
But Bill Gross’s is not the only investor immune to challenging market conditions in a post central bank quantitative easing world. The investment cosmos is cluttered with falling star asset managers who have been unable to buck the trend of underperforming funds in 2018.
Nevertheless, there were a few bright sparks too with Ray Dalio’s Pure Alpha posting good performance gains of 14.6% in 2018 in the face of negative broad market performance.
Bill Gross’s assets under management halved in 2018 could be a symptom of tighter liquidity conditions
The Fed, the world’s central bank by default, transition of monetary policy from massive easing to normalization has resulted in less liquidity sloshing around the financial markets. Since the peak of QE, the Fed has reduced its balance sheet of assets to the tune of approximately $400B. This is known as quantitative tightening QT.
“The investment cosmos is cluttered with falling star asset managers who have been unable to buck the trend of underperforming funds in 2018”
So QT (the inverse of QE) is the very pin which is now deflating the asset bubble of everything. Put another way, QT is currently being implemented by the Fed to correct what some market watchers are reffering to as distorted financial markets and multi-asset bubbles which has been created by the Fed’s massive easing policy.
Perhaps then Bill Gross’s assets under management halved in 2018 is somewhat connected to QT’s tighter liquidity conditions.
QT’s impact is now in play. During 2018 the Fed reduced its balance sheet of assets, liquidity in the market tightened and asset prices fell.
Falling asset prices cause investors to flee risky assets. Investors have been pulling money from Bill Gross’s fund for 10 straight months as a leveraged bet that Treasury yields and German bund yields would converge went badly awry.
Bill Gross’s bad call cost his Janus Henderson Global Unconstrained Bond Fund dearly with his fixed income fund suffered some $60 million of redemptions in December.
“Hedge funds are taking redemptions from companies they should not be selling” – Brian Belski, chief investment strategist, BMO Capital Markets
Tighter liquidity conditions in the market, political instability in the EU bloc over Brexit, the rise of popular parties in Europe has triggered a wave of risk-averse investors and made investing tricky for even some of Wall Street titans.
The fact that Bill Gross’s assets under management halved last year is frankly no different to many other funds managed by star performers
Indeed, dismal returns in the hedge industry have led to $10.1 billion being yanked from hedge funds through October, according to an investment report.
Moreover, a mix of poor returns in December could mean that this trend of investors yanking funds from hedge funds could be just starting.
“It’s clearly a difficult time” said Peter Laurelli, global head of research at eVestment.
Although fresh capital added to the $3.2 trillion industry in the first half of 2018, continued volatility, weak returns and tighter liquidity have investors headed for the exit.
The underperformance of hedge funds could also be why Bill Gross’s assets under management halved along with his peers
The typical hedge fund lost 2.6 percent through October on average, while the S&P 500 gained 3 percent. But that data doesn’t account for a volatile November and the worse stock market performance in December since the Great Depression.
“Hedge funds are taking redemptions from companies they should not be selling” said Brian Belski, chief investment strategist at BMO Capital Markets.
There have been only three other years that money left the industry since 2004, eVestment noted, referring to 2008, 2009 and 2016.
“The [amount of] redemptions are a sign of a bit of disappointment” said a chief investment strategist.
“David Einhorn’s Greenlight Capital clocked the worse year
in the fund’s history”
Bill Gross’s assets under management halved in 2018, moreover a string of other hedge funds were hit by losses and redemptions during the same period
For example, David Einhorn’s Greenlight Capital clocked the worse year in the fund’s history. Widening losses at Greenlight Capital also triggered redemptions.
But David Einhorn’s compound losses also mirrors a string of iconic names in the hedge world.
Bill Ackman and Alan Howard are equally performing under par with posting years of returns that range from being either lackluster to downright awful.
With Bill Gross’s assets under management halved in 2018 is the worse over for the bond king investor?
Investors should not be too optimistic. The US-European spread remained fairly wide as of Friday, at approximately 2.5%.
Moreover, with the economic growth engine in Europe, Germany sputtering in the final half of the year that is likely to make the ECB reassess implementing rate hikes which would add further headwinds to the economy. Meanwhile, across the Atlantic, the Fed recently indicated that it would be ‘patient’ if the data demanded. Nevertheless, the Fed let participants know that it is still penciling in at least two hikes this year. So the view that the policy divergence trade might reemerge and push yields further apart, which would clock further losses for Bill Gross’s fixed income fund might not be too far-fetched, according to Zero Hedge.