Michael Hintze clocks huge losses as his flagship fund, which has almost halved this year, was hit by the 2020 stock market crash triggered by the coronavirus pandemic great global lockdowns and structural changes in the credit market. Billionaire investor, Michael Hintze blamed an “unimaginable” market crisis for approximately $1.4bn of losses suffered by his CQS hedge fund in just two months during this year’s coronavirus pandemic.
Michael Hintze, 66, who was born in China and raised in Australia, is a businessman, investor and founder of hedge fund company, CQS and has a net fortune estimated by the Sunday Times Rich List at £1.5bn. The former Goldman Sachs and Salomon Brothers trader was ranked No. 5 on Financial News’ FN100 Most Influential list in the hedge fund category.
“The former Goldman Sachs and Salomon Brothers trader was ranked No. 5 on Financial News’ FN100 Most Influential list in the hedge fund category”
THE WEALTH TRAINING COMPANY
Michael Hintze clocks huge losses were primarily blamed on loss making investments in structural credit which involves pooling similar debt obligations and selling off the resulting cash flows
So an example of structural credit is someone taking out a loan from a bank to buy a home and the mortgage agreement to pay becomes part of a securitization pool.
The billionaire recent letter to investors sheds light on Michael Hintze clocks huge losses in the first half of 2010
“The CQS Directional Opportunities fund’s 17.6 percent loss in April was mainly driven by positions in structured credit, which were also largely behind a 33 percent fall in March” wrote Michael Hintze.
The chance of “extreme stress” hitting different countries, sectors, and companies at the same time was “unimaginable until this unprecedented pandemic struck”, wrote Michael Hintze.
“The CQS Directional Opportunities fund’s 17.6 percent loss in April was mainly driven by positions in structured credit, which were also largely behind a 33 percent fall in March”
Michael Hintze’s letter to investors revealed that April’s losses were mainly driven by the “idiosyncratic widening” of some structured credit positions, with two defaults in energy positions
The fund also lost money on its credit index hedges and “pandemic-related hedges”, as well as distressed positions in the retail sector. Michael Hintze’s CQS invested in the riskiest slices of derivative products, the performance of which was hit by several bankruptcies such as Diamond Offshore Drilling and Whiting Petroleum.
Michael Hintze clocks huge losses when only in October of last year, 2019, just four months before the 2020 stock market crash the billionaire investor was quoted as saying, “I don’t think the world’s going to end. I’m still optimistic about the world”.
“There’s still growth in them hills: central banks are easing; China is still growing; Beijing’s $1.5 trillion-plus infrastructure program, the Belt & Road Initiative, is stimulating the global economy” said Michael Hintze. In June, his asset management company, CQS, bought an entire macro team for its office in Hong Kong.
“Michael Hintze’s recently revealed his large loss in April, a month in which many hedge funds made back some of the losses incurred in March’s turmoil as riskier markets rebounded” – The Wealth Training Company
Michael Hintze clocks huge losses underscores the risk of optimism bias in investing which causes investors to overpay for investments
Equally, pessimism bias can also be damaging to an investor’s portfolio. So it is better to see a situation the way it is and not the way your mind’s eye would like to see it.
Michael Hintze’s recently revealed his large loss in April, a month in which many hedge funds made back some of the losses incurred in March’s turmoil as riskier markets rebounded. But the rebound in the riskier market fell far short to cover the huge losses in March’s turmoil in risk assets.
So the performance of Michael Hintze’s fund, which trades a wide range of credit assets as well as equities and other instruments, is down more than 46 percent this year.
Michael Hintze clocks huge losses and so too did a string of other high-profile hedge fund investors in the industry
For example, Ray Dalio Bridgewater experiences AUM reduction to the tune of $25 billion. Bridgewater Pure Alpha II, the firm’s largest fund was down 20% through the first four months of this year.
The fund was hit by the coronavirus at “the worst possible moment” said Ray Dalio.
Moreover, on the other side of the market comeback was Stanley Druckenmiller who was humbled by the market comeback.
“cautiously optimistic” – Michael Hintze (on 2020 outlook)
Michael Hintze clocks huge losses and puts the fund on track for its worst annual loss since the billionaire investor launched the flagship fund back in 2005
Michael Hintze’s investment style is a multi-disciplinary approach that focuses on fundamental research, quantitative analysis, and proven investment expertise. He invests extensively in his risk management platform, operational infrastructure, and margin and liability management framework to mitigate risks, according to the flagship fund’s website.
Michael Hintze’s fund performance has had its ebbs and flows
Back in September 2017, the company reported profits of $160.4m on revenues of $310.8m. On the back of those profits, Michael Hintze’s management and performance fees increased during the year.
The previous year before that, 2016 Michael Hintze’s flagship fund also posted a profit of $119.6m on revenues of $244.7m. In 2018 the fund loss among to 3.2% but 2019
Michael Hintze’s flagship fund enjoyed a sharp bounce in profits with the firm’s flagship Directional Opportunities fund, managed by Hintze, up 11.3% in the year to the end of October, according to a person familiar with the situation.
Michael Hintze is known for his zestful risk-on investment approach which has often generated large gains. As noted above, Michael Hintze was “cautiously optimistic” for 2020. But that bullishness cost him as risk-on assets started to sell-off and tumble on signs the virus was spreading throughout Europe.
Michael Hintze clocks huge losses in the first half of 2020, nevertheless, the billionaire investor remains optimistic
In his letter to investors, he believes the environment could provide “many opportunities” and that cutting some positions “put us in a better position to reposition risk later this year”.
Michael Hintze’s fund CQS, earlier this year was managing around $20bn.