UK hedge funds gain from bets on sterling

UK hedge funds gain from bets on sterling
By Sam Jones, Hedge Fund Correspondent
Copyright The Financial Times Limited 2010
Published: March 26 2010 23:00 | Last updated: March 26 2010 23:00
http://www.ft.com/cms/s/0/94e1a24c-3917-11df-8970-00144feabdc0.html


Some of the UK’s biggest hedge funds have made hundreds of millions of pounds by betting on a decline in the value of sterling this year in trades that suggest rising expectations of further falls over the next few months.

Flagship funds of Man Group, Winton Capital and BlueCrest have profited from big positions speculating on the drop in sterling, which has come under pressure over worries over the UK national debt, electoral uncertainty and the sluggish state of the economy.

The three hedge funds – which are the first, third and fourth largest in Europe respectively and manage close to $50bn (€37bn) between them – do not take an active view on sterling’s fundamental worth. They use computer models to identify trends and follow them in trades that typically last several months.

The funds’ large positions point to a rising weight of trades against the currency by other parties.

According to a person familiar with the situation, for AHL, Man’s $21bn flagship fund, betting on a fall in sterling has already been its second most profitable trade of the year.

Sterling has now fallen about 8.6 per cent against the dollar since the beginning of the year and 12 per cent from its 2009 high against the US currency in August.

In the past week, the pound has declined against the dollar to $1.48.

Although currency markets remained sanguine after the Budget, official data on Friday showing business investment had suffered the biggest annual drop on record in the fourth quarter unnerved investors.

Man, Winton and BlueCrest, whose founder Mike Platt is leaving the UK for Switzerland, declined to comment on their positions.

Other, more discretionary hedge funds have also piled into shorting the pound, capitalising on growing uncertainty over the outcome of May’s expected general election.

In its February newsletter, Brevan Howard, Europe’s largest hedge fund, said that politics remained high on market participants’ agenda.

“A narrowing of the Conservative poll lead was accompanied by some renewed weakness in sterling, as the prospect of no clear majority in government raised questions about the fiscal consolidation path,” the hedge fund wrote to clients.