Morning Coffee: Trader laments his missing mojo in tragic investor letter. Barclays lost M&A bankers are finding some love
Global macro investing is a tough business. Your position sizes are big, and they’re often leveraged. And “relative value” trades have the nasty property that sometimes the “cheap” side gets cheaper while the “expensive” side gets more so, leaving you with a “hedge” position that’s losing money at double the speed.
That seems to be what’s happened to Chua Soon Hock of Singapore-based hedge fund Asia Genesis. It was short Japanese stock markets and long Hong Kong and China, a lethal combination that led to an 18.8% drawdown in the first few trading days of January. And this seems to have taken its principal to a dark place.
According to the letter he sent explaining the “painful decision to close the fund and return your investments”, Chua had “reached the stage where my confidence as a trader is lost”. He judged that “my past experience is no longer valid, and is in fact working against me”. Signing off with “utmost apology, thanks and deepest appreciation”, he decided that “I have lost my knowledge, trading and psychological edge”.
Wow. It’s something of a stark difference from the arrogance of “It’s important to remember we are 36, and even though it doesn’t feel this way today, we are just getting started—and this too will be an unfortunate blip on a very long-term chart of our returns “, a recent apology letter from American fund Spruce House. Or indeed, from the sort of response you might get from Pierre Andurand, the commodities trader for whom a 19% adverse move in January last year was just part of the general thrill of it all (he's up 430% since inception). People might admire Chua’s humility; they might also think that if you can’t handle a drawdown, you shouldn’t be in the business.
But there’s more to it than that. Chua is actually a multi-decade legend of the Singapore market; he was a portfolio manager for GIC in the 1980s, and launched his first macro fund in 2000, closing it a decade later with stellar results and only reopening Asia Genesis in 2020. Although we don’t have his exact returns, simply thinking about the things that have happened in the world over the course of his career makes it very unlikely that this was his first ever big setback.
Unfortunately, his assessment that “my past experience is no longer valid” is likely to be correct. To the extent that he explains the process that led to the loss, it was a combination of “the inconsistency of Chinese policy makers not fighting against deflation”, combined with “the incredible Nikkei-Hang Seng spread that priced Chinese versus Japanese stocks at the same value as in 1991”.
In other words, the world changed, valuations changed, and he isn’t confident of his ability to change with it. When that happens, a good trader realises that, in the words of the song, “you’ve got to know when to hold them and when to fold them, when to walk away and when to run”. Chua Soon Hock might wish he’d cashed his chips in a few weeks earlier, but he can console himself that he’s done the honest thing and saved 80% of his investors’ money.
Elsewhere, another piece of the puzzle is fit into place at UBS, with the promotion of Jeff Hinton to be co-head of global M&A alongside Nestor Paz-Galindo. Hinton is one of the follow-on hires brought over when UBS recruited Marco Valla from Barclays to be joint head of investment banking, in service of Rob Karofsky’s plan to be number six. (Which is to say, number one outside the US bulge bracket).
People often get worried at structures like this. UBS now seems to have quite a lot of co-heads, and not only are they of the structure “long term insider / ambitious recent hire”, but there are a lot of ambitious recent hires who have come in from the same bank. The positive aspect here is that the senior ranks will all know and trust each other – they’ve followed Valla for a reason. But there’s always a danger of office politics developing, and if UBS are smart they will be very strict about preventing any perception of a “Barclays Mafia”.
Many years ago (mainly because people were buying iPhones and didn’t like BlackBerries), investment banks agreed to “bring your own device” and have work email and apps on employees’ own phones. Post the WhatsApp settlements, that’s seemed like a bit of a false economy, and the “work phone” is coming back, meaning that procurement people are looking round to buy tens of thousands of midrange Androids. (City AM)
Jamal Al Kishi is coming back to Deutsche Bank to be regional CEO of MENA again (he left in 2020 to run a local bank), and interestingly he will be based out of Riyadh rather than the regional hub in Dubai. (Bloomberg)
Heartening stories of a hometown hero – Michael Mufson joined an investment bank in Philadelphia when that was a thing, then as the industry consolidated in New York, set up his own small boutique, still based in Philadelphia and doing smallish deals for local companies. It feels like there could be a Hallmark romcom. (Philadelphia Inquirer)
A Danish former Goldman Sachs analyst and hedge fund manager has started a premium coffee shop chain which is giving away special high-status cups to people who volunteer for a charity clearing up school playgrounds. This is possibly the most “Linkedinfluencer” thing to have ever happened. (Bloomberg)
Doing not much to dispel stereotypes of wirehouse brokers, Doug McKelvey (formerly of Morgan Stanley) has “pleaded guilty to a federal money laundering charge related to stealing from elderly relatives, including his own mother” and will now be banned by the SEC. (Investment News)
Abrdn is making “hundreds” of job cuts, but in line with recent trends they are going to be focused on support functions rather than front office professionals. (FT)
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