The Swiss National Bank’s decision in January 2015 to remove the cap on the value of the Swiss franc against the euro produced one of the most volatile days in the currency markets in recent times. The Swiss franc lost 17% against the euro, the USD-CHF rate dropped approximately 30% and Swiss stocks fell 13%, all in one day. Due to this volatility, there were some major wins and losses for hedge funds. Most notably, the $830mn Everest Capital Global fund closed in February, citing the currency movement as a main factor leading to the closure of six out of seven of Everest’s funds in March.
Data from Preqin’s Hedge Fund Analyst database shows that despite losses, a closer look at recent monthly returns reveals that some hedge fund managers were able to successfully take advantage of the rate swing and effectively navigate the volatile investment environment. Funds following a predominantly macro strategy for instance, outperformed all hedge funds in January, gaining 0.92% compared to 0.03% for the Preqin All-Strategies hedge fund benchmark.
Some examples of managers taking advantage of this event include Switzerland-based Quaesta Capital, which generated +27.16% in January through its v-Pro Dynamic fund (GBP – P share class). The fund was established in October 2014 and employs a long/short FX volatility strategy. Additionally, UK-based International Standard Asset Management’s Systematic Trend fund gained 14.50% for January 2015, partly thanks to the rise of the Swiss franc. This follows on from its annual return of 62.42% in 2014. The trend following strategy is the firm’s flagship product and 100% systematic. Furthermore, hedge funds and CTAs managed by Lynx Asset Management posted anywhere between +5% and +10% for the month of January betting on the Swiss franc. This highlights that despite a few high profile fund closures, many were able to capitalize on the rate swing.
Overall, the event had significant positive and negative effects on hedge funds, dependent on strategy, positioning and how managers reacted. The CHF-EUR exchange rate has subsequently regained some stability, however, Preqin’s Hedge Fund Analyst database will continue to capture the effects of this occurrence and similar events across the industry.