CQS’s Hintze blames ‘unprecedented’ crisis for huge losses

Billionaire investor Sir Michael Hintze has blamed an “unimaginable” market crisis for the roughly $1.4bn of losses suffered by his CQS hedge fund in just two months during this year’s coronavirus pandemic.

In a letter to investors, seen by the Financial Times, Sir Michael said that his CQS Directional Opportunities fund’s 17.6 per cent loss in April was mainly driven by positions in structured credit, which were also largely behind a 33 per cent fall in March.

The chance of “extreme stress” hitting different countries, sectors and companies at the same time was “unimaginable until this unprecedented pandemic struck”, wrote Sir Michael, who founded London-based investment firm CQS 21 years ago.

Last month the FT revealed Sir Michael’s 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 performance means his fund, which trades a wide range of credit assets as well as equities and other instruments, is down more than 46 per cent this year. That leaves Sir Michael, who is well-known beyond the finance industry for his philanthropy and donations to the Conservative party, as one of the highest-profile hedge fund casualties of the coronavirus crisis so far.

It also puts the fund on course for easily its biggest annual loss since launch in 2005.

Sir Michael, known for a punchy investment approach that has often generated large gains, wrote at the turn of the year that he was “cautiously optimistic” for 2020. That bullishness cost him as riskier assets began to tumble on signs the virus was spreading throughout Europe. 

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CQS, which earlier this year was managing around $20bn, declined to comment.

The letter revealed that April’s losses were mainly driven by “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.

Last month people familiar with the matter said that CQS invested in the riskiest slices of derivative products, the performance of which was hit by a spate of bankruptcies such as Diamond Offshore Drilling and Whiting Petroleum.

Despite the losses, Sir Michael struck a more optimistic tone in the letter, noting that he believed the environment could provide “many opportunities” and that cutting some positions “put us in a better position to reposition risk later this year”.

Sir Michael, 66, who was born in China and raised in Australia, has a net fortune estimated by the Sunday Times Rich List at £1.5bn. The former Goldman Sachs and Salomon Brothers trader recorded gains of more than 30 per cent in his fund in 2012 and 2016, although it struggled in 2018’s choppier markets.




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