LONDON |
LONDON (Reuters) - 'Black box' computer hedge funds and managers who bet on global markets are likely to be among those hardest hit by Switzerland's shock intervention on Tuesday to reverse profitable bets on the franc's 'safe haven' status.
The Swiss National Bank surprised investors with an exchange rate cap on Tuesday, saying it would no longer tolerate a rate below 1.20 francs to the euro and would defend the target by buying other currencies in unlimited quantities.
The news sent the franc tumbling 8 percent against the euro.
Managed futures funds, which latch onto market trends and which have been among the few winning hedge funds strategies in a tough 2011, had hopped on board the franc's appreciation from more than 1.32 versus the euro in April to just above parity last month.
And some macro funds -- a strategy made famous by the likes of billionaire George Soros -- may have suffered after profiting this year from bets that the Swiss franc and Australian dollar will rise.
"I'm sure it will hurt," said one fund of hedge funds manager who spoke on condition of anonymity.
"It's a massive move. It doesn't have to be that big (a position in a fund) to be painful ... CTAs are highly likely to be hit by that." Commodity trading advisors (CTAs) is another term for managed futures funds.
Among computer funds that may have been hit is Man Group's flagship $23.9 billion AHL fund. An AHL fund manager told Bloomberg Television last month it had a small bet on the franc.
"Currencies are not doing very well for CTAs today," said a source close to the CTA industry.
Winton Capital, which manages $22.4 billion in assets and whose main fund is up nearly 8 percent so far this year, declined to comment on specific currency movements. Man Group and Bluecrest also declined to comment.
One computer-driven fund manager, who was short the euro versus the franc as the Swiss National Bank announced it was setting a minimum exchange rate target, said his fund has closed out all its positions in the Swiss franc.
"As it was a central bank move we decided to square our positions and now have no market exposure to the Swiss franc," he said. "We have squared our position in the Swiss franc for the future because we will not be able to capture that risk in the quantitative models."
However, some funds say they have profited. Aviva Investors went long the New Zealand dollar versus the Swiss franc in the past few weeks and has seen an 18 percent move, and has also gone long the Norwegian krone against the franc.
Hardeep Dogra, Currency Fund Manager at Schroder Investment Management in London, said they had been neutral on the franc.
"(It was) precisely because of this quandary," Dogra said. "(As) much as you like the currency, valuation is a problem and the central bank had been making repeated comments about its position, that it was aiming for some currency weakness."
(Additional reporting by Chris Vellacott, Tommy Wilkes, Nia Williams and Naomi Tajitsu; Editing by Ruth Pitchford)
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